CFRF Scenario Analysis: Learning from the 2021/22 Climate Biennial Exploratory Scenario (CBES) [pdf]

The Climate Financial Risk Forum (CFRF) – comprised of representatives of the FCA (Financial Market Conduct Authority), the PRA (Prudential Regulation Authority), and from industry – has published a report entitled Learning from the 2021/2022 Climate Biennial Exploratory Scenario (CBES) Exercise in the UK: Survey Report. Therein, the CFRF primarily outlines the key findings from a survey and interviews among participants of the 2021/2022 Climate Biennial Exploratory Scenario (CBES) which was an exercise conducted among UK insurance undertakings and UK banks to assess their level and scope of exposure to climate change risks. Some findings from the survey are briefly noted below; for more detailed, comprehensive information, please refer to the enclosed report:
– participants found the overall design of the exercise adequate, although most found that the „static balance sheet assumption“ may have led to an overestimate of the assessed risks;
– participants particularly noted the positive capacity building effects of the exercise;
– participants confirmed that the exercise has helped raise awareness of the significance of assessing climate-related risks and adopting adequate risk management strategies;
– insurers tend to be further as far as their adoption of climate-related risk assessment and management and as far as the prioritization of the issue is concerned;
– participants stated that they have generally „increased the integration of climate stress tests“ in their disclosures; and
– participants also became aware of additional risks not included in the exercise, such as the risk of greenwashing or the risks of sudden regulatory changes.
The report further describes the key objectives of the CBES, the methodology used during the scenario analysis, and the key findings of the Prudential Regulation Authority (PRA) which supervised the exercise. These objectives and findings were already published by the PRA in a separate statement – please refer to EventID 15707 in this context for more information.