The Network for Greening the Financial System (NGFS) published a first set of climate scenarios for forward-looking climate risk assessment, along with a user guide. The scenarios have been developed to provide a common starting point for analyzing climate risks, while the guide provides practical advice on using scenario analysis to assess the climate risks to the economy and financial system. NGFS also published two reports: one report presents research priorities with respect to the analysis of the macroeconomic and financial stability impact of climate change while the other report examines the possible effects of climate change on monetary policy. Additionally, NGFS announced that the Asian Development Bank joined the NGFS as an observer in June 2020.
The NGFS scenarios explore the transition and physical impacts of climate change under varying assumptions, with the aim to provide a common reference framework for central banks and supervisors to understand these future risks. This first iteration of the scenarios explores climate and policy pathways that are consistent with the NGFS framework that was published in the first NGFS comprehensive report in April 2019. The scenarios were chosen to show a range of low and high risk outcomes. A key guiding principle of the project has been embracing the uncertainty inherent in scenario modeling. This has been captured in two ways. First, five alternate scenarios have been published to help users explore how specifying different key assumptions would change the results. Second, for each scenario, multiple models have been used to provide a range of estimates. While developed primarily for use by central banks and supervisors, these scenarios may also be useful to broader financial, academic, and corporate communities. The NGFS climate scenarios were selected in partnership with an academic consortium, including the Potsdam Institute for Climate Impact Research (PIK), the International Institute for Applied Systems Analysis (IIASA), the Center for Global Sustainability at the University of Maryland (UMD), and Climate Analytics.
The NGFS will continue to develop the scenarios to make them more comprehensive, with the aim to be as relevant as possible for economic and financial analyses. In addition, NGFS will continue to work with a consortium of academic partners to refine and expand the scope of the scenarios. Areas of focus will include expanding the scenario modeling to explore further dimensions of the risks, improving regional coverage and sectoral granularity, calculating probabilistic losses from acute climate impact, expanding the set of macroeconomic outputs, and improving the NGFS scenario database and portal. The guide to climate scenario analysis for central banks and supervisors provides practical advice on using scenario analysis to assess climate risks to the economy and the financial system. It is based on the initial experiences of NGFS members and observers and aims to advance the discussion on the methodologies used.
Keywords: International, Banking, Insurance, Securities, Climate Change Risk, Stress Testing, Physical Risk, Transition Risk, ESG, NGFS
Previous ArticleIAIS Assesses Observance of ICPs on Corporate and Risk Governance
BIS published a paper that provides an overview on the use of big data and machine learning in the central bank community.
APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.
ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.
MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.
ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.
BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.
EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.
SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.
EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).
ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting