As a foundation for managing these risks, we enhanced our qualitative evaluation in 2024 to better understand the transmission channels of climate-related risks and their impact on us over short-term (ST), medium-term (MT), and long-term (LT) horizons³. This evaluation allows us to assess the potential implications of climate change on our operations and decision-making processes systematically. Risk type Impact to the Bank Climate Risk Drivers Time horizon⁴ Transition Physical Credit Risk • Directly affects the financial performance of our customers through additional capital expenditures, potential fines, increased operational and management costs, and the impact of newer or stricter environmental regulations. • Climate physical risks can damage customer assets and disrupt their operations. ST MT LT Market Risk • Ambiguity over the timing and severity of climaterelated risks may cause increased volatility and declining market valuations and pricing, resulting in investment losses. ST MT Liquidity Risk • Significant withdrawals of deposits or drawdown of committed facilities to fund recovery from severe weather events may affect our liquidity position. ST MT Operational Risk • Disruptions to our operations and/or supply chain due to severe weather events. • Changes in policies and processes in order to comply with regulations or transition to low-carbon economy. ST MT LT Regulatory/ Compliance Risk • Risk of failing to comply with current and emerging climate-related regulations. ST MT LT Reputational Risk • Climate-related litigation or negative public perception can impact our reputation. • Potential negative views towards us due to actual or perceived actions or inactions related to our climate progress. ST MT LT 3,4 The ST horizon reflects impacts within the scope of the standard business planning cycle, whereas the MT and LT horizons provide deeper insights into the evolving nature and trajectory of climate-related risks as they materialise over time. 131 www.bankislam.com 01 02 03 04 05 SUSTAINABILITY STATEMENT 06 07 08 09
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