Policy briefing (No.16), Enhanced Scenarios for Climate Stress Tests, has been developed by Inspire Sustainable Central Banking Toolbox to assist central bankers and financial supervisors in managing the financial risks associated with climate change and other environmental challenges. Leading experts from academia, think tanks and central banks have written papers in the toolbox, based on evidence-based research.
The briefing highlights the importance of incorporating sustainability goals and addressing climate change impacts in calibrating monetary, prudential, and other instruments. It emphasises the need for climate stress tests for financial institutions to manage climate-related financial risks. It stresses the importance of enhanced scenarios that account for the financial system’s reaction to climate risks. The policy briefing also suggests a methodological framework that connects climate models with financial risk models to improve climate financial risk analysis and inform decision-making. The document sets out several key research insights, including the need for central banks and financial supervisors to use enhanced scenarios for more robust climate financial risk analysis and to inform prudential measures.
Other policy briefings in the toolbox series include
- Inflation and climate change: the role of climate variables in inflation forecasting and macro modelling (2022)
- Developing a precautionary approach to financial policy – from climate to biodiversity (2022)
- Central banks and climate-related disclosures: applying the TCFD’s recommendations (2022)
- Sustainable and responsible management of central banks’ pension and own portfolios (2022)
- Aligning financial and monetary policies with the concept of double materiality: rationales, proposals and challenges (2022)
- Sustainable management of the central bank’s foreign exchange (FX) reserves (8 July 2022)
- Greening collateral frameworks (2022)
- Greening capital requirements (2022)
- Beyond climate: addressing financial risks from nature and biodiversity loss (2022)
- Supporting the just transition: a roadmap for central banks and financial supervisors (2022)
- Building blocks for central banks to develop nature scenarios (2023)
- Inclusive green finance: A new agenda for central banks and financial supervisors (2023)
- Using green credit policy to bring down inflation: what central bankers can learn from history (2023)
- Climate-related systemic risks and macroprudential policy (2023)
- Prudential transition plans: the great enabler for effective supervision and regulation of climate-related financial risks? (2023)
- Enhanced scenarios for climate stress tests (2024)