What are the key issues determining the success of NGFS scenarios?

What is the impact of climate risks when considering nature and social issues? How can we deal with counterintuitive results? How can we address usability issues? And is the focus on risk at the expense of the thinking about monetary policy implications more broadly?

NGFS scenarios are increasingly seen as the ‘market standard’ in the climate scenario landscape.

Since their launch in 2020, they have been downloaded several thousand times and endorsed as ‘market standard’ by the NGFS supervisors as well as a range of key sustainable finance stakeholders. They are referenced or used directly in stress-test or climate scenario exercises across a range of jurisdictions. Despite their reach in adoption, a growing set of concerns has materialized around their use. These concerns are increasingly a challenge to the use of these scenarios more generally, and are not limited to NGFS scenarios, but the broader community of climate scenario modellers and their outputs. The note – while focusing on NGFS scenarios in particular – thus likely also applies to a range of other scenarios.

The focus of this note is to identify the six key issues or battlegrounds that in our view will determine the success, or “make or break” moment for both NGFS scenarios and similar scenarios currently operating in the market.

Getting these issues right is critical. Our engagement with central banks suggests a growing disillusionment with these scenarios and their ability to serve climate scenario risk and stress-test exercises is critical to the underlying objective of the NGFS to increase financial resilience to climate change and the transition to a low-carbon economy.