Annex

Examples of climate adaptation
across financial sectors

Examples of Climate Adaptation for Asset Managers

Physical risk	Via investment fund Y, the asset manager holds shares in a publicly traded company that sources agricultural inputs vulnerable to heat stress. This could damage crops, reducing yield and quality, thereby impacting the company’s supply chain and operations.
Financial risk	Such chronic hazard could negatively affect the investee’s financial performance. This exposes the asset manager’s portfolio to: Decreased asset value and potential losses; Challenges in meeting return targets and investor expectation.
Adaption strategy	The asset manager aims for at least 80% of fund Y’s investees to have a climate adaptation plan in place and actively implementing it by 2030. This approach is expected to: Reduce portfolio exposure to physical climate risks (risk dimension); Enable fund Y to be classified as Article 8 or Article 9 under the SFDR, by pursuing climate adaptation objectives or incorporating adaptation characteristics (opportunity dimension).
Adaption measures	The asset manager actively engages with the investee to promote climate resilience strategies, including relocating operations to less vulnerable areas, investing in heat-resistant crop varieties and improving supply chain diversification. Regular monitoring and dialogue ensure these measures are implemented effectively.

Examples of Climate Adaptation for Banks

Physical risk	The bank provides loans to SMEs operating in areas identified as having a high risk of fluvial flooding. Such flooding can damage buildings, equipment and inventory, and disrupt business operations.
Financial risk	Since flooding risks may impair an SME’s ability to generate revenue and repay its loans, the bank could face higher credit risk, which may result in: Higher loan impairment; Increased provisions for non-performing loans.
Adaption strategy	The bank aims to reduce these risks by 50% by favoring credit lines to SMEs that already have adaptation strategies in place or to those that intend to use loans to implement such measures. This includes financing investments in flood barriers, elevated structures and machinery, or business continuity measures. The strategy is expected to: Reduce exposure to physical climate risks by enhancing SME operational resilience (risk dimension); Unlock new business opportunities through financing solutions that benefit both the bank and its clients (opportunity dimension).
Adaption measures	Actions include the provision of lending facilities to SMEs, with financial incentives — such as reduced interest rates or flexible repayment terms — to encourage the implementation of flood adaptation measures. To ensure proper market uptake, the bank integrates climate adaptation criteria into the due diligence process for loan approval, informs applicants of available adaptation solutions and financing options and implements monitoring mechanisms to verify the actual implementation of adaptation measures

Examples of Climate Adaptation for Insurance

Physical risk	The insurance company has issued property insurance policies covering climate-related hazards in an area where fluvial flooding risk has been deemed high. This could result in potentially significant physical damage to insured residential and commercial properties.
Financial risk	River floods could trigger a high volume of claims related to property damage, contents loss and business interruption. This, in turn, might lead to substantial financial risk for the insurers, including: Increased claims ratios Potential impacts on reinsurance arrangements Pressure on capital reserves and pricing models
Adaption strategy	The company aims to have at least 70% of its property insurance premiums aligned with the EU Taxonomy for climate adaptation by 2030. This strategic goal is expected to: Reduce exposure to climate-related financial risks by enhancing the resilience of insured assets (risk dimension). Ensure continued access to high-risk markets that might otherwise be abandoned by competitors (risk and opportunity dimension). Set the insurer apart in the market by demonstrating that a significant share of premiums is sustainable, as it is aligned with robust frameworks such as the EU Taxonomy (opportunity dimension).
Adaption measures	This adaptation approach includes launching new products and renegotiating existing policies to incentivize policyholders to implement physical resilience measures such as flood barriers. New products will include risk-based rewards for preventive actions. To price these products correctly and ensure effective risk reduction, one of the key actions is to develop a questionnaire to map asset characteristics and identify potential adaptation measures where none exist.