Federal Reserve Announces Pilot Climate Scenario Analysis Exercise Details

Last week, the Federal Reserve Board (FRB) announced additional details on its pilot climate scenario analysis (CSA) involving six of the largest U.S. banks. The additional details include a Participant Instructions Document that calls for submissions by the participating banks by July 31, 2023. The FRB anticipates that it will publish insights and aggregate data from the exercise at the end of 2023. The FRB stated: "[t]his pilot CSA exercise will support the Board's responsibilities to ensure that supervised institutions are appropriately managing all material risks, including financial risks related to climate change."

As noted in the FRB's announcement, the "CSA exercise comprises two separate and independent modules: a physical risk module and a transition risk module. Physical risks represent the harm to people and property that may result from climate-related events, while transition risks represent stresses that may result from the transition to a lower