Climate change benchmark study

Stress testing and scenario analysis are common frameworks proposed by different regulatory and supervisory bodies to assess the impact of climate-related risk on the financial system. However, as of today, there is no consensus on the methodology that should be used in this context. Challenges include designing scenarios that capture both physical and transition risks, handling extended modelling horizons, and capturing uncertainties around the transmission channels between climate variables, economic factors, and financial risk metrics.

Mazars explored two alternative modelling approaches, proposed by the UN Environmental Program (UNEP) Finance initiative and by the Autorité de Contrôle Prudentiel et de Résolution (ACPR), to estimate the probability of default; and concluded they can yield similar results. The approaches are built upon a well-established PD methodology framework but differ in the way the framework has been adapted to incorporate climate risk drivers. Further details of the analysis and results are presented in the below document.