Published April 2017
The ‘Drought Stress Testing Tool’ enables banks to assess if a client may be at risk from drought and how drought can affect a sector or region. A clearer understanding of the risk associated with droughts can help build more resilient financial institutions, and by shifting finance to less vulnerable sectors and regions, economies can become more stable and resource efficient. In turn, this helps the planet, as more resource efficient production in less vulnerable areas can produce healthier ecosystems better equipped to absorb shocks such as droughts.
The ‘Drought Stress Testing Tool’ allows financial institutions to see how incorporating drought scenarios changes the perception of risk in their own loan portfolios, based on the catastrophe modelling framework that the insurance industry has used for 25 years. It looks at five drought scenarios in four countries – Brazil, China, Mexico and the US – to model the impact on 19 different industry sectors, the companies in those sectors and the likelihood they will default on their loans.
Find more information and get instructions on downloading the tool here.
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