The referendum in the United Kingdom in late June, however, brought the result that a majority of voters supported leaving the EU – the so-called Brexit – which led to global financial markets destabilizing again, manifested in such developments as the rapid depreciation of the pound sterling. In foreign exchange markets, the yen rapidly appreciated; stock prices globally declined considerably, including in Japan.
While scenario analysis is the key ingredient for performing climate sensitivity analysis of financial vulnerability (commonly referred to as “climate stress tests”), we should be aware of the limitations and potential “oversimplification” related to this tool.