The Financial Conduct Authority has accepted Transition Risk Exeter Ltd (TREX) into its Regulatory Sandbox, marking the regulator’s first publicly announced admission of a climate scenario analytics firm to the programme. The move signals a deliberate push by the FCA to improve the quality of climate-related financial risk modelling across regulated firms, ahead of a broader climate scenarios cohort it plans to launch later in 2026.
TREX’s methodology focuses on non-linear scenario analysis, an approach that attempts to model how climate-related risks can escalate rapidly or trigger cascading effects rather than following gradual, predictable trajectories. The firm’s work considers climate tipping points and compounding risks, such as successive extreme weather events, and how these affect financial systems at country, sector and company level. Through the Sandbox, TREX will test whether this approach gives regulated firms a more granular view of both physical risks, including flooding and heatwaves, and transition risks tied to the shift to a low-carbon economy.
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 statistical backdrop is not difficult to state. Swiss Re data cited by the FCA shows that wildfires, storms and floods accounted for 92 per cent of global insured losses in 2025, a figure that underscores the material pricing and capital allocation pressure that climate physical risk is already placing on financial markets.
Regulatory context
The admission of TREX fits into a wider pattern of the FCA advancing its sustainable finance agenda under pressure from both the government and institutional investors. FCA chair Ashley Alder argued in an October 2025 speech that climate change is already producing measurable effects on financial markets, including rising insurance costs, shifts in asset valuations and changes in lending and investment behaviour. The regulator is also a member of the UK Government’s Transition Plan Taskforce, whose outputs have been incorporated into IFRS Foundation educational materials.
Sacha Sadan, director of sustainable finance at the FCA, framed the TREX admission within the government’s ambition to position the UK as a global sustainable finance hub. “Through this work, we aim to support industry to develop improved analytical capabilities and complement existing tools with new, innovative models,” he said.
The planned Regulatory Sandbox climate scenarios cohort, expected later in 2026, is the more significant structural development. The FCA has indicated it will welcome participants incorporating low-probability, high-impact risk modelling, tipping-point analysis, reverse stress testing and deep uncertainty approaches. This signals a desire to move industry practice beyond the relatively linear, three-pathway scenarios that have dominated under the Network for Greening the Financial System framework.
Market landscape
Climate scenario analytics is a specialist but rapidly expanding segment. It sits at the intersection of actuarial science, macroeconomic modelling and geophysical data, and is increasingly relevant to insurers, asset managers and banks subject to climate-related disclosure requirements under frameworks such as the Task Force on Climate-related Financial Disclosures and the UK’s emerging sustainability disclosure standards. Several established data vendors and consultancies already offer climate risk tools, meaning TREX will need to demonstrate a material analytical lift over existing commercial products to gain traction with large regulated firms.
The FCA’s willingness to use the Sandbox as a vehicle for climate analytics, rather than purely for consumer-facing payment and lending innovations, reflects the broadening of what regulators consider systemic financial infrastructure. Whether the cohort model accelerates genuine methodological improvement or serves primarily as a credentialling exercise for participating vendors will depend on how the FCA structures evidence requirements and what it publishes from the results.
The post FCA Admits TREX to Sandbox for Climate Scenario Analysis Testing appeared first on The Fintech Times.
