Managing the risks and complexities associated with climate models requires a specialized approach for model risk managers to effectively address and ensure their readiness.
The growing importance of using model risk management (MRM) to address the challenges posed by climate analytics is highlighted in this piece. Climate models bring significant risks and complexity, making it necessary for MRM to have a tailored approach to be effective.
The emphasis is on MRM being a process, not a task, and highlights the importance of having a comprehensive approach to MRM. This approach should include regular monitoring of models, continuous improvement, and integration of MRM into the overall risk management process. The right resources and technology must be utilized to support the MRM process in addressing the challenges posed by climate analytics, leading to a well-designed and continuously improved process.
This article was originally published on McKinsey.com on January 23, 2023 and is reprinted here by permission.