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Strengthening our resilience against climate-related scenarios
In 2021, Credit Suisse contributed to a pilot exercise, the Climate Risk Stress Test (CRST) conducted by the Hong Kong Monetary Authority (HKMA). The scope of the analysis was the Lombard collateral portfolio of Credit Suisse Hong Kong Limited. Given that Lombard lending is a short-term form of borrowing, the analysis focused on short risk horizons. In particular, we estimated the potential impact of instantaneous shocks to security prices that could result from either the announcement of restrictive policies on traditional businesses, leading to accelerated transition (portfolio-level transition risk), or from catastrophic physical risk events (portfolio-level physical risk). In addition, the analysis considered possible direct financial and operational impacts of severe weather events affecting the bank’s Hong Kong operations (direct physical risk).
As part of this exercise, we developed a methodology for the calculation of security-level price shocks representing a Climate Minsky Moment scenario, i.e., a sudden, major collapse of asset values driven by a sharp adjustment of investors’ expectations about future climate policies. The shocks are calibrated by referring to the economic projections described in the delayed-transition scenario produced by the NGFS and expanded to the full portfolio by leveraging a dataset of “transition readiness” scores available at the company level.