60 / 2020 / 09 / 2020 - tcfd _ status - report. pdf. - 6physical and transition risk factors facing financial firms, formulates appropriate stresses of those risk factors under different scenarios, and measures their effects on individual firms and the financial system as a whole. 20 in part because of the different nature of climate - related risks relative to financial and economic downturns and the significantly longer planning horizon, this is distinct from established regulatory stress tests at banks, which are used to assess capital adequacy over a relatively short horizon. measuring, modelling, and managing climate risk in the banking system supervisors are responsible for ensuring that supervised institutions are resilient to all material risks, including those associated with climate change. the economic and financial market consequences of climate change and the accompanying economic transition will have direct implications for bank balance sheets, strategies, and operations, and could increase credit, market, liquidity, or operational risk at banks. these climaterelated developments may affect the creditworthiness of corporate, household, and government borrowers. 21 climate - related risks may reduce a borrower ’ s repayment see network for greening the financial system, guide to climate scenario analysis for central banks and supervisors, june 2020, https : / / www. ngfs. net / sites / default / files / media / 2020 / 06 / 29 / ngfs _ guide _ scenario _ analysis _ final. pdf. the bank policy institute has noted, “ it is important that research continues in this area and that banks continue to make advancements in their internal scenario analysis ” and that “ banks, central banks and supervisors partner with the climate modelers to ensure that expertise is shared across the disciplines, ” francisco covas, “ challenges in stress testing and climate change, ” bank policy institute, october 19, 2020, https : / / bpi. com / challenges - in - stress - testing - and - climate - change /. for example, barrot and sauvagnat find that firms experience an average drop of 2 to 3 percentage points in sales growth following a major natural disaster that hits one of their suppliers. see jean - noel barrot and julien sauvagnat, “ input specificity and the propagation of idiosyncratic shocks in production networks, ” the quarterly journal of economics ( august 2016 ) : vol. 131 no. 3, https : / / academic. oup. com / qje / article / 131 / 3 / 154

##finalguideonclimaterelatedandenvironmentalrisks ~ 58213f6564. en. pdf. institute of international finance sustainable finance working group, “ letter to the ngfs on climate risk analysis and measurement, ” december 16, 2019, https : / / www. iif. com / portals / 0 / files / content / regulatory / 12162019 _ iif _ sfwg _ climate _ letter _ to _ ngfs. pdf see kevin stiroh, “ the basel committee ’ s initiatives on climate - related financial risks ” ( remarks at the 2020 iif annual membership meeting, basel, october 14, 2020 ), https : / / www. bis. org / speeches / sp201014. htm. see bank for international settlements, “ basel committee publishes stocktake report on climaterelated financial risk initiatives, ” news release, april 30, 2020, https : / / www. bis. org / press / p200430. htm. - 10 climate change and community reinvestment financial institutions can also help communities and individuals build greater resilience to climate risk. recent research highlights the significant ways in which lowerincome households and underserved areas are affected by natural disasters and climate risk. 29 lower - income households with low levels of liquid savings tend to be less resilient to the temporary loss of income, property damage, displacement costs, and health challenges they face from disasters. 30 in addition, low - and moderate - income ( lmi ) communities are often located in areas that are particularly vulnerable to climaterelated risks, have greater health - related impacts due to climate change, or have housing that is more susceptible to disaster - related damage. 31 under the community reinvestment act ( cra ), banks have an affirmative obligation to meet the needs of their local communities, including lmi communities. existing cra regulations allow banks to receive cra credit for activities to revitalize see federal reserve bank of new york, “ reducing climate risk for low - income communities, ” news release, november 19, 2020, https : / / www. newyorkfed. org / newsevents / events / regional _ outreach / 2020 / 1119 - 2020 ; and jesse m. keenan and elizabeth mattiuzzi, “ climate adaptation investment and the community reinvestment act, ” community development research briefs ( june 16, 2019 ), https : / / www. frbs