Aspect Advisory

Case Study

Climate Related Financial Disclosures and Stress Testing

Overview

A large bank wanted to further develop the quality and maturity of their climate-related disclosures in accordance with TCFD recommendations.

Aspect Advisory’s overall objective was to support the Bank with the review and analysis of their strategy for climate action and propose further development in line with TCFD’s reporting guidelines on climate action. Additionally, the Bank wanted to enhance their current Climate Stress Testing and Scenario Analysis.

This entailed assessing how climate-related risks affect the businesses under extreme scenarios. The Climate stress exercise looked at the bank’s resilience to climate risk and sought to expose vulnerabilities which could in the long term lead to insolvency. Aspect Advisory was also involved in the outlining of required ESG reporting to ensure compliance with TCFD recommendations

Solution

Conduct a Climate stress test exercise to assess the bank’s resilience to climate risk and further develop its current ESG strategy and action plan for climate action in accordance with TCFD recommendations.

Result

  • Deeper understanding of the impact of severe climate scenarios on the Bank (test resilience).
  • A better measure of the impact on specified financial indicators e.g., solvency, financial performance;
  • Enhanced reporting in accordance with TCFD recommendations.

Business Area

  • ESG
    Risk Management

Insights

  • Stress testing climate risks is relatively new and complex. Globally, financial authorities and banks are gradually building up capabilities.
  • Stress test exercises, and the ways in which financial institutions act on their outcomes, can inform discussions on business models, internal governance, transition advisory and its risk management.