Climate and environmental risks now regulated requiring integration into core credit risk frameworks

EU CRR3 CRD6 and UK SS3 19 drive standardization of physical and transition risks and alignment with counterparties transition plans

NGFS climate scenarios useful but long horizons and no probability weighting challenge short term planning

Large banks build internal models others use NGFS pathways with focus on counterparty and sector data

Stress testing links climate impacts to PDs via channels like higher carbon prices reducing profitability

Physical risk uses geolocation hazard mapping calibrated to NGFS macroeconomic losses

Scenario analysis supports ICAAP and strategic decisions despite model limits

Data gaps resource constraints and uncertainty remain but inaction risk is greater