Case Study: Global bank identifies physical climate risks in its credit portfolio using Climate Excellence

Situation

Identify material climate-related risks and their financial impact

A major global bank faced increasing demands from investors and regulators to identify, assess and manage as well as report on climate-related risks. Physical climate risks such as floods and tropical cyclones will become more frequent and intensive with climate change and can affect the performance of credit portfolios by impacting the underlying counterparties' profitability. The bank therefore asked PwC to identify and assess the potential financial impact of climate-related physical risks in its credit portfolio across a range of temperature scenarios – also as preparation for the integration in its standard risk management process.

Our Approach

Using Climate Excellence's powerful portfolio analysis for a range of scenarios

Our PwC climate experts used their "Climate Excellence" tool to assess the materiality of different physical climate risks and to quantify the potential financial impact on several thousand counterparties. For different future temperature scenarios, the tool was able to provide the bank with an intricate level of transparency on future financial impacts by physical climate risks, identifying risk hot spots and illustrating the potential impact on the profitability of every single counterparty worldwide. The client subsequently purchased a license for Climate Excellence to be able to iteratively assess its portfolio.

Project result

A climate-resilient portfolio

The scenario analysis provided the bank with a detailed understanding of potential climate risks for every counterparty and a scientifically sound basis for strategic decisions regarding client engagement, credit risk management and portfolio management. This enabled the bank to incorporate appropriate risk management measures to strengthen the resilience of its credit portfolio to physical climate risks.