AFREF joined Public Citizen and Sierra Club in a letter to the Basel Committee on Banking Supervision responding to its Discussion Paper, The role of climate scenario analysis in strengthening the management and supervision of climate related financial risks.
An excerpt from the letter reads: “While forward-looking approaches to climate risk are essential, scenario analysis is a flawed and insufficient tool to fully assess and mitigate these risks. This paper addresses the significant limitations of exploratory scenario analysis— the current framework for scenario providers and regulators. Exploratory scenario analysis is oriented around a “what if” set of questions designed to explore the impact of a range of possible futures. This paper proposes moving from a “what if” to a “how to” framework, laying out a proposal to significantly enhance the current scenario analysis tool-set, rendering it more useful for financial institutions and better suited to help regulators mitigate risk in the financial system. Furthermore, while scenario analysis can be a helpful tool for supervision, it is just one of many tools. Scenario analysis must be complemented by action suited to the size and scope of risks created by the climate crisis.”