The use of climate stress tests to evaluate the vulnerability of financial institutions to climate change impacts is gaining momentum globally. As supervisory authorities, regulators, central banks, and policymakers aim to understand the financial risks posed by rising global temperatures, these exercises have become crucial in assessing systemic vulnerabilities. Many financial supervisors have already conducted climate stress tests or are planning to do so.

Climate stress testing is a crucial forward-looking approach for assessing the potential impact of climate change on financial institutions and identifying climate risks as systemic risks. Robust data plays a key role in enabling financial institutions to manage and identify climate-related risks and opportunities, facilitating more informed decision-making amid evolving climate challenges. However, the development of climate stress testing and its integration into the strategy of firms has been hindered by a lack of standardized data with the necessary quality to effectively assess and model the potential financial impact of climate risks. Current data limitations often lead to underestimation and only partial measurement of climate-related risks.

This report serves as a comprehensive resource for both supervisors and financial institutions, offering insights into the latest developments and practices in climate stress testing. It covers the scope, design, modeling approaches, and key findings of supervisory exercises, sharing good practices identified across various jurisdictions. Additionally, it provides recommendations and methodological guidance for conducting climate stress tests. Accompanying the report is the “Navigating Data Challenges” support document, which aims to enhance the abilities of financial actors to conduct climate stress testing by effectively navigating data challenges. It does so by providing a comprehensive overview of the climate stress test data types, as well as sharing insights into current best practices and data sources. This document emphasizes the crucial role of reliable and comparable data for climate stress testing.

Produced by UNEP FI, these publications aim to enhance the understanding and implementation of climate stress testing within the financial sector, supporting efforts to mitigate climate-related financial risks.