# Climate Stress Test

*ESG & Sustainable Finance — Finicade finance glossary*

A climate stress test runs a bank or insurer balance sheet through climate scenarios — orderly transition, disorderly transition, no action.

A climate stress test runs a bank or insurer's balance sheet through climate scenarios — orderly transition, disorderly transition, no policy action — to size the losses. Central banks now run them supervisorily. They differ from ordinary stress tests in horizon and honesty about uncertainty: the shocks unfold over decades, so results are used to expose data gaps and risk blindness rather than to set capital directly.

**Also known as:** climate scenario analysis, NGFS scenarios

**Related terms:** [Stress Testing](https://finicade.com/glossary/stress-testing), [Transition Risk](https://finicade.com/glossary/transition-risk), [Physical Risk](https://finicade.com/glossary/physical-risk), [TCFD](https://finicade.com/glossary/tcfd), [Scenario Analysis](https://finicade.com/glossary/scenario-analysis)

Source: https://finicade.com/glossary/climate-stress-test