Comment Text:
Climate change has been treated as a part of ESG so that all vendors provide measurement on carbon footprint and physical damage. While useful for asset managers who use the ESG approach of score-and-filter, this does not work for risk managers.
The challenge for market risk is to adapt governmental policy that sets targets to 2050 and make it relevant today.
Stress occurs when the future shoots forward to the present when the market realises how much a company (e.g. Volkswagen) needs to invest to transition to new technology (ICH to EV).
For CFFC markets, the most likely source of a shock is an imposition governmental policy. The UK has put into law the requirement that all cars made after 2035 must be EV. I wonder what would happen if the US government introduced a similar policy?
