Developing Climate Risk Modeling Guidance

THE BACKGROUND

Financial institutions are increasingly exposed to the systemic risks posed by climate change. Traditional risk management frameworks, built on historical data and short-term horizons, are no longer sufficient. Regulatory initiatives such as the TCFD, ISSB, and NGFS now require institutions to identify, assess, and disclose climate-related financial risks. There is a growing demand for specialized training to equip financial professionals with the technical skills to model both physical and transition climate risks and integrate them into strategic decision-making.

THE PROJECT

Finance for Impact has been mandated by the European Bank for Reconstruction and Development (EBRD) and the Global Center on Adaptation (GCA) to design a training module on Climate Risk Modeling.

The module will offer a hands-on, practical curriculum covering:

• Fundamentals of climate risk and its impact on financial institutions.
• Overview of modeling techniques: statistical, deterministic, probabilistic, geospatial, sector-specific, and integrated models.
• Application of climate scenarios (e.g., NGFS pathways) to model physical and transition risks.
• Methodologies for translating climate risks into financial metrics like expected losses, capital impacts, and credit ratings.
• Integration of climate risk models into investment, lending, and underwriting processes.

The training is tailored for banks, insurers, asset managers, and development finance institutions operating across emerging markets.

THE RESULTS

• A complete, user-friendly training module for financial institutions, aligned with international regulatory standards.
• Increased institutional capacity to conduct forward-looking climate risk assessments.
• Enhanced ability of financial actors to integrate climate risks into portfolio management, underwriting, and disclosure processes.
• Contribution to a more resilient, climate-aligned financial sector in EBRD’s regions of operation.