Central Bank Climate Stress Test and Risk Assessment
We worked with a central bank to assess physical and transition risks, map transmission channels to the financial system, and design a best-practice climate stress test
Client Context
- The central bank wanted to conduct an initial assessment of transition and physical risks
- The central bank then wished to developan internal stress test to evaluate systemic financial risks of climate change
- The central bank finally sought to develop a program to improve climate readiness among its supervisees
Project Overview
- Conducted an assessment of physical and transition risks within the country.
- Reviewed the landscape of supervisoryclimate stress tests and guidance from the NGFS to identify the optimalapproaches for this central bank
- Developed the set of metrics and the elements of the stress test that the central bank could conduct internally initially and then subsequently on the financial sector
Results Achieved
- Produced an initial report of the climate-related financial risks faced by the country and the relevant financial transmission channels
- Developed the structure for a climatestress test including the data needs, scenarios to use, modeling decisions, andqualitative reporting to be done
Created guidance and resources for financial institutions in the country to prepare for the climate stress test and more effectively manage their climate risks