Climate change board

The scarcity of good data on climate risk represents a key challenge for financial firms and regulators trying to manage that risk. Regulators in Singapore have sketched out a model that aims to combine existing climate data with regulatory data to help close that gap and provide preliminary insights on climate-related risks.

As part of the Bank for International Settlements’ (BIS) Innovation Hub, the BIS and the Monetary Authority of Singapore (MAS) developed a proposed platform that integrates existing regulatory and climate data to identify and monitor climate risks for the financial system.

Known as Project Viridis, the model uses available data on financed carbon emissions, scenario analysis as well as physical and transition risk exposures to provide insights into climate-related financial risks.

According to a report outlining the project, “Project Viridis demonstrates that insights on climate risks could initially be drawn from existing available data sources and broadly accepted assessment approaches, albeit nascent. These insights provide supervisors with an early understanding of which entities are more exposed to climate-related financial risks and any potential systemic exposure to sectors and geographies.”

The project sought to use “roughly right” data to give regulators a starting point for assessing climate-related financial risk, with the expectation that the model will evolve over time as the availability of data improves and methodologies evolve.

Celine Sia, assistant managing director of economics and knowledge management at the MAS, said Project Viridis demonstrates how regulatory data can be integrated with climate data, which are extracted from corporate disclosure documents using natural language processing techniques.

“This provides authorities with insights into climate-related financial risks, helping them form an initial view of financial institutions’ risk exposures, and to identify areas that may require deeper risk assessment,” Sia said in a release accompanying the report.

The report noted that while an ideal solution “with perfect information and perfect execution may not be quite within reach, the benefits of consolidating what is already available and making it even more broadly accessible cannot be understated.”

Maha El Dimachki, head of the BIS Innovation Hub Singapore Centre, said that as the impact of climate change on the global financial landscape intensifies, the need for adaptive and forward-thinking strategies has never been more urgent.

“Project Viridis helps equip financial authorities with the insights needed to integrate emerging climate risks into their analysis — and thereby help promote global financial stability,” El Dimachki said in the release.