Policy Brief, Sustainability Reporting, Sustainability Risks and Opportunities

PB 5/2022: Standardized stress test scenario can improve climate risk reporting

  • More and more countries, regions, cities, companies, and financial institutions are defining climate neutrality as a strategic goal. So far, however, it is not possible to verify to what extent the necessary measures are being implemented.
  • Current sustainability reporting does not allow for a comparable and quantifiable assessment of transition risks. Reporting based on standardised scenarios, on the other hand, enables a more reliable assessment of transition risks and opportunities.
  • A standardized stress test scenario facilitates internal decision-making processes for companies in the real economy, simplifies reporting, and avoids cutting off access to capital solely on the basis of sector affiliations. The financial sector can value transition risks and opportunities based on individual company data instead of using average sector values.
  • In order for a stress test scenario to enable a comparable assessment of transition risks and opportunities, it should be specified in a standardized manner; for example, as part of mandatory reporting and in line with the recommendations of the Taskforce for Climate-Related Financial Disclosures (TCFD).
    The stress test scenario should focus on a few specifications to reduce the additional workload.
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