The US Federal Reserve’s pilot climate scenario analysis is credit positive for participating US banks because it will help identify potential risks and promote the integration of climate risk into their enterprise risk management practices. The Fed exercise is focused on the change in probability of default, loss given default and, where applicable, internal risk ratings, rather than aggregated loss estimates, as are typically the outcome of stress-testing exercises.

ESG issues will come into sharp relief this year as corporate debt issuers grapple with growing scrutiny over their decarbonization plans, social risks intensify and the rules of the road for ESG investments evolve – all in an environment of heightened macroeconomic, financial and geopolitical risks.

Climate change, which is driving more frequent and increasingly severe natural catastrophes, is a growing threat to reinsurers because they accumulate losses from primary companies.

Access and affordability risks will remain elevated, corporate decarbonization pledges will face greater scrutiny, companies will face a complex regulatory landscape and the credit cycle will test issuers' governance capabilities.

How can users distinguish what makes a good climate risk model versus an inadequate one? Let’s take the case study of Hurricane Ian in 2022 to examine how well a climate risk model can reflect the reality and complexity of climate and weather events both now and in the future.

Our summary of the latest regulatory state of play across key jurisdictions for 2022, 2023, and beyond.

Lasting income and savings losses in Asia-Pacific economies with large informal sectors could constrain private consumption. Post-pandemic labor mismatches risk weakening growth potential and public pressure to address worsening income inequality could heighten political risks or spur additional government spending.

Climate change is widely accepted as the next great integrated risk challenge. To ensure long-term economic resilience, a wholly robust and comprehensive approach for estimating climate impacts will be required, one that captures real asset losses as well as distributive business interruptions.

As the market for physical climate risk solutions grows, both the degree of divergence and uncertainty remains very high for risk scoring estimates across different applications, making it nearly impossible for customers to confidently navigate physical climate risk.

The US higher education sector, already challenged by demographic trends that have led to a shrinking pool of high school graduates, faces broader societal trends that will heighten enrollment volatility for some institutions. Smaller public and private institutions are particularly at risk because they are highly dependent on tuition revenue and do not have strong brands or deep applicant pools.

Indonesia plans to sharply increase renewable energy capacity to achieve net-zero emissions by no later than 2060. Supportive government policies will be vital to meet the country’s renewable expansion targets and to attract private capital into the energy sector. The credit impact of the energy transition will be manageable for rated issuers.

The credit impact of ESG considerations is highly negative or very highly negative for about 20% of the more than 5,700 debt issuers that we have scored for exposure to ESG risks. The credit impact of these risks is most pronounced among corporate, sovereign and sub-sovereign issuers.