The Financial Conduct Authority has accepted climate risk analytics company Transition Risk Exeter Ltd into its Regulatory Sandbox, allowing the firm to test new methods of assessing climate-related financial risks as regulators seek to strengthen the industry's understanding of the impact of extreme weather and the transition to a low-carbon economy.

The FCA said TREX's analytical approach examines how climate tipping points and compounding risks, including consecutive extreme weather events, could affect financial systems. Through the sandbox programme, the company will test whether its models can provide firms with a clearer picture of both physical climate risks, such as flooding and heatwaves, and transition risks linked to decarbonisation.

The initiative comes as climate-related events continue to influence financial markets and investment decisions. According to the FCA, wildfires, storms and floods accounted for 92 per cent of global insured losses in 2025, highlighting growing concerns about the financial impact of extreme weather.

Sacha Sadan, director of sustainable finance at the FCA, said: "The government has set the ambition for the UK to grow its role as a global sustainable finance hub. Central to that is ensuring firms have a better understanding of the potential impact of things like extreme weather events, which are on the rise." He added that the regulator aims to support the development of improved analytical capabilities and complement existing risk assessment tools with innovative models.

TREX said the sandbox would enable it to demonstrate the value of non-linear climate scenario analysis, which seeks to identify how risks can escalate rapidly and create knock-on effects across economies and markets. Willemijn Verdegaal, co-founder and chief product and commercial officer at TREX, said: "This FCA Sandbox gives us the opportunity to demonstrate, with rigorous evidence, how non-linear scenario analysis ... changes the risk and opportunity profile at country, sector and company level, enabling more resilient investment decision-making."

The FCA said the project forms part of broader efforts to improve climate risk management across regulated firms. The regulator plans to launch a dedicated climate scenarios cohort within its Regulatory Sandbox later this year, allowing firms and specialists to test new quantitative and narrative approaches to climate risk assessment.

According to the FCA, the planned cohort will focus on areas including low-probability, high-impact risks, climate tipping points, second-order effects and reverse stress testing. The regulator said it expects the work to improve the quality and consistency of climate-related information available to financial markets.

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