Stress testing is well known in the world of science. From medicine to engineering, stress testing is commonplace and, since the financial crisis, it has become a well-known term in banking too. In addition to deep recessions and market crashes, central banks are beginning to look at how lenders’ balance sheets would cope in the worst climate change scenarios.
“Clearly, climate change matters for the environment and for our planet. What has become self-evident now, even if it was not five years ago, is that climate change creates financial risks,” said Sarah Beeman, an executive director at the Bank of England (BoE) at an industry event in July 2020. Climate change is “the defining issue of our time”, added Ms Beeman, who is involved in the institution’s work on climate.
