Project Viridis: a climate risk platform for financial authorities

Central banks and financial authorities around the world recognise that both the physical effects of climate change and the transition to a low-carbon economy are sources of financial risks. In recent years, there has been a growing international call for financial authorities to monitor, manage and mitigate risks arising from climate change and to ensure climate-sensitive regulatory oversight of their supervised financial institutions. This is because of the strong impact that supervision has on the financial sector, which in turn plays a significant role in the transmission and sustainability of the firms that banks lend to. However, monitoring and analysing climate-related financial risks are particularly challenging because of the complex nature of climate change, its global impact, and the varying mitigation strategies across jurisdictions. Data and climate-related disclosures used to analyse climate risk also vary widely, meaning they are hard to compare in a consistent way. 

In response to these challenges, the Bank for International Settlements Innovation Hub, together with the Monetary Authority of Singapore, launched Project Viridis to explore the development of a climate risk platform that could help central banks and authorities identify and assess material climate-related financial risks. Project Viridis is built on the premise that insights on climate risks could be drawn initially from existing available data sources. These insights could provide supervisors with an early understanding of which entities could be more exposed to climate-related financial risks and any potential systemic exposure to sectors and geographies. As a modular platform, further advancements and international alignment on climate data and metrics could then be integrated into the platform, providing richer insights.

The Viridis climate risk platform prototyped the development of several features. These include:

i.  banking and financial system-wide and financial institution-level views of financed emissions,

ii.  consolidation of reported and modelled emissions of entities that are key counterparties to financial institutions, and

iii. mapping the geographical distribution of entities' assets to assess the entities' transition risk exposure arising from changes in carbon pricing policies and exposure to different physical hazards.

This report outlines a solution design for future platform functionalities, as and when more data become available, and methodologies established. It also shows how, over time, the conversations, standards, technologies and methodologies will most certainly evolve and how the platform too must evolve. During this process, the blueprint could form the basis for supervisors to understand their data gaps and explore with the supervised banks how to collect such data.