Case Study | May 2026
How Aresbank mapped physical climate risk across its banking book
A two-year engagement with Alpha-Klima covering Pillar 3 Template 5 and ECB-aligned advanced indicators across the bank’s international banking book, with full counterparty-level traceability and materials structured for the bank’s IACL.
Key Insights
- Two-year engagement with Aresbank, building from initial screening to a structured, repeatable physical climate risk programme on the banking book
- Screening across 8 hazards (5 acute, 3 chronic) under the ECB's disorderly scenario (SSP2-4.5, ~2.5–3°C warming)
- Three-tier geolocation methodology tailored to each counterparty type: provincial proxy, single-asset coordinates, and look-through analysis
- Full ECB-aligned advanced indicator suite (RS, PEAR, NEAR, CEAR), aligned with the November 2025 ECB methodological update for physical risk indicators
About Aresbank
Aresbank is a Spanish bank founded in 1975, specialising in trade finance and international banking operations between Europe and the MENA region. Headquartered in Madrid with offices in Bilbao and Barcelona, it operates as a less significant institution under the Single Supervisory Mechanism. With an international footprint and a sector-heterogeneous counterparty base, the bank’s banking book sits at the intersection of geographies and activities where physical climate risk is rarely captured by country-level summaries.
Aresbank engaged Alpha-Klima for a multi-year physical climate risk programme on its banking book, ahead of evolving supervisory expectations on ESG and climate risk integration. The materials produced under the engagement were designed to support the bank’s internal risk reporting and particularly its IACL.
The Challenge
Physical climate risk on a banking book does not sit where the bank is headquartered. It sits where the counterparties’ assets and operations are. For an internationally diversified, sector-heterogeneous trade-finance portfolio — industrial groups with multiple plants, single-asset real estate, project-based construction and EPC contractors, financial holdings — a country-level heatmap will not capture that, and a one-size-fits-all geolocation approach will misrepresent exposure for most of the book.
To reinforce its climate-risk management, Aresbank chose to bring in a specialist partner, focusing internal effort on integration and interpretation while ensuring the underlying analytics are technically defensible, proportional to the bank’s risk profile, and reusable across internal risk reporting cycles.
Key takeaway: The bar for a physical climate risk assessment of a banking book is set by two things: proportionality to the risk profile, and traceability from any aggregated figure back to the underlying counterparty, hazard, and geolocation decision. Anything less is a check-the-box exercise.
What We Did
Alpha-Klima assessed the physical climate risk exposure of Aresbank’s banking book under the ECB’s disorderly scenario (SSP2-4.5, consistent with approximately 2.5–3°C of global warming and broadly aligned with current global policy trajectories). The analysis covered eight climate hazards: five acute (river flooding, coastal flooding, wildfire, windstorms, landslides) and three chronic (drought, subsidence, water stress).
Tailored geolocation, not one-size-fits-all
The core methodological challenge was counterparty geolocation. A bank’s risk exposure depends not on its own premises but on where its counterparties operate. For a portfolio mixing industrial groups with multiple plants, single-asset real estate, project-based construction companies, and financial holdings, no single geolocation approach works.
Alpha-Klima applied a three-tier methodology:
- Provincial or regional proxy for counterparties with dispersed or project-based operations where no single dominant asset is identifiable (typical of EPC contractors, trading companies, and service-based businesses).
- Single-asset coordinates for counterparties whose exposure concentrates in one identifiable property, plant, or collateral.
- Look-through analysis for groups and holdings, selecting representative assets (refineries, logistics hubs, production plants) that capture the material physical exposure of the business.
For European exposures, hazard data was resolved at NUTS3 level. For counterparties outside Europe, the analysis used first-level administrative boundaries (ADM1) sourced from the geoBoundaries dataset. Where point-level asset coordinates were available, these replaced territorial proxies entirely.
Key takeaway: The three-tier geolocation approach ensured that each counterparty was assessed at the most appropriate level of granularity. Same portfolio, same hazards, very different sensitivity signal — and an audit trail that explains why.
From screening to a defensible Pillar 3 Template 5
Each counterparty was classified by sector (NACE Rev. 2 Level 2), maturity bucket, and IFRS 9 stage, then crossed against hazard matrices by scenario and time horizon. The logic also accounts for cumulative risk across time horizons: a long-maturity exposure inherits all sensitivities detected at shorter horizons, in line with the conservative interpretation supervisors expect.
The output was structured to populate the EBA’s Pillar 3 Template 5 directly, with breakdowns by hazard type (acute, chronic, or both), sector, maturity bucket, and asset quality stage, and was delivered together with an explanatory note covering methodology, scenarios, assumptions, data sources by hazard, and limitations. The full set of materials is suitable for re-use in the bank’s internal risk reporting, supervisory dialogue and stakeholder communication.
Alpha-Klima’s work gave us a physical climate risk view of our banking book that is proportional, methodologically defensible, and traceable down to individual exposures. We particularly valued the rigour of the geolocation approach and the clarity of the documentation supporting each output.
Julio Bello
Chief Risk and Compliance Officer, Aresbank
ECB-aligned advanced indicators
Beyond Template 5, the engagement also produced the full set of ECB-aligned advanced indicators introduced in the ECB’s Statistics Paper Series on physical risk and refined in the November 2025 methodological update (geocoding improvements, damage estimation, refinements to hazard inputs for wind and water stress):
- Risk Score (RS) — composite hazard exposure indicator at the counterparty level, harmonised across acute and chronic hazards.
- Probability Exposure at Risk (PEAR) — share of exposure exposed to physical hazards, weighted by hazard probability.
- Normalised Exposure at Risk (NEAR) — exposure adjusted for counterparty-level financial buffers, capturing the share at risk after accounting for the counterparty’s capacity to absorb damage.
- Collateral-Adjusted Exposure at Risk (CEAR) — exposure adjusted for collateral mitigation, a relevant lens for portfolios where physical assets back the underlying exposures.
Each indicator was delivered with an interpretation guide, sectoral and geographical breakdowns, and integration instructions so that the metrics can be reused in internal credit risk discussions and in the bank’s broader risk reporting cycles.
Results and impact
The engagement produced a full sensitivity map across the banking book, combining acute and chronic hazard signals at the counterparty level, with the dominant chronic signals (water stress, drought) clearly separated from acute exposures (river and coastal flooding, wildfire, windstorms, landslides). The exercise made visible where physical climate risks concentrate geographically and sectorally, and the ECB-aligned indicators added a quantitative layer on top of that screening that connects climate exposure to counterparty financials and collateral.
All outputs were accompanied by counterparty-level traceability material that allows the bank to trace any aggregated figure back to individual exposures, hazard scores, and geolocation decisions. That traceability is, in our experience, the single most important property of a physical climate risk assessment: it is what turns the work from a one-off screening into something the bank can defend, refresh annually, and integrate into its own risk and reporting processes.
The modular structure of the engagement also positions the bank for future extensions, including scenario-analysis annexes that compare orderly, disorderly, and hot-house pathways without repeating the underlying counterparty-level work.
Contents
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Alpha-Klima helps financial institutions produce regulatory-grade physical climate risk disclosures with full counterparty-level traceability, from Pillar 3 and IACL reporting to internal risk management.
