In response to a growing awareness that climate change and the associated net-zero transition may impact financial stability, academics, financial institutions (FIs), central banks and supervisors (CB&S) have been developing a suite of scenarios and analytical tools to assess climate-related financial risks. This DPhil contributes to the field of climate finance with: (i) a more systematic understanding of the evolving role of CB&S in setting climate-related financial regulation, as well as wider policy challenges involved in navigating the transition (Paper I); (ii) the development of an empirically grounded bottom-up climate stress testing approach – TRISK - to assess transition risks and the distributional consequences for financial institutions’ portfolios to scale up capabilities in forward-looking scenario analysis for risk management purposes (Paper II); and (iii) a taxonomy framework for assessing the suitability and credibility of scenarios within financial decisions to advance the understanding of the wider limitations, uncertainties, and trade-offs inherent in climate scenario risk analysis (Paper III).
