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Banque de France tests its climate indicator with businesses

Published August 07, 2023 - 4 mins reading time
Banks Banque de France

The Banque de France has enhanced its corporate credit risk rating activity with the introduction of a climate indicator. The purpose of this indicator is to assess the exposure of companies in the most polluting sectors to climate risk.

 

 

 

Measuring companies' exposure to climate risk

The Banque de France has been entrusted by the Comité de Financement de la Transition écologique with the definition of a national corporate climate indicator mechanism. As such, it provides several hundred companies with a climate indicator based on ADEME's ACT (Assessing Low-Carbon) methodology. This indicator is based on three pillars:

  • transition risk, which consists in assessing the suitability of the company's business model for tomorrow's world
  • the risk associated with the location of company entities in areas subject to climatic hazards (drought or flooding, for example)
  • the company's maturity with regard to these risks

Until now, the ESG (environmental, social and governance) dimension was only taken into account via the qualitative interviews carried out each year with management.

Thanks to the climate indicator, it is possible to compare a company's situation in relation to the trajectory required for its sector of activity to comply with theParis Climate Agreement. With the aim of applying the foundations of the ACT methodology, the Banque de France entered into a partnership with the French Ecological Transition Agency in March 2022.

500 test companies by 2023

Theclimate indicator is currently being tested. By the end of the year, around 500 companies and ETIs should be covered, with the aim ofextending the system to 300,000 companies with sales in excess of €750,000. " We are working with Ademe and test companies to develop this indicator," recently indicated Banque de France Governor François Villeroy de Galhau.

For the time being, during the test phase, results are only being communicated to participating companies. " We'll need at least two or three years' hindsight before we can consider sharing this indicator with banks, as is the case with the classic rating ," explained Émilie Quéma, Director of the Banque de France's Business Division, at a press briefing on Thursday June 29.

The introduction of the climate indicator should not threaten private rating agencies developing extra-financial expertise, as it focuses on the climate aspect and not biodiversity or corporate social policy. Interviewed by Les Echos, Hervé Gonsard, General Manager of Economic Services and Network at Banque de France, adds that it will be " free and non-public ", just like the Banque de France rating.