Assessing Financial Stability through the Lens of Climate Change – An in-depth look at climate stress tests

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Lead authors: Sophie Fournier and Nestor Toroman
Authors: Joao Paulo Serta (Institut Louis Bachelier ), and Stéphane Voisin (Institut  Louis Bachelier )

This article seeks to demystify the workings and structure of climate stress tests. It aims to establish a stronger link between the theoretical knowledge of academia and the practical experiences of finance professionals, providing essential clues for integrating climate-related factors into financial practices. This article aims to facilitate a deeper understanding of these critical domains for practitioners, regulators, and academics.
This work is the result of the Research & Development department of the Institut Louis Bachelier dedicated to sustainable finance known as ESG Lab. It is supported by a team of 15 ESG analysts who specialize in this field.
Institut Louis Bachelier was established in 2008 by the French Treasury and the Caisse des Dépôts et Consignations to funds, develop and promote academic research in economics and finance.
This article is part of the collaborative efforts between ILB Labs and researchers from the PARC foundation (Paris Agreement Research Commons). PARC serves as a research and data collaboration hub, dedicated to fostering a collaborative research environment for the development of applied research, robust tools, and modelling in the realm of sustainable finance.

The authors would like to express their sincere thanks to the experts and financial institutions that contributed significantly to the production of this paper, whether through bilateral consultations or by participating in its review. Special thanks are extended to Peter Tankov (ENSAE), Frédéric Ghersi (CNRS, CIRED), Antoine Mandel (Panthéon Sorbonne), Paul Champey (NGFS and Banque de France), Laurent Clerc (ACPR). Their generosity in sharing their time and knowledge has enriched this document with valuable perspectives and essential clarifications.