Identifying and Managing Climate Risk in Loan Portfolios

Central banks have begun requiring the banks they regulate to perform stress tests that account for, and measure, the effects of climate change on market risk and credit risk in their portfolios.

This kind of mandatory risk modelling is a growing trend in the financial services industry and ultimately challenges financial institutions to weave the impact of climate change into their investment strategies.

In this white paper, we demonstrate how to leverage a Climate Extended Risk Model from green RWA to provide estimates of climate risk embedded in a loan book, with tools to explore various scenarios.