The financial sector urgently needs accurate climate scenarios to better manage risks and ensure smooth capital transitions toward adaptation and mitigation. Current scenarios lack the necessary depth and transparency, creating challenges in risk pricing.
A newly proposed climate scenario taxonomy aims to address these gaps, offering a structured, reliable framework for scenario building. This taxonomy categorizes scenarios by narrative, macro-modeling, and micro-expansion elements, promoting transparency and enhancing financial decision-making.
The taxonomy fosters a more robust scenario evaluation process by facilitating improved documentation, peer review, and model development. It encourages central banks and regulators to adopt this standardized framework, promoting investment in better climate modeling and international collaboration.
Ultimately, this approach empowers financial institutions to make informed, risk-conscious decisions in the face of climate uncertainties.
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