TCFD Climate Financial Risk Stress Test

TCFD Scenario

Warming by 2100 2.4°C

Transition speed (carbon price) Moderate

Stress-test horizon 2040

Portfolio (10 sectors)

Baseline value

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Stressed value

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Physical-risk loss

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Transition-risk loss

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Portfolio Value-at-Risk

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How it works

TCFD (Task Force on Climate-related Financial Disclosures) asks firms to stress-test their balance sheet against two independent risk channels. Physical risk scales with how much warming actually happens — floods, heat and drought damage assets more as the climate departs further from historical norms. Transition risk scales with how fast policy and markets decarbonise — a steep, late-arriving carbon price strands carbon-intensive assets faster than a smooth early one. The two channels can trade off: an orderly transition keeps warming low but taxes fossil assets hard; a delayed, disorderly one lets warming run higher and then forces an abrupt policy shock.

lossᵢ = 1 − (1 − physExpᵢ·H(warming,year)) · (1 − transExpᵢ·C(carbonPrice,year))
VaR = Σ baseValueᵢ − Σ baseValueᵢ·(1 − lossᵢ)

Warming by 2100 — sets the physical-hazard severity curve H(); higher warming compounds nonlinearly, hitting exposed sectors (agriculture, real estate, tourism, insurance) hardest.
Transition speed — the implied carbon-price trajectory; a fast, late transition strands carbon-intensive sectors (energy, mining, transport, manufacturing) hardest.
Stress-test horizon — how many years the shock has to compound; both risk channels grow with time, so the same scenario looks mild at 2030 and severe at 2050.
Scenario presets — Orderly (early, gradual transition, low warming), Delayed (moderate on both), Disorderly (late, steep transition after high warming builds up), Hot-house world (transition stalls entirely, warming runs unchecked) — the four canonical NGFS/TCFD scenario archetypes.

Each tower is one sector asset: height is its current stressed value, the blue ring at its base is physical-risk contribution, the orange ring is transition-risk contribution. Click or hover a tower for its numbers.

Healthy value Lost value Physical-risk ring Transition-risk ring

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