Climate Change Scenarios

Due to the complex interplay of climatic and socioeconomic systems, it is impossible to accurately predict the future, including the frequency, severity, impacts of climate hazards and the transition pathways. To address this inherent uncertainty in modeling climate-related macroeconomic and financial risks, TCFD recommends the adoption of scenario analysis to explore a range of plausible outcomes of climate change’s impacts on the financial system (ref of TCFD paper).

The selection of climate change scenarios determines the range of impacts expected. Transition risk assessments start with transition scenarios definition as it forms the basis of core assumptions when evaluating climate-related financial risks.

Various organizations, including the TCFD, IPCC, NGFS, and third-party vendors, provide climate scenarios that outline different pathways, from low-carbon transitions to high-emissions futures. Most of them are built around a global temperature target or emission pathways and follow four common pathways: (i) ambitious Paris Agreement-aligned action; (ii) delayed Paris Agreement-aligned action; (iii) current policy commitments; and (iv) business as usual (ref. UNEP FI landscape 2023 paper).

Table 1 of the landscape report by UNEP FI listed the most commonly used scenarios, namely, IPCC, IEA, and NGFS, as of December 2022. In this section, we focus on NGFS scenarios (cite updated NGFS scenario documentation), which are frequently used by central banks and financial supervisors (ref the ECB and Moroccan report). The NGFS provides a comprehensive suite of models, including data, scripts, tools, and detailed documentation. For users seeking more information, the NGFS technical documentation (ref.) and presentation (ref. here) offer further insights, including comparisons with IEA and IPCC scenarios."