Why? It is increasingly seen as necessary for financial institutions to identify their exposure to physical climate risks. These assessments are in most cases conducted on a voluntary basis as part of sound market practice; however, regulators and supervisory authorities are introducing requirements to measure, report and manage climate-related risks.
How? Financial institutions have developed approaches, tools and methodologies to assess their exposure to future physical climate risk relying on forward-looking scenario analysis. This is predominately based in part on the Recommendations of the Task-force on Climate-related Financial Disclosure. Approaches, tools and methodologies have been developed for different types of institutions, with some assessments conducted at the portfolio level, the project level, the asset level, the counterparty level or the country level.