Transition risk assessment on a credit portfolio

As stated by Mark Carney, Governor of the Bank of England and founder of TCFD: ‘If some companies and industries fail to adjust to this new world, they will fail to exist.’ The low-carbon transition will be a major challenge for financial stakeholders in the years to come. In May 2020, ACPR revealed the first elements of a climate stress test for the banking industry. The crisis that we have recently experienced has demonstrated the stranded assets of tomorrow, and insurers and reinsurers are alerted of the expected drastic premium increases.

Exhaustive understanding transition climate risks

There is an urgent need for tools and methodologies to address the profound transformations that will occur in the future. Climate change will have physical consequences whose magnitude will vary according to the carbon trajectory taken by our economy. While the impact of a climate disaster on our infrastructures can be partly anticipated, the significant changes brought to our economy by a transition to a low-carbon economy are even more complex to identify and measure.
To adapt and maximize building resilience to climate transition, financial stakeholders need to build a forward-looking vision regarding the transformation capacity of their clients and counterparties in handling different transition scenarios.

Measuring risks and taking action

The regulators' efforts are currently focused on setting up climate stress tests to assess the low-carbon transition sensitivity of financial stakeholders. Transition risk quantification is one of the means of meeting regulatory requirements, yet, it is only one of the possible risk management actions which can be taken. Other strategical actions include building an appropriate risk appetite strategy, defining sectoral exclusions, or decisions related to supporting certain sectors.
Quantifying transition risks on a portfolio is a complex exercise that requires a large amount of data and robust methodologies.


ClimWise, a transition risk management solution

ClimWise enables quick and accurate identification of the transition risk concentration of financial business portfolios and integrates the development of climate stress tests on targeted high-at-risk segments.


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  • A quick visualization of your portfolio's concentration: The global heatmap module of our ClimWise tool enables the user to quickly assess the exposure concentration of the portfolio. 
  • A sensitivity map of your activities: Our ClimWise solution allows you to identify the segments of activities subject to a significant transition risk under different transition scenarios. This leads to effective diagnosis of the risk management actions which can be implemented.
  • A module for risk quantification by the use of stress tests: On corporate credit activities, ClimWise allows the implementation of climate stress tests based on scenarios developed by the IPCC (Intergovernmental Panel on Climate Change). Thanks to in-house algorithms and models developed by our teams, we can carry out EBA-type stress test exercises. Our offer is developed to be integrated into the internal operating framework of our clients to decrease operational costs and optimize the workload.
  • A dynamic management tool: Our teams have developed a dynamic display tool that allows the effective integration of ClimWise into decision-making processes.


Deloitte Morning Session on Assessing Climate Risks in the Banking Sector

9 October 2019

The morning session covered the following four points:

- Introduction to climate risks and climate stress tests
- Presentation of expected regulatory requirements
- Methodological progress on the implementation of a climate stress test and the state of progress in climate scenario development
- Definition of an internal governance scheme concerning climate risk management


Hervé Phaure

Hervé Phaure

Associé Risk Advisory

Hervé Phaure est associé responsable de l’activité Credit Risk Advisory. Il intervient depuis plus de 25 ans sur les problématiques de gestion des risques financiers.  Les nouvelles conditions de marc... En savoir plus

Nicolas de Jenlis

Nicolas de Jenlis

DCE Climate & Sustainability Leader

Nicolas accompagne les entreprises sur leur stratégie, déploiement opérationnel et reporting en matière de Développement Durable et de Responsabilité Sociétale. Il est spécialisé dans l’ESG (Environne... En savoir plus