ADEME ANALYZES THE RESULTS OF THE CLIMATE PILOT EXERCISE
The climate pilot exercise conducted in 2020-2021 by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) is an exercise of unprecedented scope. It required the mobilization of a large panel of French and foreign players, the development of new tools and specific metrics as well as the coordination of almost all French banks and insurances by the supervisor for one year. Based on the simulation framework developed by the Network for Greening the Financial System (NGFS), the exercise made it possible to assess the impact of a variety of transition and physical risks, both on a broad scope of financial institutions (banks and insurance companies), over a long time horizon (2050), at a broad geographical level (France, Europe, the United States, the rest of the world) and at a fine sectoral level (55 sectors), as well as on multiple portfolio segments (credit and market risks).
ADEME welcomes this work, whose main results are in line with its own prospective studies (National Low-Carbon Strategy, ADEME Visions). The agency encourages the continuation of these stress tests by the supervisors.
ADEME has carried out a detailed reading of the assumptions and results and proposes several avenues of methodological development for future exercises, particularly concerning the assumptions of long-term scenarios and macroeconomic modeling. In the pilot exercise, the transition risk did not emerge as a strong systemic risk for French financial institutions, given their moderate exposure to the sectors that would be most impacted in the proposed scenarios. The NGFS scenario framework of coordinated policies with gradual effects produces significant sectoral shocks over time, but without generating major financial shocks over the time horizons corresponding to the maturity of the portfolios.
In particular, ADEME proposes to enrich the transition scenarios with levers other than the carbon price alone (standards, regulations, bans), to include scenarios with more unfavorable socio-economic assumptions (transition in a fragmented world, lower productivity, thwarted maturity of renewable energies and carbon sequestration technologies), and to include the economic cost of physical risks and the financial costs of disordered transition, particularly stranded assets. Further work will be produced with this objective in the Finance ClimAct project.