On 19 October 2021, the Network for Greening the Financial System (NGFS) published the report “Scenarios in action: a progress report on global supervisory and central bank climate scenario exercises”. The report sets out how a growing number of NGFS members, across all continents, are using climate scenarios to identify, assess and understand climate risk in their economies and financial systems.
The report features 30 NGFS members’ use of climate scenario exercises to date and shows that the NGFS scenarios form the foundation of most of these exercises. Pages 6/7 of the report provide an overview of all the exercises.
The majority of survey respondents consider a scenario time horizon of 30 years, aligning with the Paris Agreement goal to reduce carbon emissions considerably by the middle of the century.
The objectives of climate change scenario exercises range from micro-prudential assessments to understand and estimate financial-wide risks, macro-prudential assessments to look at specific risks to financial firms and macro-economic assessment to reflect the effects of climate risks on economic growth, employment, inflation and trade. These assessments will allow the development of capabilities both internally and within the broader financial sector.
Ultimately, as climate scenario exercises develop, insights into the financial impacts from transition and physical risks will become increasingly comprehensive, due to converging methodical practices and a growing body of data.
To facilitate the uptake of climate scenario analysis by central banks, financial regulators and the larger financial community, the NGFS has developed a global set of scenarios and published guidance on conducting such analysis.
The NGFS and Financial Stability Board will publish a joint report in 2022 on the implications of potential climate scenarios on the financial system.