Climate Risk Disclosure for Lenders: Meeting CSRD Requirements

Whether you are a small cooperative bank, a digital lending platform, a credit union, or the regional arm of a larger financial group, climate risk has moved from a specialised modelling topic to a core part of annual reporting. Some lenders fall directly under CSRD; others voluntarily align with ESRS frameworks because their investors, supervisors, or parent organisations expect the same structure. Either way, transparent climate risk disclosure strengthens trust and demonstrates responsible business conduct.

For small lenders, the challenge is usually not the technical modelling — it is knowing what level of detail is “enough”, which metrics matter most, and how to describe climate exposures across your loan portfolio without large analytics teams. This guide offers proportionate methods, practical examples, and a simple structure for CSRD-aligned climate reporting.

If you want a broader grounding in GHG and energy reporting as part of CSRD, the topic hub on Energy & GHG Emissions provides helpful context.

1. Why Climate Risk Matters in Lending Under CSRD

1.1 Lenders must explain how climate affects their business model

CSRD requires financial institutions to disclose:

How physical and transition climate risks affect their products
How these risks influence strategy and financial planning
How climate-related impacts from borrowers shape portfolio outcomes

Small lenders can meet these requirements with structured narrative explanations and a modest set of metrics.

1.2 Supervisors expect climate risk integration

The ECB, EBA and national regulators ask lenders to show that climate risks are part of credit decisions, pricing, stress testing, and governance. A CSRD-aligned report demonstrates alignment without duplicating other regulatory documents.

1.3 Stakeholders want clarity on exposure and responsibility

Climate transparency is now part of responsible business conduct. Investors, depositors and local communities want to understand how your organisation supports a resilient transition.

2. Understanding Climate Risks: The Two Key Categories

2.1 Physical climate risk

Physical risks arise from events such as:

Floods
Heatwaves
Storms and wind damage
Droughts
Wildfires

For lenders, the impact usually shows up through:

Higher default risk if borrowers’ operations are disrupted
Collateral devaluation (e.g., property in flood zones)
Reduced cash flow from climate-affected sectors

2.2 Transition risk

Transition risk results from shifting policies, technologies and market expectations:

Carbon pricing or taxation
Energy transition costs
Changing consumer preferences
Stranded asset risk in high-emission sectors
Pressure from supply-chain partners to decarbonise

Small lenders can assess transition risks with simple indicators such as sector classification, energy intensity, and borrower self-reported climate metrics.

For SMEs struggling to calculate emissions, you can reference or share the accessible Emission Factor Selection Guide.

3. How to Assess Climate Risk in Your Loan Portfolio

Small lenders do not need sophisticated models. A structured, step-by-step approach is sufficient.

Step 1 — Map your portfolio by sector and geography

Start with:

Borrower industry
Loan type and size
Collateral type and location
Maturity profile

This creates the baseline needed for later analysis.

Step 2 — Identify relevant risk indicators

For physical risk:

Flood zone exposure
Extreme weather incidents in the region
Vulnerable assets (agriculture, real estate, tourism)

For transition risk:

Energy-intensive industries
Carbon-dependent business models
Borrowers facing significant regulatory change
High operating costs linked to fuel or electricity volatility

Step 3 — Collect simple climate metrics from borrowers

Many borrowers already receive sustainability questionnaires. Small lenders often request:

Annual energy use (kWh)
Scope 1 and 2 emissions (or estimates)
Renewable energy usage
Evidence of basic climate or energy management practices

For simplified reporting, see the VSME approach outlined in The VSME Basic Module Explained.

Step 4 — Establish risk categories

A simple three-level system is enough:

Low risk: Office-based borrowers with low energy intensity
Medium risk: Moderate exposure to energy prices or climate events
High risk: Directly exposed sectors (construction, transport, agriculture, manufacturing in flood zones, etc.)

Documenting your methodology is as important as the categorisation itself.

Step 5 — Conduct qualitative scenario analysis

Under CSRD, scenario analysis does not need to be highly technical for small institutions. You can use:

One physical risk scenario (e.g., increased flooding frequency)
One transition risk scenario (e.g., higher energy costs or carbon price changes)
A short narrative explaining impacts on key borrower groups

This demonstrates climate risk integration without requiring complex modelling.

4. Scenario Analysis: Practical Approaches for Small Lenders

4.1 Choose simple, credible scenarios

Many lenders use:

National climate scenarios (from meteorological agencies)
EU-level carbon pricing forecasts
Sector benchmarks on transition pathways

The scenarios should match your portfolio structure.

4.2 Describe impacts qualitatively

Small lenders can focus on:

How physical risk incidents could increase default likelihood
How borrowers’ operating costs could rise under transition pressures
How collateral values may change over time
Which sectors or regions might require closer monitoring

4.3 Include simple quantitative indicators (optional)

If feasible, include:

Share of portfolio in high-risk sectors
Share of collateral in climate-exposed locations
Estimated energy cost sensitivity of borrowers

Even limited quantification strengthens the narrative.

4.4 Document management actions

CSRD requires you to disclose how climate insights shape decisions. Examples:

Adjusting loan pricing
Strengthening collateral requirements
Offering green credit lines
Engaging borrowers in transition discussions

5. How to Disclose Climate Impacts of Your Loan Portfolio

Your CSRD-aligned sustainability report should include three things: strategy, risks, and metrics.

5.1 Strategic disclosures

Explain:

How climate risk affects your lending strategy
How you support customers in the transition
How climate considerations integrate into products, pricing and risk appetite
Any long-term commitments to reduce exposure to climate-sensitive sectors

This shows responsible business conduct and clarity of direction.

5.2 Risk disclosures

Describe:

Physical and transition risks at portfolio level
Results of your scenario analysis
Borrower segments most exposed to climate pressures
How climate risks are monitored through the credit lifecycle

This section can remain concise for small lenders.

5.3 Metrics and targets

You may disclose:

Portfolio exposure to climate-vulnerable sectors
Share of loans supporting energy-efficient or green investments
Average borrower energy intensity (where available)
Estimated financed emissions (optional and proportionate)

If your borrowers struggle with environmental data, you can direct them to guides such as CSRD Supplier Requirements: What Small Businesses Should Expect in 2025, which helps them understand your requests.

6. Governance: Showing How Climate Risk Is Managed

Small lenders can keep governance disclosures simple but clear:

Identify the committee or person responsible for climate risk
Explain how climate topics reach leadership level
Describe how staff are trained to understand climate-related issues
Highlight how climate factors influence credit decisions

These governance disclosures overlap with the business conduct expectations under CSRD.

7. A Proportionate CSRD Disclosure Structure for Small Lenders

Below is a simple outline suitable for annual sustainability reporting:

Introduction – short overview of your climate risk context
Business Model & Strategy – how climate risk influences your approach
Risk Management – your methodology for identification, assessment, and scenario analysis
Portfolio Exposure – key findings from physical and transition risk mapping
Metrics – 5–10 indicators relevant to your lending model
Governance – oversight structures
Engagement & Support – how you work with borrowers on transition issues
Planned Improvements – what you aim to refine next year

This structure ensures completeness without overwhelming your reporting process.

Frequently Asked Questions

Do small lenders need complex climate models to meet CSRD?

No. CSRD allows proportionate approaches. A clear methodology, basic risk categorisation, and narrative scenario analysis are sufficient for most small institutions. For borrower data collection, simplified frameworks like those in The VSME Basic Module Explained can be shared.

What climate metrics matter the most for loan portfolio disclosures?

Lenders typically report sector exposure, geographical risk, borrower energy intensity, and the share of climate-vulnerable or transition-sensitive activities. Many also include basic indicators of financed emissions, using guidance such as the Emission Factor Selection Guide.

How should lenders communicate climate expectations to SME borrowers?

Use short, plain-language questionnaires focused on energy use, emissions estimates, transition plans, and risk awareness. SMEs often benefit from broader onboarding guides such as CSRD Supplier Requirements: What Small Businesses Should Expect in 2025.

How often should climate risk assessments be updated?

Annual updates are common, with more frequent review for high-risk sectors or regions. CSRD reporting typically follows the same annual cycle.

Key Terms

Physical Climate Risk: Impacts from extreme weather, heat, drought or flooding.
Transition Risk: Impacts from policy, technology, or market changes linked to decarbonisation.
Scenario Analysis: Exploring how hypothetical climate futures could impact your borrowers.
Financed Emissions: Indirect emissions associated with lending activities.
Responsible Business Conduct: Governance and integrity practices related to sustainability.

Conclusion

Climate risk reporting does not need to be overwhelming for small lenders. By mapping your portfolio, gathering a modest set of borrower metrics, running simple scenario analyses, and presenting findings clearly, you can produce a robust CSRD-aligned disclosure. With structure, transparency and consistency, climate risk reporting becomes a tool for stronger decision-making — and a signal of resilience to supervisors, investors and customers.