Extending Our Horizons

Assessing Credit Risk and Opportunity in a Changing Climate

The FSB Task Force on Climate-related Financial Disclosures (TCFD) recommendations provide both corporates and financial institutions with a consistent, high level guidance to assessing and disclosing climate-related risks and opportunities. While providing high-level guidance, the TCFD has left it to the various industries to develop and pilot specific approaches, methods, and scenario inputs best suited to their specific needs and exposures.

Along with a Working Group of 16 international banks convened by the UN Environmental Finance Initiative (UNEP FI), we developed a methodology for assessing risks and opportunities associated with the transition to a low-carbon economy (the “transition-related” impacts associated with climate change).  The methodology addresses the Strategy element of the TCFD recommendations around the use of scenario analysis for forward-looking assessments of transition-related impacts.

Through this highly collaborative effort of scientists, risk practitioners, and sustainability experts we have set forth an innovative methodology that will serve to underpin enhanced climate-risk aware decision making and resource allocation.
John Colas, Partner and Vice Chairman, Financial Services Americas

The key aim of the methodology is to help banks assess the transition-related exposures in their corporate loan portfolios where they may have concerns about the potential policy and technology-related impacts of a low-carbon transition, as well as an appetite to explore and capture associated opportunities.

We combine leading climate and economic modeling, leading credit stress testing approaches, and traditional credit analysis into a much more fit-for-purpose tool for climate scenario analysis.
Ilya Khaykin, Partner, Financial Services

See the UN press release here.

Extending Our Horizons