Case Study

Climate Scenarios for Australia’s Financial Sector

Supporting a major Australian bank to transition from compliance to strategy

Details:

Oxford Economics Australia partnered with a Major Australian Bank to deliver a comprehensive climate stress-testing framework, aligned with the Network for Greening the Financial System (NGFS) scenarios and calibrated to Australia’s unique economic structure. The work provided the Bank with robust, locally tailored inputs for integrating climate risk into strategic planning, regulatory reporting and capital adequacy assessments.

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Background: From disclosure requirements to strategic resilience

As financial institutions prepare to meet Australia’s new sustainability reporting requirements, quantified climate scenario analysis has moved from a nice-to-have to a regulatory expectation. For the Bank, understanding how climate change could shape long-term portfolio performance was critical to meeting supervisory standards and supporting effective decision-making at the Board and business-unit levels.

However, existing global scenarios often lacked the regional and sectoral detail required to meaningfully assess exposure in an Australian context. The Bank needed a solution that could translate global climate narratives into actionable, data-driven insights for domestic portfolios and high-risk industries.

The Challenge: Building technical rigour and organisational alignment

The Bank sought to evaluate potential financial impacts of climate change through three NGFS-aligned pathways: Net Zero, Delayed Transition, and Current Policies. The technical challenge was to downscale these scenarios to reflect Australia’s industry structure, geography, and exposure to both transition and physical climate risks, producing results suitable for internal stress-testing models.

Equally important, however, was the communication challenge: bringing the broader organisation along on the climate scenario journey. Climate risks and opportunities touch many parts of the business – from risk and strategy to lending – and securing engagement across these diverse teams was essential for effective adoption. The analysis also required formal Board approval, meaning the project team needed to clearly demonstrate the credibility, consistency, and usefulness of the chosen approaches.

The Solution: Combining rigorous modelling with inclusive engagement

Oxford Economics drew on its suite of economic models to produce detailed macroeconomic and industry-level forecasts under each climate pathway to 2050. These were then regionalised through the Australia in Detail Model, allowing for granular insights into state and sub-state impacts. Each scenario was grounded in consistent global assumptions but adapted to Australia’s unique conditions – incorporating the latest climate science, national policy settings, and Oxford Economics’ proprietary climate damage function linking temperature volatility to productivity.

Alongside the modelling work, Oxford Economics worked closely with the Bank to support the communication and governance process.A series of town hall sessions was hosted to engage a broad audience of stakeholders across the bank, helping build shared understanding of the scenarios and their implications.

The project team collaborated with the bank to develop presentation materials and briefing notes to support Executive-level approval, ensuring the scenarios were transparent, defensible, and clearly linked to the Bank’s strategic and regulatory objectives.

Final deliverables included:
• Macroeconomic, industry, and regional forecasts under each NGFS-aligned scenario
• Scenario narratives and supporting documentation for internal and external audiences
• Communication and briefing materials for executive presentations

Impact: Turning modelling into actionable insight

The project enabled the Bank to inform their strategic climate risk and opportunity assessment. By quantifying the economic implications of different climate futures, the results informed portfolio analysis and underpinned preparations for regulatory reporting under AASB S2.

Crucially, the communication and engagement process helped embed climate risk and opportunity awareness across the organisation, ensuring that technical insights were understood, trusted, and actionable.