The Effect of Financial Disclosure of Climate Change Risks on the Estimation of Expected Credit Losses (ECL) in Accordance with IFRS 9 Requirements in Banks Listed on the Egyptian Stock Exchange

The research aimed to analyze and measure the level of financial disclosure of climate change risks and its impact on the estimation of expected credit losses (ECL) in accordance with the requirements of IFRS 9 in banks listed on the Egyptian Stock Exchange. An applied index was developed to measure the level of financial disclosure based on the framework of the Task Force on Climate-related Financial Disclosures (TCFD), and it was linked to the level of expected credit losses (ECL). To achieve this objective, the researcher adopted content analysis in examining the annual reports and sustainability reports of a sample consisting of six banks listed on the Egyptian Stock Exchange during the period from 2020 to 2024.
The findings revealed that financial disclosure related to governance and strategy has a significant positive impact on asset quality and reducing default rates, reflecting the banks’ ability to enhance credit loss estimation when adopting transparent and clear practices. In contrast, disclosure related to risk management and metrics and targets did not show a significant effect, highlighting the importance of quantitatively and practically linking climate-related data to financial assessment processes. The results also emphasized the necessity of integrating climate risks into credit loss models to improve estimation accuracy and strengthen financial system stability. Based on these findings, the research recommended strengthening banks’ financial disclosures in line with the (TCFD) framework, developing more comprehensive (ECL) models that incorporate climate and environmental factors, creating specialized databases to support quantitative modeling, enhancing the skills of human resources in risk analysis, and fostering collaboration with regulatory authorities. Furthermore, it recommended integrating climate transition risks into credit assessments and encouraging green financial innovation to promote banking sustainability.