EY Canada partners with Microsoft on climate stress testing solution

01 March 2024 Consulting.ca 2 min. read
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EY Canada has collaborated with Microsoft to launch the EY Climate Stress Testing and Scenario Analysis solution for financial institutions.

Built on Microsoft Azure, the solution helps financial institutions respond to pressure from regulators and stakeholders to meet climate risk management regulations and standards. The solution enables clients to integrate climate risk in decision-making and portfolio managements processes – combining AI, data analytics, and advanced risk models.

“Our clients recognize the need for reliable systems to effectively manage and report environmental, social, and governance (ESG) data, but finding such systems proves challenging,” said Mario Schlener, EY Canada risk consulting leader. “By combining Microsoft cloud technology and EY ESG risk expertise, we’re providing a powerful solution, complete with the latest industry frameworks and standards to assist clients through the climate reporting process.”

EY Canada partners with Microsoft on climate stress testing solution

Disclosure requirements from the Office of the Superintendent of Financial Institutions (OFSI) and global regulators are pushing firms to advance their climate reporting and transparency. EY’s climate stress testing tool measures and monitors risks associated with the transition to a net-zero economy, while also providing useful insights to assist with decarbonization strategies based on scenario results. It also allows Canadian financial institutions to proactively comply with OFSI’s B-15 guideline and disclosure deadlines.

EY’s climate stress testing tool covers the three key areas of loan portfolio assessment, risk assessment, and long-term growth enablement. First, it evaluates transition risk of a loan portfolio across a range of scenarios, performing sector-specific modeling to measure impact across balance sheet, income, and cash flow.

Second, the tool measures transition risk impact across key metrics such as probability of default, rating migrations, and capital adequacy ratio.

Third, the EY tool addresses an organization’s core capacity and capability gaps, allowing them to identify market opportunities and minimize downside risk from carbon-intensive sectors.

“By joining forces with EY to address regulatory compliance needs, we’re accelerating and magnifying our impact and commitment to advancing innovation in climate technology,” said Jacqueline O'Flanagan, Microsoft Canada financial services industry lead.