Climate stress testing – where to start?
By Svetlana Borovkova, Head of Quantitative Modeling
What are the challenges in performing climate-related stress tests for various asset classes? And what are the emerging approaches and solutions?
In my previous column, I attempted to forecast the risks that will occupy financial risk professionals in 2024. One of those predictions focused on climate risk. And indeed, this issue is firmly on the agenda of financial institutions.
Regulation concerning climate risk is gaining momentum. By the end of 2024, banks are expected to incorporate climate risk drivers into their stress tests. However, challenges persist, such as a lack of approaches or datasets to facilitate the integration of climate risk drivers into credit and various other risk assessments. So, what are the challenges in performing climate-related stress tests for various asset classes, and what are the emerging approaches and solutions?