Does regulators’ favourite climate risk metric measure up?

Sharon Thiruchelvam
02 Dec 2021

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Even before the 2008 financial crisis, the suitability of value-at-risk as a tool for risk management was being questioned. It struggles to measure tail risks, and can be too dependent on historic data to accurately assess unprecedented events.

And yet now, VAR might be given a new lease of life, as a way to measure a potentially catastrophic risk that by definition has no historical precedent.

Inspired by an academic paper from 2016, the Financial Stability Board and Basel Committee on

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