Scenarios and stress testing
Stress tests rarely include compound physical, operational and technological shocks. The Global Risks Alliance (GRA) has designed a scenarios and stress-testing service that frames Nexus scenarios against sector-level exposures or public finances, with bounded assumptions and comparison across scenarios. Every output is labelled as scenario, with its sensitivities and what was not tested. It is never a supervisory test, a capital requirement, investment advice or a forecast of loss. The service is part of Finance and insurance readiness.
- 01InstitutionThe Global Risks Alliance (GRA)
- 02Service levelR0: information and enquiries
- 03In briefThe short answer
- 04The serviceProblem, work, and what each side brings
- 05Scenario familiesWhich reference scenarios a design is read against
- 06DesignA compound scenario, written down
- 07Bounded assumptionsWhat every scenario states
GRA · Institution · service level R0
The short answer.
Scenarios and stress testing at GRA is a designed service that frames Nexus scenarios, including compound physical, operational and technological shocks, against sector-level exposures or public finances, with bounded assumptions and comparison across scenarios. Every output is labelled as scenario, and it is never a supervisory test or a capital requirement.
A loan book under scenario families.
How physical and transition risk could reach a loan book under different scenarios. Illustrative design values.
Problem, work, and what each side brings.
| Element | As designed |
|---|---|
| For | Banks, supervisors and long-horizon investors |
| Problem | Stress tests rarely include compound physical, operational and technological shocks |
| Work | Frame Nexus scenarios against sector-level exposures or public finances, with bounded assumptions and comparison across scenarios |
| You receive | Scenario evidence labelled as scenario, with sensitivities and what was not tested |
| You contribute | The question and permitted exposure data, aggregated where it comes from competing firms |
| Never | A supervisory test, a capital requirement, investment advice or a forecast of loss |
Which reference scenarios a design is read against.
| Family | Horizon | Use and caution |
|---|---|---|
| NGFS long-term scenarios, Phase V | To 2050 and 2100 | Orderly, disorderly, hot-house and too-little-too-late narratives; the physical damage estimates are under review after a source retraction, and Phase VI is announced for 2026 |
| NGFS short-term scenarios (May 2025) | Five years | Physical-only, transition-only and combined narratives with macro-financial variables |
| Supervisory climate exercises | Varies | Each supervisor's own design; GRA cites them and never reproduces one as its own |
| Reverse stress test | Event-defined | Starts from an unacceptable outcome and asks which joint events would cause it |
A compound scenario, written down.
A compound scenario states the hazard events, their joint probability or narrative basis, the sectors and places they touch, the operational dependencies that fail, and the market response assumed. Each link carries its evidence label. Hazard dependence comes from GCRI compound hazards; method review from GCRI uncertainty and validation. Results are scenario evidence, never forecasts.
What every scenario states.
- 01
The question
What the scenario is chosen to test, and for whom.
- 02
The shock path
The sequence of events, from hazard or failure to financial transmission, with its timing.
- 03
Assumptions
What is held fixed, what responds and on what evidence, with each assumption labelled.
- 04
Comparison
A range across scenarios, not a single central number.
- 05
What was not tested
Dimensions left out, and why, stated beside the results.
Why single-hazard tests miss the losses that matter.
The losses that test financial systems now begin outside them, and they rarely arrive alone. A heatwave strains a grid while a cyber incident disrupts a shared provider; a port closure raises food-import costs while a currency weakens. Nexus scenarios are designed to combine physical, operational and technological shocks, trace them through dependencies such as power, water, communications and logistics, and show how they reach credit, insurance, market and fiscal positions together.
Scenario evidence, used as scenario evidence.
A plausible future
A scenario is chosen to test a question. It is never a prediction of loss.
No regulatory standing
A supervisor may choose to use published scenario evidence, as with any other source. No participant gains privileged access.
Aggregated inputs
Exposure data from competing firms is aggregated so that no firm can be identified.
Related: Financial-system risk and Models and professional methods. Scenario methods from The Global Centre for Risk and Innovation (GCRI) are on Systems Modelling.
Terms used on this page.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Stress test | An analysis of how institutions or the system would perform under a severe but plausible hypothetical scenario. |
| Severe but plausible scenario | A disruption scenario extreme enough to test resilience yet realistic enough to occur. |
| Reverse stress test | Starting from a failure outcome and identifying the scenarios that would cause it. |
| Scenario | A plausible description of how the future may unfold under stated assumptions, not a prediction. |
Where this page's references lead.
The bodies and documents this page is read against. Status and editions change; each link goes to the issuing body.
- NGFS climate scenarios: long-term Phase V (November 2024; Phase VI announced for 2026) and short-term scenarios (May 2025)
- NGFS statement on Phase V physical risk estimates after the retraction of the underlying damage-function paper (December 2025)
- BCBS Principles for the effective management and supervision of climate-related financial risks (2022)
Questions and answers.
Can supervisors use GRA scenarios in their own stress tests?
Do the results tell us how much capital to hold?
Where are scenarios exercised?
Around GRA.
Start with an enquiry.
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.