Climate risk overlays unnerve model-validation teams
Risk Live: Model risk managers fear they lack the data or skills to properly test expert judgement
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
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