Climate-related financial risks - measurement methodologies

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BCBS  | 
Other
 | 
14 April 2021
 | 
Status:  Current
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This report provides an overview of conceptual issues related to climate-related financial risk measurement and methodologies, as well as practical implementation by banks and banking supervisors. According to the report:

  • Climate-related financial risks entail unique features, which means that sufficiently granular data and forward-looking measurement methodologies are needed to address them.
  • To date, measurement of climate related financial risks has centred on mapping near-term transition risk drivers into bank exposures. Credit risk measurement has attracted the most effort, with a lesser focus on other risk categories. Initial scenario analyses and stress tests have in many cases focused on selected portfolios or exposures for transition risks, and selected hazards for physical risks.
  • Key areas for further analysis relate to gaps in data and risk classification, as well as methodologies to address uncertainties associated with the nature of climate change and the potentially longer time horizon for risks to manifest.