Climate risk assessment

ID	MOD-152
System	SD06
Repo	bank-risk-platform
Build status	Not started
Deployed	No

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Purpose

The climate risk assessment module provides continuous automated assessment of climate-related financial risk across the platform's lending portfolio. It integrates physical risk (property-level hazard exposure for mortgage collateral) and transition risk (high-carbon sector concentration in the lending book), feeds climate indicators into the Risk Appetite Framework dashboard, registers climate stress scenarios with the stress testing engine, and generates the annual TCFD-aligned climate disclosure report from live model outputs. No manual climate risk assessment is required.

What it does

Physical risk assessment for mortgage collateral

Integrates with a configurable third-party property climate hazard API (RiskSmart, NIWA NZ, or equivalent AU provider) to obtain physical risk scores for all properties held as mortgage collateral. Scores cover: flood risk (1-in-100-year and 1-in-200-year event probability), wildfire risk, coastal inundation risk under sea level rise scenarios (+0.5m, +1.0m, +2.0m), and an aggregate physical risk tier (low / medium / high / very high). Scores are refreshed annually and whenever the hazard API publishes a material dataset update. Each property's risk tier is stored in risk.property_climate_risk with the LVR and outstanding balance from the core ledger. Portfolio-level metrics: total mortgage book exposure by risk tier, geographic concentration (territorial authority / postcode), and LVR-weighted average exposure per tier. When physical risk concentration in any tier exceeds the configured RAF threshold, the CRO is alerted automatically.

Transition risk — sector concentration analysis

Each business and SME lending counterparty is classified by ANZSIC sector code drawn from their CDD profile (MOD-010). ANZSIC codes are mapped to a climate transition risk tier using TCFD sector guidance and RBNZ/APRA classifications: high-transition-risk sectors include fossil fuel extraction, heavy manufacturing, high-emissions-intensity agriculture, aviation, and cement/steel production. Portfolio concentration by transition risk tier is computed continuously and monitored against configured RAF limits. Over-concentration in high-transition-risk sectors triggers an advisory alert to the CRO and credit risk team.

Climate stress scenarios

Two climate stress scenario types are registered with the stress testing engine (MOD-034): (1) acute physical risk — a severe flood event affecting the top decile of highest-risk postcodes in the mortgage book, modelling collateral value impairment and resulting credit losses; (2) rapid policy transition — a carbon price shock causing credit deterioration in high-transition-risk lending sectors, modelled as a probability-of-default uplift and LGD adjustment. Both scenarios follow RBNZ FSAP specification templates. Results are expressed as CET1 basis point reduction and are included in the ICAAP stress section from MOD-034.

TCFD disclosure report

On the configured annual schedule, the module generates a TCFD-aligned climate disclosure covering the four TCFD pillars. The Governance and Strategy narrative sections are template-based and require institution input before publication; the Risk Management and Metrics & Targets sections are populated automatically from live climate risk model outputs: portfolio physical risk exposure by tier, transition risk sector concentration, climate stress test results, and year-on-year trend for each indicator. The completed document is stored as an immutable record in bank-reports-prod S3 with a version hash.

Compliance reason

The NZ Climate-related Disclosures Act 2021 mandates TCFD-aligned disclosure for in-scope NZ financial institutions from FY2023. APRA CPG 229 requires AU ADIs to identify, assess, and manage climate risk within their existing risk frameworks. The RBNZ has signalled climate stress testing as part of its supervisory programme. Mortgage portfolios carry material physical risk from flood, wildfire, and coastal inundation — risks that are not reflected in historical credit models and require a dedicated assessment capability.

Commercial reason

Understanding which postcodes in the mortgage book carry the highest physical climate risk, and what proportion of the book those postcodes represent, is fundamental portfolio risk management. The module converts property data already held in the platform and a third-party hazard API feed into a continuously maintained climate risk view that would otherwise require a significant manual exercise — and which most deploying institutions do not have the in-house capability to build.

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Module dependencies

Depends on

Module	Title	Required?	Contract	Reason
MOD-034	Stress testing scenario engine	Required	—	Climate stress scenarios (acute physical event, rapid policy transition) are registered with and executed by the stress testing engine; MOD-152 provides scenario inputs and MOD-034 executes them.
MOD-042	CDC pipeline — Neon logical replication to S3 Iceberg	Required	—	CDC pipeline delivers mortgage and lending portfolio data to Snowflake for physical risk scoring and transition risk analysis.
MOD-033	RWA & capital ratio engine	Required	—	Transition risk capital impact calculations use current RWA and CET1 from the capital ratios engine as the baseline.
MOD-001	Double-entry posting engine	Required	—	Outstanding lending balances per property and counterparty are sourced from the core ledger for exposure aggregation.
MOD-010	CDD tier assignment engine	Required	—	Business lending counterparty CDD profiles provide the ANZSIC sector codes used for transition risk classification.
MOD-102	Snowflake account configuration & governance	Required	—	Snowflake compute layer where climate risk models run.
MOD-104	AWS shared infrastructure bootstrap	Required	—	MOD-104 provisions the S3 Iceberg bucket (Snowflake external tables), KMS key, and bank-risk-platform EventBridge bus ARN. Required before this module can be deployed.

Required by

(No modules in this wiki currently declare a dependency on this module.)

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Policies satisfied

Policy	Title	Mode	How
CLQ-007	Climate Risk Management Policy	CALC	Physical and transition risk scores computed continuously across the lending portfolio and integrated with the stress testing engine — no manual climate risk assessment required.
REP-012	TCFD Climate Disclosure Policy	AUTO	TCFD-aligned climate disclosure report generated from live model outputs on annual schedule — metrics and targets section fully automated.
GOV-002	Risk Appetite Statement Policy	ALERT	Climate risk indicators (physical risk concentration, high-transition-risk sector exposure) included in the RAF dashboard; breach of climate risk appetite limits triggers automatic Board alert.

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Capabilities satisfied

(No capabilities mapped)

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Part of SD06 — Snowflake Analytics & Risk Platform Compiled 2026-05-22 from source/entities/modules/MOD-152.yaml