The Basel Committee on Banking Supervision (BCBS) has issued a discussion paper outlining the objectives of climate scenario analysis within the Basel framework. According to the paper, climate scenario analysis is described as a forward-looking tool to assess the resilience of business models and strategies of banks.
In the discussion paper, the BCBS has identified key features that are crucial for the effectiveness of climate scenario analysis exercises conducted by banks or supervisors. These features include clear objectives, comprehensiveness, plausibility, coherence, transparency, tractability, and proportionality.
The committee aims to encourage a robust dialogue among stakeholders on the design, implementation, and utilization of climate scenario analysis, with the goal of advancing common practices in this area. The BCBS is also seeking feedback from various stakeholders to further refine these considerations and ensure the inclusivity of all relevant features in the discussion paper.
The BCBS emphasizes the importance of aligning the complexity of climate scenario analysis with the specific risks faced by individual institutions. By fostering collaboration and feedback from industry participants and supervisors, the committee aims to drive collective progress in enhancing the effectiveness of climate scenario analysis exercises in the banking sector.
To learn more about incorporating climate and Environmental, Social, and Governance (ESG) insights into risk assessment processes, interested parties are encouraged to visit Moody's Analytics Climate and ESG Risk Microsite for additional information.
The BCBS's discussion paper on climate scenario analysis serves as a foundational framework for promoting standardized practices and enhancing the resilience of banks in the face of climate-related risks.
