Climate related financial risks measurement methodologies

This report provides an overview of conceptual issues related to climate-related financial risk measurement and methodologies, as well as practical implementation by banks and supervisors. Notwithstanding the ongoing progress of supervisors and banks alike in coming to grips with climate-related financial risks, continued efforts are needed to enhance their measurement, monitoring and management.


The report contains five key findings: First, climate-related financial risks have unique features, necessitating granular and forward-looking measurement methodologies. Second, to date, measurement of climate-related financial risks by banks and supervisors has centred on mapping near-term transition risk drivers into counterparty and portfolio exposures. Third, banks and supervisors have predominantly focused on assessing credit risk, as they advance in applying methods to translate climate-related exposures into categories of financial risk. Fourth, while banks and supervisors remain at an early stage of translating climate-related risks into robustly quantifiable financial risk, work continues to gather pace. e requiring conditioning assumptions about balance sheet adjustment options. Fifth, key areas for future analytical exploration relate to measurement gaps in data and risk classification methods, as well as methodologies suitable for assessing long-term climate phenomena not always of a standard nature.

Categories: Recommended Readings
Author: BIS