As businesses consider the impacts of climate change on their long-term sustainability, it has remained difficult to measure such risks – until now. Transition Check, a webtool that takes a scenario-based approach for assessing transition risk and the potential impact of climate change on corporate lending portfolios within an overall framework consistent with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). Analysis of previously neglected impacts of physical risk (brought on by the increasing severity and frequency of climate events) and transition risk (arising from the adjustment to a low-carbon economy) is now critical for future planning.
Transition Check represents the culmination of two years of collaboration between UNEP FI, Oliver Wyman, and dozens of UNEP FI member banks within UNEP FI’s TCFD pilot projects. The approach behind Transition Check was developed and validated in the first TCFD pilot project and detailed in the Extending Our Horizons report. This methodology leverages climate scenarios from globally renowned researchers such as the Potsdam Institute (PIK) and the International Institute for Applied Systems Analysis (IIASA). Scenario variables are then transformed into financially relevant impacts for a broad range of economic sectors and geographies. These financial impacts can then be used to produce portfolio level expected losses (EL), probabilities of defaults (PD), and losses given default (LGD) under each scenario.