Date: 20-23 Feb 2023
For financial institutions, measuring and managing market and credit risk is a relatively straightforward process done through established tools, models and methodologies. However, accurately identifying and measuring the complex risks directly associated with climate change (and other important events) is a significantly more challenging task. It is, however, a task that financial institutions must now undertake, and with a high degree of accuracy, in order to satisfy stakeholders and supervisors. Closely linked to identifying and measuring climate related risks is ESG disclosure and scenario analysis. Again, two new and specialised activities that must now be understood by financial institutions and those who regulate them.
As well as the inherent importance of being able to accurately assess the climate related risk of financial portfolios, financial regulators are now requiring the effective linkage of climate related disclosure and scenario analysis, and the development of rigorous holistic stress testing programmes. Through the development and adoption of such programmes, financial institutions will be able to strengthen their resilience and risk management frameworks against climate related risks and other ESG related metrics.
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