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Capturing risk differentials from climate-related risks: A Progress Report

This report aims to identify the most advanced practices in terms of risk differentials analysis, and more broadly in terms of climate-related and
environmental risks assessment,which are supported by detailed case studies that could serve as a source of inspiration for other institutions.

Key points

This report analyses the attempts to study and quantify potential credit risk differentials between green and non-green assets/activities. Stocktakes conducted on this front revealed that there is still limited empirical evidence of ex-post risk differentials.

Given persistent methodological and data-related challenges, conducting risk differential analysis is not a straightforward exercise.

Surveyed financial institutions are turning to other methodologies – and in particular, forward-looking methodologies – for identifying and assessing
climate-related risks.

CRAs’ methodologies with respect to the integration of ESG factors in credit rating and related research findings can help advance the analytical approach towards assessing risk differentials from a more granular and forward-looking perspective.