Risk Weighted Assets and Sustainability-linked derivatives: Difference between pages

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''Bank supervision - capital adequacy''
''Sustainability - sustainability-linked contracts - derivatives.''


(RWAs).
(SLD).


Risk Weighted Assets provide a measure of the total scale and risk of a regulated bank's activities, against which the bank is required to hold minimum levels of regulatory capital.
A sustainability-linked derivative is a derivative contract incorporating payment cashflows referenced to key performance indicators (KPIs) measuring environmental, social and governance performance against pre-agreed targets (ESG targets).




In simple terms, assets are multiplied by appropriate risk weightings - historically ranging from 0% to 100% depending on the level of risk - and aggregated.
"Lloyds Bank has also helped to further the development of the sustainability-linked derivatives market, with a sustainability-linked foreign exchange transaction that supports UK leisure travel company Jet2’s decarbonisation ambitions.


Other risks, including operational risk, are also appropriately evaluated and risk weighted, adding additional RWAs to the regulatory total.
For Jet2, the SLDs enable it to mitigate FX risk from operations – just like a standard derivative –
while gaining pricing benefits as long as it delivers on its ESG goal of reducing CO2 emissions per
passenger-kilometre travelled."


''The Treasurer, December 2023, Issue 4, p41.''


The calculation of RWAs has been increasingly refined over time.


Risk weights may, in some cases, be derived from individual banks' own internal risk models, subject to the regulator's approval.
==See also==
 
* [[Corporate social responsibility]]
Other risk weightings are determined on a standardised basis for all banks.
* [[CO2]]
 
* [[Decarbonise]]
 
* [[Derivative]]
Also known as ''total risk weighted exposure''.
* [[Emissions]]
* [[Green Bond Principles]] (GBP)
* [[ESG]]
* [[Foreign exchange risk]]
* [[Green bond]]
* [[Key performance indicator]]  (KPI)
* [[Social bond]]
* [[Social impact bond]]
* [[Sustainability]]
* [[Sustainability bond]]
* [[Sustainability Bond Guidelines]] (SBP)
* [[Sustainability-linked bond]]  (SLB)
* [[Sustainability-Linked Loan Principles]]  (SLLP)
* [[Sustainability performance target]]
* [[Use of proceeds bond]]


 
[[Category:Financial_products_and_markets]]
==See also==
*[[Bank supervision]]
*[[Capital]]
*[[Capital adequacy]]
*[[CET1 ratio]]
*[[Credit Conversion Factor]]
*[[Off balance sheet risk]]
*[[Operational risk]]
*[[Pillar 1]]
*[[Total capital ratio]]

Latest revision as of 00:45, 5 December 2023

Sustainability - sustainability-linked contracts - derivatives.

(SLD).

A sustainability-linked derivative is a derivative contract incorporating payment cashflows referenced to key performance indicators (KPIs) measuring environmental, social and governance performance against pre-agreed targets (ESG targets).


"Lloyds Bank has also helped to further the development of the sustainability-linked derivatives market, with a sustainability-linked foreign exchange transaction that supports UK leisure travel company Jet2’s decarbonisation ambitions.

For Jet2, the SLDs enable it to mitigate FX risk from operations – just like a standard derivative – while gaining pricing benefits as long as it delivers on its ESG goal of reducing CO2 emissions per passenger-kilometre travelled."

The Treasurer, December 2023, Issue 4, p41.


See also

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