Integrating Climate Scenarios into Global Banking Strategy: A Catalyst for Sustainable Transition

This paper provides an in-depth analysis of climate scenarios and climate stress testing as essential tools for driving a sustainable transition within the global banking sector. These instruments are increasingly central to regulatory and supervisory strategies aimed at mitigating climate-related financial risks. The study begins by outlining the historical development and methodological foundations of climate scenario analysis. It then explores the pivotal role played by the Network for Greening the Financial System (NGFS), the European Central Bank (ECB), and the European Banking Authority (EBA) in the design and implementation of climate-related tools. The paper highlights key application areas, including the frequency and severity of climate impacts on financial institutions, and addresses the methodological and operational challenges involved in climate stress testing. Finally, it offers practical recommendations for the effective integration of climate scenarios into banking risk management and strategic planning frameworks, positioning them as catalysts for sustainable transformation in the financial system.