We do carry out scenario analysis, but it may or may not include climate-related and other ESG issues.
Two types of scenarios are used in our forward-looking stress tests:
- Economic scenarios reflecting current concerns. These scenarios are constructed by applying economic research to the translation of economic variables into portfolio risk drivers.
- Hypothetical scenarios simulating plausible future shocks that might not have happened in the past or are not inferred from the current economic scenario. These scenarios employ principal components to arrive at a comprehensive list of scenarios across asset classes that are used to shock the portfolio. This allows us to explore the tails in ways that history has not yet evidenced. The scenarios may or may not include climate-related and other ESG issues.