The Network for Greening the Financial System (NGFS) published a Note for the NGFS Handbook on scaling up blended finance for climate adaptation and mitigation in emerging market and developing economies. NGFS aims to publish the Handbook by COP28, along with a showcase of demonstrative blended finance projects that will spotlight projects that have incorporated effective mechanisms to promote the scaling of blended finance. NGFS also published the results of the February 2023 feedback survey on climate scenarios and expects to publish the next set of scenarios (Phase IV) by the end of 2023.
Note on Blended Finance
Ravi Menon, who is the Chair of the NGFS and Managing Director of the Monetary Authority of Singapore (MAS) said that a large financing gap needs to be closed to get to net zero by 2050 and this can be achieved by synergizing private and public capital though blended finance. This Note provides an initial analysis on how NGFS can support this global effort. As a key deliverable of the blended finance initiative, the NGFS Handbook is intended to leverage on and complement efforts by the public and private sector by focusing on three keys areas:
- Identify and draw on key lessons from past case studies on blended finance projects, not only in emerging market and developing economies but also in advanced economies where blended finance has been employed
- Identify key success factors for blended finance transactions and a blended finance ecosystem in emerging market and developing economies
- Highlight a set of best practices and principles to scale up blended finance for climate adaptation and mitigation in in emerging market and developing economies; this will also include a review of issues related to the regulatory treatment of blended finance projects
Survey on Climate Scenarios
The results of the survey on climate scenarios are accompanied by a summary note and a comprehensive presentation on the key survey findings. The survey collected 213 responses from 57 countries and reached both the private and public sectors. Below are the key findings from the survey:
- Respondents use climate scenario analysis primarily to assess how climate risks could affect their organization, individual financial institutions, or financial stability.
- Most respondents assess both transition and physical climate-related risks and their potential effects through key financial risks. Examples of the most assessed types of risks are credit risk, market risk, operational risk, and liquidity risk, among others.
- The NGFS scenarios have become a key ingredient to identify climate risks globally, with over 70% of respondents using them in their exercises primarily to better understand the impacts of climate risks and to develop internal capacity.
- Of the six NGFS scenarios (Phase III), the most used by respondents are Net Zero 2050, Delayed Transition, and Current Policies. About half of the respondents using NGFS scenarios rely solely on the results of the output variables of the NGFS scenarios, and the other half adapt variables or add new ones for the purposes of their analysis.
- Almost half of the respondents using NGFS scenarios rely on multiple models in their analyses and consider transition and macro-financial variables to be the most relevant NGFS scenario output variables for their exercises.
- Almost all respondents agreed that NGFS scenarios represent a global public good as a set of freely accessible climate pathways. However, respondents using NGFS scenarios would benefit from a better understanding of the modeling framework and output as well as more guidance on how to access and use the scenarios.
Looking ahead, key priorities identified by survey respondents align with and reinforce ongoing improvements planned for the next release of the NGFS scenarios. This includes technical improvements, such as the level of sectoral and geographical granularity, as well as usability improvements through more accessible scenario output and developed documentation on the modelling framework. The key findings from the survey will guide the NGFS scenario development work plan going forward, with NGFS expecting to release new scenarios by the end of 2023.
Visit Moody's Analytics Climate and ESG Risk Microsite to learn how you can proactively incorporate climate and ESG insights into your risk assessment process.
Keywords: International, Banking, ESG, Climate Change Risk, Scenario Analysis, Stress Testing, NGFS
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