Scientific Transition Risk Exercises for Stress tests & Scenario Analysis

Introduction

Climate stress-test scenarios are set to proliferate over the next 2 years as supervisors around the world begin to implement related exercises and private sector actors develop supportive tools. While repositories for economic climate scenarios exist (e.g. NGFS platform), equivalent solutions for financial scenarios are lacking. At the same time, scenario design is still narrow in its focus on climate issues and misses elements related to the ecological and just transition.

Project Objective

The objective of this project can be summarized as follows:

• Reduce the transaction costs for the private sector to access and apply financial sector stress-test and scenario analysis frameworks developed by central banks, financial supervisors, and research organizations.
• Facilitate harmonization between different approaches both in Europe and internationally by providing a platform of exchange for financial sector stress-tests.
• Ensure the articulation of climate-related stress-tests with other sustainability themes, notably related to ecosystem service loss and the just transition.

Project Components

The project consists of the following components:

1. Repository of Climate Stress-Test Exercises
   2DII will develop a repository of climate stress-test exercises implemented across Europe and by leading research organizations in Europe and internationally. This repository will allow users to search stress-test scenarios, export them for use in their organizations, and compare indicators and results across exercises.

2. Model Expansion
   Expansion to ecosystem service loss and just transition.

3. Training and Capacity Building
   Providing training and capacity building to stakeholders.

4. Online Platform
   An online platform for stress-test scenarios reducing search and transaction costs and driving harmonization of approaches, as well as the ability to develop and understand models.

Support and Interest

The project has received support letters from the Hungarian and UK Central Bank, as well as EIOPA. From the private sector side, it has received a letter of interest from the largest net zero target coalition (GFANZ).