Principle 12: Where appropriate, banks should make use of scenario analysis [As stated in the BCBS report Climate-related financial risks - measurement methodologies, scenario analysis is a tool that challenges assumptions made for the purposes of risk analysis. A key feature of the scenarios analysed is to explore alternatives that may significantly alter the basis for "business-as-usual" assumptions. Accordingly, they need to consider extreme but plausible scenarios.] to assess the resilience of their business models and strategies to a range of plausible climate-related pathways and determine the impact of climate-related risk drivers on their overall risk profile. These analyses should consider physical and transition risks as drivers of credit, market, operational and liquidity risks over a range of relevant time horizons. [Reference principles: BCP 15, Stress testing principles]

44. The objective(s) of climate scenario analysis should reflect the bank's overall climate risk management objectives as set out by its board and senior management. These objectives could include, for example: (i) exploring the impacts of climate change and the transition to a low-carbon economy on the bank's strategy and the resiliency of its business model; (ii) identifying relevant climate-related risk factors; (iii) measuring vulnerability to climate-related risks and estimating exposures and potential losses; (iv) diagnosing data and methodological limitations in climate risk management; and (v) informing the adequacy of the bank's risk management framework, including risk mitigation options.