Navigating the Climate Change Risk Models Landscape for Financial Institutions
There are numerous climate change models, with an increasing number being introduced and used internationally.
For financial institutions, the typical types of climate models are:
(1) physical models that capture the impact of extreme heat waves, flooding, or storms
(2) transition risk models that capture the impact of climate-related policy changes, for example, emission reduction regulations and carbon prices
(3) impact models that translate physical and transition risk impact into credit risk and asset valuations
(4) emission models to determine emission baselines and targets. Climate models are complex and need to be sector specific.
Navigating the climate model landscape has introduced significant challenges for institutions, such as asset management firms, insurance companies and banks. These include, for example, model integrity and validation, risks of incomplete models, and reliable data sets.
Two topics that we may want to feature in an event targeted to be held during Climate Week NYC 2024 are:
(1) The current climate model landscape and a focus on the key challenges faced by financial institutions when it comes to the considerations of climate models and how to tackle these in a methodical fashion.
(2) The second is a deep dive into two or so differentiated models to illustrate how key challenges can and should be addressed. Other related topics can also be developed.