Stress tests related to climate risks are planned to be conducted in Azerbaijan's banking sector in the coming years, the Central Bank of Azerbaijan (CBA) told Report.
The bank noted that their implementation is envisaged by the action plan within the Roadmap for Sustainable Finance for 2023-2026.
"First of all, a database for testing will be created, and then the results of these tests will be analyzed to develop appropriate measures. Conducting climate stress tests is an important part of the CBA's agenda related to ensuring resilience to risks. Preparatory work in this direction will begin in the near future within the cooperation with international partners," the Central Bank noted.
The Roadmap for Sustainable Finance provides for the importance of taking urgent measures to reduce the impact of climate change and environmental risks. Climate risks affect financial institutions through physical and transition risks. Physical risks include the direct impacts of climate change, such as floods and droughts, while transition risks are associated with the process of transition to a low-carbon economy. These risks are relevant for the economy and financial sector of Azerbaijan in both the short and long term.