The role of climate scenario analysis in strengthening the management and supervision of climate-related financial risks

The Basel Committee on Banking Supervision has issued a discussion paper on how climate scenario analysis (CSA) can be practically used to help strengthen the management and supervision of climate-related financial risks.

The role of climate scenario analysis in strengthening the management and supervision of climate-related financial risks, looks at the objectives of CSA exercises and relevant features to design and use them.

In 2022, the Principles for the effective management and supervision of climate-related financial risks encouraged banks to use CSA to assess the resilience of their business models and strategies to a range of climate-related pathways and determine the impact on their overall risk profile.

Supervisors were also encouraged to determine whether banks were applying CSA, where appropriate.

However, differences in the scope, features and approaches of CSA exercises across jurisdictions and banks limit the harmonisation of supervisory expectations and the comparability of results.

The Committee is therefore seeking stakeholder feedback that, in conjunction with the work under way in other global forums such as the Financial Stability Board and Network for Greening the Financial System, may lead to additional complementary work in pursuit of its mandate to strengthen the regulation, supervision and practices of banks worldwide.