Indonesia: Financial Sector Assessment Program-Technical Note on Climate Risk Assessment
IMF Staff Country Reports, February 26, 2025
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- Indonesia: Financial Sector Assessment Program-Technical Note on Climate Risk Assessment
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Bibliographic details
- Published: February 26, 2025
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798229003407.002
Overview
- Focus: Critical Risk Assessment for the Indonesia Financial Sector Assessment Program (FSAP).
- Scope: Assessed both transition and acute physical risks posed by climate change.
- Caution: "The analysis and results should be regarded as exploratory and interpreted with caution given the uncertainty associated with the scenarios and modeling approach."
- Highlight: "The climate risk analysis highlights potential vulnerabilities from climate-related physical and transition risks."
Methodology
- Transition risk analysis:
- Followed an integrated micro-macro approach.
- "Transition scenarios for various economic sectors are structurally linked to corporate vulnerability indicators and then translated into corporate credit risk paths and eventually banks’ credit exposures."
- Physical risk analysis:
- Assessed "acute physical risks" posed by climate change (as part of FSAP).
- Analytical limitations:
- Uncertainty associated with scenarios and modeling approach requires cautious interpretation.
Key findings and vulnerabilities
- Potential vulnerabilities identified from:
- Climate-related physical risks.
- Climate-related transition risks.
- Banking sector transmission:
- Corporate vulnerability indicators → corporate credit risk paths → banks’ credit exposures.
- Nature of results:
- Exploratory and subject to uncertainty.
Policy recommendations and capacity building
- Authorities should:
- "Further develop internal capacity and models for climate risk analysis."
- "Improve data collection."
- "Offer more detailed methodological guidance to financial institutions."
- "Enhance the collaboration among government agencies on climate risk analyses."
Content in this bundle
- Executive Summary