9 Heatmaps

Heatmaps is an integral part of the Oracle Financial Services Climate Change Analytics Cloud Service solution. Risk managers, portfolio managers, and alike within the financial institutions need a mechanism to identify the concentration risk associated with climate change within their overall portfolio. This is one of the mechanisms to help financial institutions integrate climate risk into their overall Enterprise Risk Management practices.

To facilitate banks and financial institutions to confidently identify and mitigate climate risk, this framework on Heatmaps by Oracle Financial Services enables a financial institution to measure, monitor, and assess its financial exposures based on climate risk factors and metrics. This is achieved by way of assessing its portfolio across sectors, and industries based on several pre-configured and user-defined risk factors, metrics like counterparty emissions, emissions intensity, climate targets, data quality score, and so on. OFS CCACS defines these factors as those factors that can materially influence the climate risk assessment of a counterparty and the overall portfolio, they form part of. This objective evaluation is based on several publicly available information and other information obtained from the customers.

Assessment Process

To identify the concentration risks, counterparties are assigned a Vulnerability Score based on several risk factors and metrics. For each risk factor and/or metric, users can configure the thresholds for each level based on their internal risk management policies and practices. Subsequently, these scores are then aggregated to arrive at a Vulnerability Score at various counterparty dimensions:

• Counterparty
• Customer Type (Large, SME, Small, etc.)
• Customer Category (Corporate, Retail)
• Industry (Steel, Cement, Electronics, Automotive, Textiles etc.)
• Sector (Manufacturing, Construction, Agriculture, Mining, etc.)

Vulnerability scoring in Heatmaps is based on the following two sections and risk factors:

Climate Risk Impact

Oracle Financial Services’ Climate Change Analytics’ Heatmaps model comes along with several pre-packaged risk factors to perform the risk assessment process. These parameters are important to assess a customer based on numerical and qualitative values attached to climate risk metrics and disclosures. Users can utilize the Data Model Extensions module to add custom risk factors per their requirements.

Examples of risk factors used in this section are:

• Counterparty Emissions – Total greenhouse gas (GHG) emissions of the customer
• Emissions Intensity – Popular emissions intensity metrics like WACI, economicemissions intensity of the customer
• Climate Rating – Climate rating assigned to the customer.

For more details on the pre-packaged risk factors, see the Reference Guide on MOS.

Asset Class Concentration

Similar to Climate Risk Impact, the Heatmaps model comes with several pre-packaged risk factors to identify concentration risk at an asset class level.