The Fed's first climate scenario analysis exercise

The CSA exercise will help ensure the largest US banks are appropriately managing all material risks, including financial risks related to climate change.

Six of the largest US banks – Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo – are participating in the exercise; their results and documentation are due by July 31, 2023. The analyzed results and lessons learned by the Fed could inform any future climate scenario analysis exercises. The Fed is expected to publish insights from the ongoing exercise in Q4 2023.

The CSA is comprised of two separate modules, covering physical risk and transition risk. Each module includes a set of forward-looking scenarios that include core climate, economic and financial variables.

Participating banks are expected to estimate the effect of these scenarios on their loan portfolios over a one-year horizon in 2023 under the physical scenarios, and a 10-year time horizon from 2023-32 under the transition scenarios. Further insights on the exercise have been summarized on Mazars Financial Services blog: The Fed shares instructions on its first pilot climate scenario analysis exercise (mazars.com).

Mazars provides support in climate-related and environmental financial risk management and modeling, delivering methodologies, solutions and tools. The goal: to help ensure our clients comply with demanding and evolving regulatory expectations.

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References:

Federal Reserve Board – Federal Reserve Board provides additional details on how its pilot climate scenario analysis exercise will be conducted and the information on risk management practices that will be gathered over the course of the exercise

The Fed shares instructions on its first pilot climate scenario analysis exercise (mazars.com)                       

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.