On 15 November 2022, the Financial Stability Board (FSB) and Network for Greening the Financial System (NGFS) published their initial findings and lessons from the Climate Scenario Analysis by Jurisdictions.

The report provides a synthesis of the findings from climate scenario analysis exercises undertaken by financial authorities at the individual firm level, at the level of the different financial sectors, and at the overall financial system level. It builds on the NGFS Scenarios in action progress report as an attempt to evaluate the implications of climate-change-related developments for the financial system as depicted in climate scenarios.

The report finds that the NGFS scenarios play a critical role in providing reference climate macro-financial scenarios and supporting financial authorities’ climate scenario analysis exercises. The overall message from these initial exercises for financial stability is that, while the impacts of climate risks are not small, they seem to be concentrated in some sectors and overall, at least at this juncture and as currently assessed, contained from the perspective of domestic financial systems.

However, the report notes that tail risks and spill overs associated with climate change related developments may not be as manageable. In addition, measures of exposure and vulnerability are likely understated.

The report also finds that scenario analysis exercises at this stage are usefully feeding into policy discussions and are raising awareness. While critically contributing to risk assessment, the exercises are still considered exploratory and in most cases do not translate into micro- or macro-prudential policy action at this stage.

Going forward, the report calls for greater cross-border cooperation, particularly at this early stage of climate scenario analysis work.