Establishing Best Practices for the Assessment of Physical Peril Risk Models
Climate-related financial risks are a real and present danger, with impacts already reverberating throughout the United States’ (U.S.) financial and housing markets. Under the Biden Administration, several federal agencies have made significant progress toward establishing regulations and oversight mechanisms that address this issue. However, much of the focus has been placed on transition risk, which has led to a lack of focus on physical risk.
Currently, financial and housing markets are flooded with third-party service providers claiming to provide reliable physical risk assessments. The majority of these service providers have neither the breadth nor the quality of data necessary for reliable and actionable analyses. Confusion persists for both regulators and their covered financial institutions. As such, there is a need to establish a clear set of best practices for assessing physical climate-related financial risks.
