The Network for Greening the Financial System (NGFS) has launched its inaugural set of short-term climate scenarios, offering a groundbreaking tool for financial institutions, policymakers, and investors to understand the potential economic and financial disruptions caused by climate shocks through 2030.
Developed in partnership with top research institutions such as CLIMAFIN, E3-Modelling/ RICARDO, and IIASA, the publicly available tool simulates sector-specific and macroeconomic impacts under four distinct climate shock scenarios. These scenarios aim to assess both physical and transition-related risks, providing high-resolution data crucial for climate stress testing, risk assessments, and financial planning.
“The new NGFS short-term climate scenarios are a milestone in enhancing our understanding of climate-related risks,” said Sabine Mauderer, Chair of the NGFS and First Deputy Governor of the Deutsche Bundesbank. “Extreme weather events and abrupt changes in transition policies can significantly affect our economies and financial sectors in the short run.”
A Strategic Tool for Resilience
With a focus on sectoral details and financial metrics, the new dataset allows institutions to conduct more granular climate stress tests, evaluate exposure to climate risks, and assess the resilience of portfolios and operations. This tool has direct applications for monetary policy planning, financial supervision, and risk management, equipping leaders with insights on how to prepare for sudden economic volatility driven by physical climate events or shifts in climate policies.
Livio Stracca, Chair of the NGFS workstream on Scenario and Design Analysis and Deputy Director General for Financial Stability at the European Central Bank, emphasized the utility of the tool, stating, “This new set of scenarios helps to describe the more immediate impacts of climate shocks and policy shifts, in a timeframe and level of detail that is especially relevant for investment decisions, financial supervision, monetary policy, and risk management.”
Implications for Financial Strategy and Policy
The NGFS scenario release builds on the organization’s October 2023 conceptual note, incorporating rigorous quality checks to ensure the robustness of the data. The tool is designed to provide insights on the immediate financial implications of climate shocks, aiding financial institutions in anticipating risks, adjusting strategies, and ensuring long-term sustainability.
“Delaying climate action will likely increase future economic damages,” added Mauderer.
Executives, regulators, and institutional investors can access the dataset to refine strategies, improve portfolio risk assessments, and support regulatory compliance, ultimately strengthening their ability to anticipate and mitigate climate-related financial risks.
