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CASE STUDY

Climate change

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How we helped a bank quantify their climate exposures and meet climate risk reporting requirements.

The Reserve Bank of New Zealand has been steadily increasing expectations around climate risk reporting for the financial sector. As part of its latest guidance, all major banks must now disclose their assessment of physical and transition risk posed by climate change.

 

To meet these new requirements, a bank engaged Happy Prime Risk Consultancy to support its Climate Risk Report. Happy Prime’s cross-functional team of data analysts and risk modellers worked closely with the bank over 6 months to quantify their climate exposures.

Key results

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Move beyond qualitative risk statements to quantify exposures rigorously

 

Make strategic decisions aligned with a net zero future

Meeting climate risk reporting requirements

Our approach

Physical risk assessment

The key areas of focus were the bank’s residential mortgage and agricultural loan portfolios in New Zealand. We combined climate hazard mapping with asset location data to model potential impacts of acute risks like cyclones, floods and wildfires, as well as chronic risks like rising sea levels and drought patterns.

Transitional risk analysis 

We took a comprehensive approach to assess risks across the bank’s business lending, corporate financing, investment portfolios, and even their operations. This involved carbon footprinting analysis, policy impact assessments, technology shift modelling, and more.

Stress test

Perhaps most critically, Happy Prime stress tested the bank’s balance sheet against various climate scenarios. This revealed potential profitability and capital adequacy impacts that must be carefully monitored and managed.

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