How can mortgage credit risk metrics be adjusted to climate change?

Monetary authorities worldwide have started requesting financial institutions to account for changes to credit risk due to climate change. There are two key challenges associated with assessing the impact of the climate on credit risk metrics. Firstly, the climate change macroeconomic scenarios do not generate sufficient stress. Secondly, the impact of acute physical risk needs to be assessed at the location level. To overcome these challenges, we have constructed an acute flooding event, combined with the Bank of England’s 2021 Climate Biennial Exploratory Scenario (CBES) scenarios and provide impact on PD, LGD and credit losses. 

In this webinar, we focus on how climate changes affect the performance of portfolios for residential mortgages, using the UK market as an example. Topics discussed include:

•    Climate-adjusted credit risk for retail portfolios
•    Location-specific climate hazards
•    An acute super-flood stresses property-level HPIs and LGDs
•    Ex-post PD climate adjustment
•    Credit losses

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