Financial services companies face a unique climate disclosure challenge. Unlike industrial companies whose emissions come from smokestacks and machinery, the most material climate exposure for banks, insurers, and asset managers is indirect — embedded in their lending, investment, and underwriting portfolios.
The ISSB's industry-based guidance, derived from SASB standards, provides specific disclosure topics and metrics for the Financials sector. This article covers what financial institutions need to know.
SASB Classification: Financials
The SICS Financials sector includes seven sub-industries, each with distinct disclosure profiles:
- Commercial Banks (FN-CB) — retail and corporate lending
- Investment Banking & Brokerage (FN-IB) — capital markets, advisory
- Insurance (FN-IN) — property & casualty, life, reinsurance
- Asset Management & Custody (FN-AC) — investment management, fund administration
- Mortgage Finance (FN-MF) — residential and commercial mortgage lending
- Consumer Finance (FN-CF) — credit cards, personal loans, auto finance
- Security & Commodity Exchanges (FN-EX) — market infrastructure
The climate-specific disclosure topics vary significantly between these sub-industries. A commercial bank's primary climate exposure is in its loan book; an insurer's is in its underwriting portfolio; an asset manager's is in the funds it manages.
Key Disclosure Topics
Financed Emissions (Banks and Asset Managers)
Financed emissions — the GHG emissions attributable to a financial institution's lending and investment portfolios — are typically the single largest climate metric for banks and asset managers. Classified as Scope 3 Category 15 (Investments) under the GHG Protocol, financed emissions can be orders of magnitude larger than a bank's own operational emissions.
The Partnership for Carbon Accounting Financials (PCAF) provides the most widely adopted methodology for measuring financed emissions. Key metrics include:
- Absolute financed emissions (tonnes CO2e) across the lending or investment portfolio
- Financed emissions intensity (per million dollars lent or invested)
- Sector breakdown of portfolio exposure to carbon-intensive industries
- Percentage of portfolio with available emissions data vs. estimated
For large banks, the power generation, oil and gas, real estate, and transportation sectors typically account for the majority of financed emissions.
Climate Credit Risk (Banks)
Climate-related risks can affect the creditworthiness of borrowers. The SASB-derived guidance includes metrics on:
- Exposure to climate-sensitive sectors — total lending to industries with high transition or physical risk (fossil fuels, carbon-intensive manufacturing, climate-exposed agriculture)
- Climate-adjusted credit risk — how physical risks (flooding, drought, extreme heat) and transition risks (carbon pricing, regulatory changes) affect probability of default and loss given default
- Stranded asset exposure — loans to assets that may lose value under net-zero pathways (coal plants, high-emission real estate, fossil fuel reserves)
Banks operating under Basel III frameworks increasingly need to integrate climate stress testing into their capital adequacy assessments, driven by central bank requirements (PRA in the UK, APRA in Australia, MAS in Singapore).
Insurance Underwriting Risk
For property and casualty insurers, climate change directly affects the frequency and severity of insured losses. The key metrics include:
- Probable maximum loss (PML) from climate-related natural catastrophes — hurricanes, cyclones, floods, wildfires
- Geographic concentration of underwriting exposure in climate-vulnerable regions
- Integration of climate risk into pricing, reserving, and risk selection
- Reinsurance adequacy — how well the insurer's reinsurance programme covers tail risks from climate events
Life insurers face more subtle climate exposure through mortality and morbidity impacts (heat-related mortality, respiratory illness from air quality deterioration, vector-borne disease expansion).
Investment Management and Portfolio Alignment
Asset managers face disclosure expectations around:
- Portfolio carbon footprint — weighted average carbon intensity (WACI) of managed funds
- Paris-alignment metrics — what share of the portfolio is aligned with 1.5C or 2C pathways
- Climate-related engagement — proxy voting on climate resolutions, engagement with portfolio companies on emissions reduction
- ESG integration — total AUM subject to climate-related screening or integration strategies
Systemic Risk Management
Climate change is increasingly recognised as a source of systemic financial risk. Central banks and regulators are requiring financial institutions to conduct climate stress testing and scenario analysis, typically using the Network for Greening the Financial System (NGFS) scenarios.
The SASB guidance includes metrics on systemic risk management processes and the institution's assessment of its own contribution to or exposure from systemic climate risk.
Product Design and Innovation
Climate transition creates commercial opportunities for financial institutions: green bonds, sustainability-linked loans, climate insurance products, transition finance, and advisory services for corporate decarbonisation. The SASB guidance captures these as opportunity-side metrics.
Climate Risks Specific to Financial Services
Transition Risks
- Portfolio concentration in carbon-intensive sectors — banks with large fossil fuel or heavy industry loan books face credit migration risk as carbon regulations tighten
- Stranded assets — loans against coal plants, high-emission commercial real estate, or unconventional oil and gas reserves may face write-downs
- Policy changes — sudden shifts in energy or climate policy can trigger repricing across loan and investment portfolios
- Reputation risk — growing scrutiny of financial institutions' role in funding high-emission activities
Physical Risks
- Insurance claims from extreme weather — increasing frequency and severity of natural catastrophe losses
- Mortgage portfolio exposure — residential and commercial property values in flood zones, coastal areas, and wildfire-prone regions
- Agricultural loan defaults — drought, flooding, and shifting growing seasons affecting farm income
- Real estate devaluation — climate-vulnerable properties losing value as risk is priced in
Opportunities
- Green finance products — green bonds, sustainability-linked loans, ESG-labelled funds
- Transition advisory — helping corporate clients develop and execute decarbonisation strategies
- Climate risk analytics — building proprietary tools and data services for climate risk assessment
- Insurance innovation — parametric insurance, climate resilience products, microinsurance for climate-vulnerable communities
Jurisdictional Context
United Kingdom
London is one of the world's largest financial centres. Under UK SRS, listed banks, insurers, and asset managers must apply ISSB-aligned disclosures from January 2027. The PRA already requires climate stress testing for large UK banks and insurers under Supervisory Statement SS3/19. The industry-based guidance provides the metrics framework for UK SRS compliance.
Singapore
Singapore's three major banks (DBS, OCBC, UOB) are STI constituents — Category 1 under SGX's climate reporting requirements, with mandatory full ISSB-based disclosures from FY2025. MAS has published extensive climate risk management guidelines for banks and insurers, including expectations around scenario analysis and financed emissions disclosure. The SGX materiality assessment framework applies directly.
Australia
Australia's Big Four banks (CBA, NAB, ANZ, Westpac) and major insurers (QBE, IAG, Suncorp) are all Group 1 entities under AASB S2. APRA's CPG 229 on climate risk management has been in effect since 2021, setting expectations for climate stress testing and risk management. The SASB financial services metrics complement APRA's existing requirements.
How to Conduct a Financial Services Materiality Assessment
- Identify your SICS sub-industry — Commercial Banking, Insurance, Asset Management, or another Financials classification. The disclosure topics differ significantly.
- Map your portfolio exposure — For banks: sector breakdown of the loan book. For insurers: geographic and peril exposure of underwriting. For asset managers: portfolio carbon footprint.
- Assess financed emissions materiality — Determine whether financed emissions are material (for most banks and asset managers, they will be). Select a measurement methodology (PCAF is standard).
- Evaluate regulatory expectations — Cross-reference the SASB metrics with local regulatory requirements (PRA, MAS, APRA) to ensure comprehensive coverage.
- Consider scenario analysis — NGFS scenarios provide a standardised framework for stress testing climate risks across your portfolio.
- Document your reasoning — Record which metrics you included or excluded and why, with reference to the ISSB industry-based guidance.
For a detailed walkthrough of the ISSB materiality process, see our ISSB vs. ESRS process analysis. Financial institutions subject to CSRD/ESRS can use the same assessment to meet both frameworks.
How Materiality Master Can Help
Materiality Master provides a structured, software-guided approach to ISSB-aligned materiality assessments for financial institutions. The platform helps you identify sector-relevant risks, assess financial materiality across your portfolio, and generate audit-ready documentation. See our pricing for details.
Frequently Asked Questions
What are financed emissions under ISSB?
Financed emissions are the GHG emissions attributable to a financial institution's lending and investment portfolios — essentially the Scope 3 emissions of banks and asset managers. IFRS S2's industry-based guidance includes specific metrics for measuring and disclosing financed emissions, typically using the PCAF methodology.
Do insurers have specific ISSB disclosure requirements?
Yes. The SASB-derived guidance for insurance companies includes metrics on climate-related exposure in underwriting portfolios, probable maximum loss from climate events, and the integration of climate risk into pricing and reserving. These sit alongside the standard IFRS S2 requirements.
How does ISSB climate disclosure apply to Singapore banks?
Singapore's major banks (DBS, OCBC, UOB) are STI constituents and fall under Category 1 of SGX's climate reporting requirements — mandatory full ISSB-based disclosures from FY2025. Financed emissions disclosure follows from FY2026 onwards.
Is portfolio alignment disclosure required under ISSB?
IFRS S2 requires entities to disclose how climate-related risks and opportunities affect their strategy, which for financial institutions includes how lending and investment portfolios are aligned with climate targets. The industry-based guidance provides specific metrics for this disclosure.
