Laura WilesThe Network for Greening the Financial System (NGFS) has updated its Guide on Climate Scenario Analysis. The new edition reflects significant progress made in this area since the last version in 2020, and highlights best practices on scenario design, data and modelling.
NGFS notes that climate scenarios have in recent years become vital resources for supervisory exercises and risk management frameworks in the financial sector. In its most recent addition, there is an increased emphasis on short-term scenarios, which are gaining importance for evaluating near-term financial risks arising from climate change and evolving policy measures.
The Guide maintains a four-step model for scenario analysis:
- Identifying objectives and scope;
- Choosing climate scenarios;
- Assessing economic and financial impacts; and
- Communicating and using results.