NGFS publishes phase IV long-term climate scenarios for banks

The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks. Additionally, NGFS published three accompanying documents—a revamped technical documentation, a data user guide, and a technical note on compound risks—to provide guidance on the use of these scenarios by central banks and supervisors.

Updated set of scenarios (phase IV)

The NGFS scenarios have been updated to account for the latest GDP and population pathways as well as the most recent country-level climate commitments, as on March 2023. The key changes include:

• inclusion of climate policy delays and the energy crisis following the war in Ukraine in the orderly scenarios.
• enhancements to the modeling of acute physical risks, via the addition of information on droughts and heatwaves and increased geographical granularity.
• development of two new scenarios: the "Too-little-too-late" Fragmented World scenario and the "Orderly" Low Demand scenario. The “Too-little-too-late” Fragmented World scenario illustrates the adverse consequences of delayed and divergent climate policy ambitions globally. The “Orderly” Low Demand scenario explores a Paris-aligned transition, driven by substantial behavioral changes in which global warming is limited to 1.5°C.
• discontinuation of the Divergent Net Zero scenario.
   

The NGFS (Phase IV) scenarios will be updated and improved in 2024, based on feedback from users. The potential update will feature a more detailed sectoral breakdown and possibly a more adverse new chronic physical risk damage function.

Accompanying Documents

The revamped technical documentation includes updated technical information on the NGFS climate scenarios and highlights key modeling assumptions and comparisons between models, scenarios, and vintages for key variables. It also includes a high-level overview for non-expert users, along with technical modules and non-technical summaries of the modeling components to help users better understand the assumptions and limitations of the scenarios. The Data User Guide provides step-by-step guidance on how to access, download, and work with the NGFS climate scenarios. The guide describes the NGFS Scenario Explorer, a new data handling tool that supports the user journey from data extraction to visualization. The technical note on compound risks explores the materiality of compound shocks and provides initial thoughts on a framework for incorporating compound risks in climate physical risk scenario analysis.
 

Related links:

• Press Release
• NGFS Scenarios Technical Documentation
• NGFS Scenarios Data User Guide
• Technical Note on Compound Risks