Climate stress testing in the financial industry

Climate-related risks for the financial sector have been discussed since the then-Governor of the Bank of England mentioned these risks as the tragedy of the horizon. Shortly after, research about stress-testing the impact of climate change on the financial sector was published. They use various methods that address the climate-related Value-at Risk and other financial risks. We conducted a systematic literature analysis in Scopus and analyzed the data using VOSViewer. In addition, we analyzed the most cited papers in detail. Our analyses found that stress testing, as a sustainable finance risk management tool to address financial stability, connects climate change with financial risks. Different stress-testing approaches found significant climate-related financial impacts on equity and loan portfolios. We conclude that research is needed to guarantee reliable, valid, and standardized climate-related stress testing.