A Financial Regulator Strengthens Climate Resilience Planning with Advanced Climate Analytics

Climate change poses systemic risks to financial stability, with wide-ranging impacts across sectors, economies, and asset classes. For financial regulators, especially in regions with high exposure to climate-sensitive industries, assessing these risks is critical. As global efforts to decarbonize accelerate, regulators must ensure their financial systems are resilient to both physical risks—such as extreme weather and resource scarcity—and transition risks stemming from policy shifts, technological change, and evolving investor expectations.

In countries where economies are closely tied to energy markets and prone to various hazards, climate-related disruptions can significantly affect creditworthiness, asset valuations, and macroeconomic indicators. Rising temperatures, water scarcity, and infrastructure vulnerabilities amplify physical risks, while global shifts in energy demand and regulation introduce transition risks. To address these challenges, regulators require a robust and reliable climate risk assessment framework that translates macroeconomic scenarios into sectoral and institutional impacts—supporting forward-looking stress testing, policy development, and financial system resilience.

Introduction

A financial regulator decided to undertake a top-down climate risk assessment initiative to evaluate vulnerabilities across sectors and institutions. Through scenario analysis and stress testing, the modeling team at the Financial Stability Department assessed potential impacts under varying climate pathways, aiming to understand how climate risks could affect credit risk metrics and financial system stability.

This case study outlines how the department’s modeling team leveraged climate analytics and macro-financial modeling to build a robust climate risk assessment framework—one that aligned with international best practices while addressing region-specific exposures and priorities. By integrating climate considerations into its supervisory framework, the regulator strengthened its ability to inform policy development and support a more resilient and sustainable financial system.

Pain Points

To support the team’s climate risk assessment, the client identified several key needs:

• Capability to conduct top-down climate risk assessments: The regulator required a framework that could translate macro-level climate scenarios into sectoral and portfolio-level impacts, enabling systemic risk evaluation across financial institutions.
• Expertise in climate-financial modeling: The team needed advanced modeling tools to quantify how physical and transition risks could affect credit risk metrics, including default probabilities of large corporates that pose systemic risks to the financial system.
• Access to region-specific climate and financial data: Reliable data on emissions, climate hazards, and financial performance—tailored to the unique economic and environmental context of the country—was essential for accurate stress testing and scenario analysis.
• Integration with existing supervisory frameworks: Incorporating climate risk into current credit risk monitoring and stress testing processes posed challenges, requiring tools that align with regulatory standards and existing infrastructure.
• Tailored credit assessments: The team needed access to specific insights on the valuation and credit impacts of various climate scenarios for a variety of industries, enabling a nuanced understanding of how climate factors influence their portfolios.

These pain points underscore the critical need for a comprehensive climate risk assessment solution tailored to the unique challenges faced by financial regulators in the region. Climate Credit Analytics (CCA) has emerged as the ideal framework, designed to enhance systematic quantitative analysis and effectively address the complexities of climate risks in supervisory and stress testing contexts.

The Solution

Climate Credit Analytics (CCA) is an award-winning [1] climate scenario analysis model suite launched in 2021. It makes the critical link between climate change and credit risk by translating climate scenarios into drivers of financial performance (e.g., production volumes, fuel costs, and capex spending) tailored to specific industries. These drivers are then used to condition and forecast complete financial statements of corporates under various climate scenarios, including those published by the NGFS, a group of over 149 central banks, financial authorities, and observers [2]. 

Key Features

• Integration of local regulator-defined scenarios: These include scenarios from 1) the Network for Greening the Financial System (NGFS), 2) Regulators, 3) short term stress scenarios (which may be user-defined) for added flexibility.
• Best-in-class data: These tools leverage S&P Global’s extensive and proprietary datasets including company-level financial and emissions data, industry-specific data, and quantitative credit scoring methodologies.
• Coverage of private and public companies: S&P Global Market Intelligence has company fundamental data and uses a waterfall approach to enable full portfolio analysis, even in cases where granular data is not readily available. The offering enables automated bottom-up analysis for 2.2 million companies. Where users have the requisite information, a proprietary analysis capability is also available.
• Data override capabilities: Users could override default inputs with location-specific financial and emissions data, ensuring localized relevance and enhancing the credibility of stress testing outputs.
• Easy Implementation: This includes a compact set of Excel templates connected to S&P Global’s databases for real-time on-the-fly analysis, as well as web services (for CCA) enabling users to undertake the analysis within users’ own IT environment.
• High degree of flexibility: CCA enables users to perform sensitivity analysis on many parameters and tailor key assumptions (e.g., counterparty transition planning) for decision-useful insights.
• Provides a clear connection between transition variables, financial drivers, and resulting financial impacts: This enables clients to understand the model inputs, drivers and output, supporting confident reporting on climate-related financial risks to regulators and investors.
• Sensitivity Analysis: This feature empowers businesses to meticulously examine the potential impacts of change in specific variables or assumptions on their climate risk exposure. This capability facilitates the development of robust risk management strategies, empowering businesses to navigate climate-related challenges effectively. 

Key Benefits

Implementing a comprehensive climate risk assessment solution offers several key benefits for the Macro Prudential Modeling and Stress Testing team:

• Improved risk identification: Top-down assessments help uncover systemic vulnerabilities across sectors, enabling proactive regulatory interventions and informed macroprudential policy development.
• Localized relevance: The ability to tailor scenarios and override data ensured that climate risk assessments reflected the unique environmental, economic, and financial context of a particular region.
• Capacity building and challenge function: The solution empowered the team to challenge bank submissions, improving the quality of climate risk assessment.
• Alignment with global standards: By adopting a framework consistent with international best practices, the regulator positioned itself as a regional leader in climate risk supervision and sustainable finance.
• Strategic foresight: Scenario-based analysis enabled the regulator to anticipate long-term climate impacts on credit markets and financial stability, supporting resilient policy planning and regulatory innovation.

In summary, Climate Credit Analytics empowered the regulator to strengthen supervisory oversight, validate and challenge bank submissions, and align with global best practices – all while tailoring its analysis to the unique needs of the region. This enhanced the regulator’s ability to manage systemic risks, support informed policy decisions, and build resilience across the financial system in the face of accelerating climate challenges around the world.

[1] S&P Global Market Intelligence, as of October 2, 2025, https://www.spglobal.com/market-intelligence/en/solutions/products/climate-credit-analytics#awards

[2] NGFS, as of October 2, 2025, https://www.ngfs.net/en/about-us/membership