The 1in1000 model suite comprises three integrated submodules on transition, physical and litigation risk
The approach is rooted in asset-level data and represents transition impacts on the level of the firm in a microeconomic and financial model. Key distinct features of the climate stress test are its forward-looking nature based on the transition strategy of firms, the explicit representation of technological costs and firms’ comparative advantage, the transparency and flexibility to accommodate for a wide range of scenarios and underlying modelling choices, and the ability to demonstrate sensitivities in all modelling stages.
TRISK
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The TRISK submodule translates climate transition risks affecting individual firms and economies to shocks affecting the financial system. As part of this, we present a forward-looking risk measure which is the expected loss of a financial institution given the uncertain materialisation of a transition stress scenario.
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We present TRISK on two levels. On the firm level, TRISK is expressed as the difference in the discounted net present value (NPV), as well as the probability of default (PD) for a firm under a baseline and transition stress scenario. On the financial level, TRISK is expressed as the difference in the expected loss (EL) of a portfolio under a baseline and stress scenario and hence represents the value at risk from the uncertain materialisation of a transition stress scenario.
PRISK
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The PRISK submodule assess the climate adjusted economic and natural hazard impact for financial institutions, designed and curated in a set of severe but plausible climate scenarios.
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We provide a hazard agnostic framework for acute and chronic climate risk, explain the choice of scenario design and characteristics of the shock by focusing on the impact of cyclones, as well as benchmark our shock scenario against historical events and provide an outlook on other types of risks that can be integrated into our framework.
LRISK
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The LRISK submodule assesses potential future litigation risks for financial portfolios under a range of different litigation scenarios.
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This module is not a comment on the actual likelihood of climate litigation itself, but simply the potential responsibility for climate damages should the legal theories underpinning legal actions prove successful in court. Thus, it does not address the legal intricacies associated with this emerging field, but instead focuses on the much more nascent research area of quantifying corporate climate costs and their responsibility for global climate damages.
NRISK
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The NRISK is a model of nature-related and ecosystem risks which trasmit to financial portfolios both on sector-level and company level.
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In development
SRISK
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The SRISK submodule assesses risks related to threats to social and political cohesion as a result of adverse climate conditions
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In development