How Aresbank mapped physical climate risk across its banking book

A two-year engagement with Alpha-Klima to assess physical climate risk across Aresbank’s international banking book, covering Pillar 3 Template 5 and ECB-aligned advanced indicators with counterparty-level traceability and supporting materials for the bank’s IACL.

Key insights

• A two-year programme progressing from initial screening to a structured and repeatable physical climate-risk assessment of the banking book.
• Screening across eight hazards, five acute and three chronic, under the ECB’s disorderly scenario (SSP2-4.5, approximately 2.5–3 °C warming).
• A three-tier geolocation methodology adapted to different counterparty types: territorial proxy, single-asset coordinates and look-through analysis.
• A full suite of ECB-aligned advanced indicators: RS, PEAR, NEAR and CEAR, incorporating the November 2025 methodological update for physical-risk indicators.
• Outputs designed for Pillar 3 Template 5, internal risk reporting and future scenario analysis.

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.

Its banking book spans multiple sectors and geographies, including industrial groups, real estate, construction and EPC companies, and financial holdings. Assessing physical climate risk across such a portfolio requires more than a country-level view: the relevant exposure depends on where counterparties’ assets and operations are located and on how those locations relate to different climate hazards.

Aresbank engaged Alpha-Klima to develop a physical climate-risk assessment that could support regulatory requirements, internal risk reporting and the bank’s IACL.

The challenge

Physical climate risk in a banking book is determined primarily by the location and characteristics of counterparties’ assets and operations.

For an internationally diversified portfolio, a single geolocation method can introduce significant distortions. An industrial group may operate several production sites, while a real-estate exposure may be concentrated in one property and an EPC contractor may have no single dominant operating location.

The challenge was therefore to establish a methodology that reflected these differences while remaining proportionate, transparent and practical to maintain over successive reporting cycles.

How Alpha-Klima helped Aresbank

Alpha-Klima assessed Aresbank’s banking book under the ECB’s disorderly scenario, SSP2-4.5, consistent with approximately 2.5–3 °C of global warming. The analysis covered eight hazards: five acute (river flooding, coastal flooding, wildfire, windstorms and landslides) and three chronic (drought, subsidence and water stress).

A counterparty-specific approach to geolocation

Geolocation was a central part of the methodology. Alpha-Klima applied three approaches depending on the nature of the counterparty and the information available:

• Provincial or regional proxy for counterparties with dispersed or project-based operations where no single dominant asset could be identified, such as EPC contractors, trading companies and service businesses.
• Single-asset coordinates where exposure was concentrated in an identifiable property, plant or collateral asset.
• Look-through analysis for groups and holdings, using representative operating assets such as refineries, logistics hubs or production facilities.

For European exposures, territorial hazard data was resolved at NUTS3 level. Outside Europe, the analysis used first-level administrative boundaries (ADM1) from the geoBoundaries dataset. Where point-level asset coordinates were available, these replaced territorial proxies.

The selected geolocation and the rationale behind it were recorded for each counterparty, allowing portfolio-level results to be traced back to the underlying exposure assumptions.

From climate risk screening to Pillar 3 Template 5

Each counterparty was classified by sector (NACE Rev. 2 Level 2), maturity bucket and IFRS 9 stage, and assessed against the relevant hazard matrices by scenario and time horizon.

The methodology also accounted for cumulative risk across horizons. Longer-maturity exposures retained sensitivities identified at shorter horizons, providing a conservative view of risk over the life of the exposure.

The resulting dataset was structured to support the EBA’s Pillar 3 Template 5, with breakdowns by hazard type, sector, maturity bucket and asset-quality stage.

The analysis was accompanied by documentation covering methodology, scenarios, assumptions, hazard data sources and limitations, enabling the bank to review and reproduce the logic behind the reported results.

ECB-aligned advanced indicators

Beyond Template 5, the engagement also produced the full set of ECB-aligned advanced physical-risk indicators, incorporating methodological refinements introduced in November 2025.

• Risk Score (RS): a composite counterparty-level measure harmonising exposure across acute and chronic hazards.
• Probability Exposure at Risk (PEAR): the share of exposure subject to physical hazards, weighted by hazard probability.
• Normalised Exposure at Risk (NEAR): exposure adjusted for counterparty-level financial buffers, reflecting the counterparty’s capacity to absorb damage.
• Collateral-Adjusted Exposure at Risk (CEAR): exposure adjusted for collateral mitigation, particularly relevant where physical assets support the underlying credit exposure.

Each indicator was accompanied by interpretation guidance and sectoral and geographical breakdowns, allowing the metrics to be incorporated into internal credit-risk analysis and wider risk-reporting processes.

Results and impact

With Alpha-Klima’s help, Aresbank moved from broad hazard screening to a clear, counterparty-level view of physical climate risk across its banking book.

The analysis identified where exposure was concentrated by geography, sector and hazard – from chronic pressures such as water stress and drought to acute events including flooding, wildfire, windstorms and landslides. ECB-aligned indicators then linked these hazards to counterparty financial strength and collateral protection.

Every result could be traced back to the underlying exposure, geolocation decision and hazard score. This gave Aresbank a practical methodology for reporting, review and future updates as its portfolio and regulatory requirements evolve.

The same framework can now be reused to compare the platform’s Orderly, Disorderly and Hot-House World scenarios without rebuilding the analysis from scratch.

Alpha-Klima delivered a risk framework that is actionable today and ready for the next stage of climate-risk management – supporting Pillar 3, IACL and internal decision-making.