Climate risk overlays unnerve model-validation teams
- Media Manager
- Dec 5, 2023
- 1 min read
Risk
Written By: Natacha Maurin
Published: December 5th, 2023
Banks lack both the historical data and the technical expertise to validate models for assessing environmental, social and governance (ESG) risks, model risk managers have warned. This leaves them caught between the need for overlays to fill in the data gaps, and a shortage of suitable staff to challenge qualitative judgements in ESG models.
“[There is] scepticism towards some of these more expert-based input overlays to models, probably not only from regulators, but also sometimes from us in validation,” said Jens Jakob Rasmussen, head of model risk management at Rabobank, on November 30.
He was among panellists speaking at the Risk Live Europe conference in Amsterdam, where attention focused on a report released by the European Banking Authority (EBA) in October on integrating environmental and social risks into the prudential framework. The paper suggested the use of “human judgement and overrides” in ESG risk modelling.
