TCFD REPORT 2021 TACKLING CLIMATE CHANGE 39 CLIMATE-RELATED RISK MANAGEMENT Integration of climate risk into the risk appetite framework Climate risks are directly integrated into the main transversal processes for risk identification and monitoring at Natixis. The “climate risk/transition risk” and “climate risk/physical risk” categories were added to Natixis’ risk inventory. At this stage, the materiality assessment of these risk categories was expert-based and supported by above mentioned climate risk mapping exercise. The transition risk was considered to be material, including on the short-term given potential impacts resulting from exposure to reputational risk, changes in legal and regulatory framework, and strategic risk related to market evolutions as a response to climate change. The physical risk was also considered material, notably to take into account the expected increase of impacts on the longer term. As part of the risk appetite framework and risk identification process, the materiality assessment of these risks will be reviewed on a yearly basis and will be refined based on new methodologies when available. In order to monitor transition risk, an indicator reflecting the share of Risk-Weighted Assets (RWA) rated “dark brown” by the Green Weighting Factor (GWF) has been introduced within the risk appetite framework. This indicator is currently included in Natixis’ risk appetite dashboard and is not subject to a quantitative limit. Work is currently on-going to strengthen this framework, in particular by setting a limit. To date, transition risk is implicitly integrated in Natixis’ Internal Capital Adequacy Assessment Process (ICAAP). Internal rating models for counterparties already integrate possible changes to the economic environment within a reasonable timeframe (1-3 years), thereby covering potential climate transition impacts even if they cannot currently be disassociated. Discussions are ongoing to better integrate the potential long-term impact of transition risk by using a stress test approach. Climate risks identification, measurement, and management processes Considering their materiality and the increasing need to assess exposure to climate risks, Natixis has implemented tools and processes to identify, assess their significance, and manage them. 2 3 An indicator included in the risk appetite framework