Section 6 – Due diligence phase

Module 12 – Client climate risk maturity assessment

Understanding the climate risk maturity of clients is increasingly central to robust risk management, regulatory compliance and long-term portfolio resilience. A holistic and comparable view across clients can help FIs to assess clients thoroughly and consistently and develop a clearer understanding of overall portfolio risks.

• Benefits of understanding the climate risk maturity of clients

  Forward-looking risk assessment

  Understanding whether clients grasp and address climate-related challenges can help institutions to anticipate risks before they arise, reducing surprises and strengthening overall risk management.

  Ability to differentiate credit risk

  Clients can be classified by their level of climate risk maturity—high, medium, or low. Those with greater climate maturity often have a lower financial risk profile than those less prepared.

  Approach to strategic partnerships and shared value creation

  Proactive advice and financing ensures institutions can help clients identify risks and opportunities they might otherwise miss. This support is crucial as businesses adapt towards a low-carbon economy.

  Alignment with regulatory and stakeholder expectations

  Integrating climate risk into governance, strategy, and risk management helps institutions demonstrate alignment with international standards and best practices. This benefits both the financial institution and its clients.

Overall, engaging with clients on their climate risk maturity nudges them towards building the strategic foundations needed to navigate evolving standards, expectations and climate challenges in the years to come.

• Prioritise simple questions in client conversations
  Instead of structured assessments or questionnaires, MFIs can include an open-ended climate question in regular borrower discussions, such as: “Have you noticed any changes in the weather, environment, or regulations that have affected your business or household in the past year?” This question requires no forms or scoring, and the answer can guide whether further discussion is needed. If not impacts or concerns are mentioned, no further action is required for that loan cycle. If risks or changes are identified, basic notes can be added to the client’s file.
• Prioritise local knowledge over statistical averages
  MFIs should trust their own knowledge and local context as the primary data. There is no need to research external climate indices unless already familiar with them. Teams should rely on their understanding of which sectors, such as rain-fed agriculture, or locations, such as flood-prone villages, are more exposed to weather or environmental risks. This intuitive, experience-driven judgement is both fast and practical.
• Integrate climate considerations into existing processes
  Rather than creating new processes, MFIs can add the climate question to their existing loan application or renewal interviews. There is no requirement for standalone climate risk forms or reports.
• Focus on client dialogue rather than reporting
  The purpose of raising climate issues is to help clients think about risks and explore simple responses. For example, if a farmer reports more frequent drought, the MFI could share basic advice on water-saving techniques or ask what steps the client is already taking. The aim is to prompt practical thinking, not to generate additional paperwork.
• Embed climate risk within the organisational culture
  MFI employees can become increasingly skilled in having climate conversations simply by repeating this practice for each client cycle. Formal training is not essential, what matters is giving employees time to reflect on what they are hearing and share insights into emerging local trends.

Tool 2: Client climate risk maturity assessment

This offers a practical questionnaire for assessing a client’s climate risk maturity across governance, risk management, metrics and resilience dimensions. Aligned with international disclosure standards (see Module 23), it helps evaluate how clients identify, manage and disclose climate-related risks and opportunities.

Front-line lending officers can use the tool annually as part of regular client engagement or due diligence. Scoring the responses can reveal whether a client is in the Discovery, Developing, Embedded or Advanced stage of climate risk maturity. The results can then inform lending decisions, risk escalation and target client support.

RETURN TOOLKIT MAP

PROCEED TO MODULE 13