Financial market participants are under increasing pressure from all stakeholders, including regulators, clients and shareholders, to measure and manage exposure to climate risk, which is becoming more challenging with climate change. Climate stress tests have become essential tools to disclose information about expected revenue losses related to climate risks.

Scope’s Macroeconomic Climate Stress Test (MCST) helps financial market participants better understand and manage the climate risks in their portfolios. And it allows them to monitor how much their lending and investment portfolios are contributing to temperature change hence the extent to which they are aligned with the Paris Agreement to limit global warming to well below +2°C.

Temperature rises have a direct impact on companies’ revenue growth depending on their sector and geographical locations. MCST allows users to apply forward-looking climate-change scenarios across 2,745 sector/country combinations. The tool builds on sector and geographical data to identify climate risks so it can be used independently of companies’ own climate disclosures. This enables portfolios to be assessed without detailed asset-level information.

“Using the orderly, disorderly and hothouse scenarios developed by the Network for Greening the Financial System, MCST users can model revenue losses out to 2050 caused by rising temperatures, more frequent and severe river floods and transition to low-carbon-intensive technologies and they can do that across their entire value chain; scope 1, 2 and 3,” said Hazem Krichene, climate-risk economist at Scope ESG.

“Scope’s MCST offers market participants a scalable feature to measure climate exposure and integrate climate-related risks into risk-management systems without over-burdening disclosure requirements at an asset level,” Krichene added.

Scope’s Macroeconomic Climate Stress Test is available via ScopeOne

Watch Scope's webinar "Measuring exposure to climate risk" here