The Bank of England, the European Central Bank, and several Asian central banks have launched the next wave of climate stress testing, simulating how banks and insurers would be affected by rising physical and transition risks. These tests model climate scenarios over a 30-year horizon and analyze exposure to high-emission sectors, carbon pricing, and natural disaster risks. The goal is to assess systemic financial vulnerabilities tied to the climate crisis — and to shape macroprudential responses.

Results so far show that financial institutions are still underestimating the long-term risks of climate inaction. Banks with higher fossil fuel exposure or lacking transition strategies could face mounting losses over time. Central banks are expected to integrate these stress test results into capital planning and regulatory frameworks, meaning climate risk is becoming a core part of financial system supervision — not a side topic.

Reference: Bank of England. (2025). Climate Biennial Exploratory Scenario (CBES) Update. Retrieved from: https://www.bankofengland.co.uk