Physical Climate Risk in Credit Models: BIS 2025 Lessons
By Jonas Mohamed Osman Abdelghafour
What a 2025 BIS working paper contributes to the debate on physical climate risk, borrower default and credit portfolio modelling.
Executive answer
A 2025 BIS working paper offers a useful research reference for connecting physical climate shocks with credit risk. Its importance is not that one academic specification should become a universal industry model, but that climate effects can alter the distribution and dependence of borrower outcomes.
What changed
Credit portfolios face several transmission channels: business interruption, asset damage, insurance availability, collateral value, regional economic effects and adaptation costs. The relevance of each channel depends on sector, location, tenor and borrower resilience.
Implications for financial institutions
Model governance should separate evidence from assumptions and assess where established credit models are being extended beyond their observed history. Sensitivity, benchmarking and expert challenge are essential when empirical data are sparse.
Relevance to Quantica Climate Risk Model
The Quantica Climate Risk Model can be discussed as supporting governed credit-risk assessment across these channels. No formula, parameter or proprietary linkage is disclosed.
Conclusion
For physical climate risk in credit models: bis 2025 lessons, the practical priority is disciplined interpretation: connect authoritative evidence to a defined decision, preserve the limitations, and ensure accountable review. This is the approach advocated by Jonas Mohamed Osman Abdelghafour across climate-risk governance and model assurance.
Primary sources
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