EY Canada, Microsoft launch climate stress testing initiative for FIs

Consulting and accounting firm EY Canada today launched the EY Climate Stress Testing and Scenario Analysis solution, a service running on Microsoft Azure which it said is designed to help safeguard Canada’s financial sector against the impacts of climate change.

Mario Schlener, EY Canada risk consulting leader, said a key reason for the system’s development is that “our clients recognize the need for reliable systems to effectively manage and report environmental, social, and governance (ESG) data, but finding such systems proves challenging.”

The initiative, according to a release, “combines data analytics, artificial intelligence (AI), cloud technology and top-tier risk models to further Canada’s transition to a low-carbon economy.”

The release went on to say that “disclosure requirements established by the Office of the Superintendent of Financial Institutions (OSFI), along with regulations imposed by other global authorities, are compelling financial institutions to prioritize climate reporting and transparency.

“Through collaboration with the Canadian financial services sector, this solution not only evaluates the impact of transition risk across various sectors of the economy, but also provides valuable insights to assist financial institutions in strategizing for client engagement initiatives and refining their decarbonization strategies based on scenario results.”

Katerina Kindyni, financial institutions sustainability leader with EY Canada, said, “operational readiness, resource constraints, and the evolving regulatory landscape pose significant challenges to the seamless execution of climate scenario analysis and stress testing programs.”

The new initiative, she said, is a “centralized tool that enables FIs (financial institutions) to efficiently identify, measure and monitor risks associated with the transition to a net-zero economy, while seamlessly integrating market intelligence into an organization’s infrastructure.”

According to the release, the tool covers three key areas:

  • Loan portfolio assessment: Helps financial institutions evaluate the transition risk of their loan portfolio by leveraging a spectrum of Network for Greening the Financial System (NGFS) scenarios. It also performs sector-specific modeling of transition risk and estimates the financial impact across the balance sheet, as well as income and cash flow statements of counterparties.
  • Risk assessment: The solution is configured with a climate risk management module that measures the impact on key risk metrics such as Probability of Default (PD), Rating Migrations (RM), and Capital Adequacy Ratio (CAR). It also evaluates the impact of transition risk on the portfolio and provides valuable insights that inform overall decarbonization strategies and mitigation actions.
  • Long-term growth enablement: Addresses an organization’s core capacity and capability gaps from a continuous improvement perspective. This allows clients to identify themes, track progress against goals, and identify market opportunities, while minimizing downside risk from carbon intensive sectors.

Jacqueline O’Flanagan, Microsoft Canada’s financial services industry lead, said the company is “dedicated to promoting sustainability in financial services through our cloud, data, and AI (offerings) that address ESG priorities.

“By joining forces with EY to address regulatory compliance needs, we’re accelerating and magnifying our impact and commitment to advancing innovation in climate technology.”

Would you recommend this article?

Share

Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.


Jim Love, Chief Content Officer, IT World Canada

Featured Download

Paul Barker
Paul Barker
Paul Barker is the founder of PBC Communications, an independent writing firm that specializes in freelance journalism. His work has appeared in a number of technology magazines and online with the subject matter ranging from cybersecurity issues and the evolving world of edge computing to information management and artificial intelligence advances.

Featured Articles

Cybersecurity in 2024: Priorities and challenges for Canadian organizations 

By Derek Manky As predictions for 2024 point to the continued expansion...

Survey shows generative AI is a top priority for Canadian corporate leaders.

Leaders are devoting significant budget to generative AI for 2024 Canadian corporate...

Related Tech News

Tech Jobs

Our experienced team of journalists and bloggers bring you engaging in-depth interviews, videos and content targeted to IT professionals and line-of-business executives.

Tech Companies Hiring Right Now