On June 8, 2021, the Network for Greening the Financial System (NGFS)1--a group of 91 central banks and supervisors and 14 observers--issued the second iteration of its climate scenarios, noting that such scenarios are "a true milestone in the race to better understand the risks from climate change." The NGFS also stated that because "climate scenario analysis is a vital tool that helps [...] prepare for a range of future pathways" and the "challenges and costs of creating such scenarios are beyond most individual firms or institutions," the NGFS has designed its climate scenarios "to act as a foundation for analysis across many institutions, creating much needed consistency and comparability of results." T
he NGFS chose six different climate scenarios to "show a range of lower and higher risk outcomes." The scenarios have been refined from the June 2020 iteration to "leverage the latest versions of models, reflect the shifts in climate policy since 2018, and reflect the near-term IMF growth projection from COVID-19." The six scenarios and how they compare for risk are shown in the chart below from the NGFS' report:
The NGFS climate scenarios are characterized by "their overall level of physical and transition risks," which are driven by "the level of policy ambition, policy timing, coordination and technology levers." This NGFS chart provides addition details on the risks for each:
The NGFS' 51-page report includes further descriptions of the scenarios and their respective transition and physical risks and economic impacts. The NGFS climate scenarios were developed as a common starting point for analyzing climate risks to the economy and financial system, and, while developed primarily for use by central banks and supervisors, the scenarios may also be useful to the broader private sector, government and academia.
