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Climate change scenarios and stress testing

Evaluate climate change risks and opportunities

Regulators, investors, and banks around the world are accelerating their efforts to evaluate and strengthen the resilience of financial systems to climate change and related policy actions. Banks and their supervisors are exploring physical and transition risks under various climate stress test or exploratory scenario exercises and investors are keen to quantify the impact on their portfolios and position themselves to capture opportunities under different climate change scenarios.

We support institutions’ stress testing and strategic decision making with a set of climate change scenarios. These scenarios describe how different sets of stakeholders will shape policies and actions as we move towards a future with lower greenhouse gas (GHG) emissions.

Understand the economic factors of climate change risks A methodology for better decisions in the age of energy transition
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Regulatory climate stress scenario expansion

Our economist and modeling teams support financial institutions who are undertaking regulatory climate stress test or scenario analyses with modeling support and long-term projections of industry and country specific economic and financial variables. We construct and expand scenarios which are consistent with the assumptions provided by regulators such as the commonly referred scenarios from the Network of Central Banks and Supervisors Network for Greening the Financial System (NGFS).

Our economist and modeling teams leverage award-winning integrated models to offer geographical, industry level and macro-financial variable expansion services for regulatory climate stress test or exploratory exercises.


Economic & climate risk interactions

Numerous touch points between physical and transition risk factors and economic/financial performance

Proprietary climate scenarios

To assist institutions with managing risks effectively and identifying opportunities, we also prepare plausible and integrated climate scenarios with a 30-year horizon including two net zero greenhouse (GHG) emissions cases:

Inflections scenario, our base case, includes pivotal shifts in social, policy, and market forces that drive fundamental change in energy markets.

Discord scenario imagines a dysfunctional world in which the political turmoil of 2020 returns after a short rebound, hampering economic growth and creating investment uncertainty and inertia. Some trends toward decarbonization continue, but many fade away.

Green rules scenario outlines a super-charged reaction following the pandemic and climate-related disasters where populations demand strong government action and cooperation to provide security around health and physical environment. The Green Rules scenario has two further modes that assume achieving net zero emissions by 2050 and work backwards from there:

  • Accelerated Carbon Capture and Sequestration (ACCS) includes widespread use of CCS to offset emissions from energy and hard-to-abate industrial sectors.
  • Multitech Mitigation (MTM) includes only a small amount of CCS, and instead relies on diversification of energy supply and extensive electrification of all sectors and economies based on renewable capacity.

Custom scenarios based on specific narratives around energy transition and climate change.

What’s available through our climate scenario services

  • Carefully crafted narratives, including comparative tables and charts.
  • Inputs into scenario design and narratives from our country and sector experts across industries such as energy and automotive.
  • Simulations that consider the dynamics of the energy transition and fuel substitution possibilities.
  • Unique set of assumptions for each scenario, which include economic factors, geopolitical environment, and focus to reduce carbon emissions to net zero through policies and carbon pricing, and consumer behavior, among others.
  • Data sets and detailed assessments of the scenario implications on financial markets, asset prices, and funding requirements at a country by country as well as regional and global levels.
  • Scenario solution files for clients who have access to our economic models.
  • Transparent model development and validation documentation.
  • Customer support and direct access to the practitioners who construct and model the scenarios.

Experts

Metin Epozdemir

In this role, Metin partners with clients and the research teams to develop bespoke solutions that enable them to meet regulatory requirements and implement best practices for risk management. He is the voice of the customer for product development and research teams assisting with product roadmaps and research priorities. Metin is also responsible for providing subject matter expertise around the design and implementation of macroeconomic forecasting, scenario planning, stress testing, capital adequacy planning, and expected credit loss accounting (such as CECL and IFRS 9). Metin has more than 20 years of experience in finance, credit, risk management, and technology solutions. Prior to joining IHS Markit, he worked at Moody's Analytics, S&P Global, Crisil Global Research and Analytics, and Ford Credit Europe in a range of commercial and analytical roles to designing and implementing solutions for risk management. Metin has a Bachelor of Science degree in Mechanical Engineering from Bogazici University in Istanbul, Turkey. He is a CFA charter holder and speaks English and Turkish fluently.

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Jonathan Ablett

Mr. Ablett leads the IHS Markit team in charge of scenario design and new macroeconomic and sectoral economic models. As part of this work, he helps develop customized macroeconomic scenarios for due diligence, regulatory stress tests, impact analysis, and strategic planning purposes. He leads the team that implements these scenarios, operates the IHS Markit proprietary macroeconomic model, and designs new models for additional client purposes.Prior to joining IHS Markit, Mr. Ablett was an Expert at the McKinsey Global Institute, the think tank of McKinsey and Company, where he specialized in applied economic and strategic analysis for both private and public sector clients. Prior to joining McKinsey, Jonathan worked at the Massachusetts House Ways & Means Committee developing budget and policy recommendations and the World Bank. He holds an M.A. in Economics from McGill University and an M.B.A. from Babson College.

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Chris Varvares

Mr. Varvares has nearly 40 years of experience in macroeconomic modeling, forecasting and policy analysis, as co-head of US Economics at IHS Markit, in his previous role as a principal of Macroeconomic Advisers and as a member of the staff of the President's Council of Economic Advisers (1981-1982); he served as a member of the US delegation to the OECD in April 1982. Macroeconomic Advisers was acquired by IHS Markit in 2017. He and the IHS Markit US economic principals serve as consultants to key agencies of the US and foreign governments, major trade associations, and private corporations, and are widely quoted in the business and financial media. IHS Markit is widely recognized as among the most accurate forecasters of the US economy. Mr. Varvares is a recent past president and a former director of the National Association for Business Economics (NABE). He served as president of the NABE Gateway chapter in St.Louis and is a member of the American Economic Association. He serves as a member of the New York State Economic and Revenue Advisory Board and has participated in the meetings of the Outside Consultants to the CBO, has been a panelist for the World Economic Forum, and he sits on advisory boards for the Olin Business School at Washington University and the Walker School of Business and Technology at Webster University. Mr. Varvares holds a Bachelor of Arts in Economics from The George Washington University and received his graduate training (ABD) in Economics from Washington University in St. Louis, where he was also a member of the adjunct faculty in both the economics department and the Olin School of Business.

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Joel Prakken, Ph.D.

A thought-leader on US economic outlook, monetary policy forecasts and fixed income markets with over 30 years of experience and expertise as a macroeconomic modeler, Dr. Prakken has developed an unmatched structural-econometric model of the US economy. He co-founded Macroeconomic Advisers which was acquired by IHS Markit in 2017. Prior to founding Macroeconomic Advisers, Dr. Prakken held the position of senior economist at the World Headquarters of the IBM Corporation and before that he served with the Federal Reserve Bank of New York, US. He also has held positions on the faculties of New York University's Graduate School of Business, the Economics Department of Washington University, and the Olin School of Business at Washington University. He is the past president and a fellow of the National Association for Business Economics (NABE). He is also past president of the Gateway Association of Business Economists in Saint Louis. Dr. Prakken has many publications to his credit, including papers written for the Council of Economic Advisers, the American Council for Capital Formation, and the Center for the American Study of Business on topics ranging from tax reform to budget policy to monetary policy to the impact of technology on productivity. He has testified on these topics before committees in both the US House of Representatives and the Senate. Dr. Prakken has participated in meetings of the Outside Consultants to Board of Governors of the Federal Reserve System, is a past member of the Panel of Economic Consultants to the Congressional Budget Office and is a current member of the advisory committee of the Bureau of Economic Analysis. Dr. Prakken completed his undergraduate degree in economics at Princeton University, and holds an MA and Ph.D. in economics from Washington University in Saint Louis, United States.

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Kathleen Navin, CBE

She joined IHS Markit through the 2017 acquisition of Macroeconomic Advisers, where she joined June 2010. Her primary responsibilities pertain to the US Macro Insights (USMI) service and to special reports and projects that utilize the proprietary macroeconomic model, MA/US. Ms. Navin is the technical lead on the Macroprudential Scenarios Service, coordinating and contributing to the development of scenarios and supporting products. In 2015, she became a member of the National Association of Business Economics' inaugural class of Certified Business Economists. She was a research associate at the Federal Reserve Bank of Kansas City in the division of Macroeconomics and Monetary Policy. Ms. Navin graduated with a Bachelor of Science degree in Economics in 2007 from the University of Missouri, where she went on to earn a Master of Arts degree in Economics in 2008.

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David Iaia

Mr. Iaia oversees the state, metro, and county forecasts covering more than 300 metropolitan areas and 3,100 counties. He manages staffing and has an active role in development and enhancement of the group's data methodology. Additionally, he is the primary analyst for Virginia, Maryland, the District of Columbia, and Connecticut. He has done consulting work on the cost of doing business in states and for the U.S. Conference of Mayors on the importance of metro areas in the national economy. Prior to joining the company in 1998, Mr. Iaia was a graduate student in economics at Brown University, completing all the requirements but the dissertation. He also holds a Bachelor of Arts in Economics from Amherst College.

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Michael Konidaris

Mr. Konidaris leads the product development for the CECL implementation by financial institutions. His responsibilities include the construction of cross-asset class econometric models, the development of forecasts for Libor, Swap and Corporate Bond rates, and the construction of simulations of global economic scenarios to evaluate the P&L of clients' portfolios.Mr. Konidaris joined IHS Markit through the 2017 acquisition of Macroeconomic Advisers. He has worked as an economic consultant on the forecasting team at Roubini Global Economics and as a research intern at The Midway Group, a hedge fund specializing in the US residential mortgage market. He completed his military service as a sailor at the Hellenic Navy and co-founded and served at the board of directors of AUEB's Investment and Finance Club, the first ever finance club in a Greek University. Mr. Konidaris holds a Bachelor of Science degree in accounting and finance from Athens University of Economics and Business (AUEB), Greece, and a Master of Arts degree in economics from New York University (NYU), US.

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Elisabeth WaelbroeckRocha

Between 2000 and 2012, Elisabeth Waelbroeck-Rocha was Chief Economist and Vice-President of BIPE, a French consulting company. Prior to that she worked 15 years at Standard & Poor's DRI, a predecessor of IHS Markit Global Insight, where she was Chief European Economist and Research Director for Europe. Dr. Elisabeth Waelbroeck-Rocha holds a Ph.D. in Economics, a Master's degree in Econometrics and a Degree in Economics from the University of Brussels, Belgium. She worked two years as a Post-Doctoral Fellow at the University of Manitoba, in Canada.

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