The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) has released its first set of short-term climate scenarios to enhance the financial sector’s ability to assess ESG risks and support carbon neutral strategy implementation. These new tools will enable central banks and financial regulators to better understand and respond to climate-related risks over a five-year horizon. 

The NGFS, established in 2017, plays a key role in aligning global financial systems with the goals of the Paris Agreement. Its newly launched short-term scenarios provide detailed macroeconomic and sector-specific insights, combining data on climate policy shifts, extreme weather, and economic trends to simulate near-term financial impacts. This complements the NGFS’s long-standing use of long-term climate models and stress tests widely adopted by central banks. 

The short-term climate scenarios are designed to be highly practical for financial sector applications such as risk assessments, stress testing, and policy calibration. Four scenarios are provided: one focusing solely on physical climate risks like heatwaves and floods; two transition-only models including a “Highway to Paris” orderly transition and a “Sudden Wake-Up Call” scenario; and a combined model titled “Diverging Realities,” which considers the disparate paths of developed and developing economies toward low-carbon goals amid worsening extreme weather. 

These models assess the complex interplay between climate risks and business cycles, including disruptions to global supply chains and escalating costs associated with delayed action. They also reflect how transition risks—such as changes in policy and investor sentiment—can impact sectoral dynamics and financial stability.

NGFS Chair Sabine Mauderer emphasized that robust climate risk analysis is vital for financial decision-making. By equipping policymakers and financial institutions with actionable tools, these new short-term scenarios represent a key step forward in integrating ESG principles and carbon neutral strategies into global economic planning. 

Sources: 

https://www.esgtoday.com/ngfs-releases-its-first-short-term-climate-scenarios/ 

https://www.ngfs.net/en/publications-and-statistics/publications/ngfs-short-term-climate-scenarios-central-banks-and-supervisors 

https://www.finance-watch.org/press/ngfs-climate-scenarios-help-map-the-risks-capital-buffers-are-needed-to-contain-them/