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Research on building climate-financial scenarios for financial institutions

In January 2021, researchers at The Grantham Institute published a briefing on building climate-financial scenarios for financial institutions. Being one of five Global Institutes at Imperial College London, the Institute brings together climate and global environmental change expertise from across the College for climate change related research and translation into real world impact. 

The briefing considers how the financial sector can manage the risks associated with moving to a zero-carbon future. The paper outlines why it is essential for financial institutions to understand so-called climate transition scenarios, which explore this journey to a zero-carbon future. The paper also sets out a framework that financial institutions can use to construct, or understand and use, climate transition scenarios in the context of financial sector risk management. 

The paper highlights among other things that the financial system needs to develop the understanding that the climate transition will affect economic activity and influence financial risk and returns on investments. Another point made by the researchers is that the ultimate aim of climate financial scenarios has to be to enable assessment of risk and reward at the level of the economic agents that financial firms have exposure to. This is a different goal to that of policy-oriented scenarios of greenhouse gas emission reductions which aim to identify the mix of actions aligned with temperature and emission targets. 

More information here

Link to the briefing.

Latest update: 02.11.2023