Climate stress test
ESG & GovernanceAn exercise that estimates how a bank's or insurer's losses would change under severe physical or transition climate scenarios.
Climate stress tests usually use NGFS scenarios and look at credit losses in sectors exposed to floods, cyclones or carbon policy. RBI ran a pilot with 15 banks in October and November 2022. It found that potential credit losses rose by about 66% under flood and cyclone scenarios, and by up to 146% by 2050 under a disorderly transition path, compared with the baseline. The pilot did not set capital requirements.
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