Assessing Vulnerabilities and Raising Awareness Among Financial Players About the Risk of Climate Change: the Role of Stress Tests

Laurent CLERC * Directeur d'étude et d'analyse des risques, Autorité de contrôle prudentiel et de résolution (ACPR). Contact : laurent.clerc2@acpr.banque-france.fr.

Stress tests have been, since the Great Financial Crisis of 2008, one of the tools of choice for supervisors to assess the risks and vulnerabilities to which financial institutions are exposed. However, their use is still limited to assess the financial risks associated with climate change. Based on the example of the pilot exercise implemented in 2020 by the French Prudential Control and Resolution Authority, this article presents the essential features of these climate stress tests, the scenarios on which they are based, the challenges that supervisors and the financial institutions that implement them face as well as some of their limitations.