IMD & IRD Awards 2023: Most innovative regulatory solution (climate risk)—S&P Global Market Intelligence

Product: Climate Credit Analytics


With climate change expected to affect economies, regulators are keen to evaluate the financial impact of climate risks on lending and investment portfolios of financial institutions and expect them to report accordingly. To support this, Climate Credit Analytics (CCA) is an offering that translates climate scenarios into drivers of financial performance, resultant company-level financial statements and impact on credit scores or default probabilities. This analysis is available under various short and long-term climate scenarios.

“Robust climate data and analytics is critical to our climate risk team’s mission of measuring and managing Citi’s climate risk, and to meeting the growing climate risk management expectations of global banking regulators. The suite of technology driven insights and climate data produced by Citi’s collaboration with Oliver Wyman and S&P will provide invaluable tools to better understand and model transition paths of Citi’s corporate clients.”
Kunal Motiani, global lead, climate risk program, Citi

The solution

Climate Credit Analytics provides bottom-up modeling on the quantification of climate risk by translating climate scenarios and sector-specific supply/demand elasticities and market dynamics into drivers of financial performance such as production volumes, fuel costs, and capital expenditures, tailored to each industry. These drivers are then used to forecast complete company financial statements. This can also be done at a portfolio level. Additionally, in-depth model development and maintenance documentation helps meet regulatory requirements.

Secret sauce

Climate Credit Analytics is a bottom-up climate scenario analysis offering. It uses a sector-specific methodology that captures risk and opportunities brought by climate transition and is based on a framework developed in collaboration with United Nations Environment Programme Finance Initiative (UNEP-FI) and has been accepted by model risk management teams at large banks. Alongside its methodology, CCA leverages S&P Global’s proprietary datasets on companies, assets and environmental risk and can be integrated into existing processes/workflows.

Recent milestones

  • New scenarios are added regularly to capture regulatory changes globally. These include updates from FRB, ECB, MAS and NGFS Phase III over the last 12 months.
  • CCA’s methodology has been refined through data-set expansion. Vehicle manufacturing and auto industry transition forecasts from IHS Auto, company pledges for select segments/companies from the CDP, and asset-level physical risk for 3.1 million assets globally were included recently.
  • At present, physical risk assessment is being integrated.

Future objectives

  • Expanded coverage and refinement of methodologies in existing models, as more disclosures come to light
  • Updates in scenarios from other significant regulators
  • Addition of new analytics and datasets from S&P Global’s sister entity, Sustainable 1, an ESG specialist
  • Development of a web platform-based user interface for a more seamless user interface with workflow tools for improving efficiency, conducting benchmarking, performing sensitivity analysis, and reporting
“As businesses continue to assess climate risks, our specialized modeling of high carbon-emitting sectors will provide market participants with a holistic approach to assess the potential financial impact of climate-related scenarios on their portfolios. Our collaboration with Oliver Wyman integrates the expertise and capabilities of two world-class players with a deep legacy in climate risk management, credit risk modeling, and stress testing to help the market continue its transition to a low-carbon economy.”
Whit McGraw, managing director and global head of credit and risk solutions, S&P Global Market Intelligence

Why they won

S&P Global’s Climate Credit Analytics offering, developed in collaboration with management consultancy Oliver Wyman, delivered the win for the New York-based data and technology giant in a category added to the IMD and IRD Awards lineup for the first time this year. It’s an area of the capital markets that has grown in prominence in the last few years as capital markets firms seek greater transparency and granularity around the impact the transition to a low-carbon economy is likely to have on the creditworthiness of their various counterparties and their investments. Expect to hear a lot more from S&P Global’s CCA service as investors and regulators maintain their focus on this area of the capital markets.

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