Stress testing is a tool used to assess the resilience of financial entities to severe but plausible shocks. Traditionally, we have used this to explore financial stability risks during ENDORSEMENT UNCLASSIFIED  UNCLASSIFIED  economic downturns. Expanding this to include climate risks helps us and industry to build capabilities to assess and understand the impact of climate change on the financial system.
In 2021, we introduced a climate change risk element into our annual solvency stress test, by including a two-year North Island drought in the scenario. Our modelling showed that the drought, on its own, did not create undue stress.