The Network for Greening the Financial System (NGFS) has released its first short-term climate scenarios. These are designed as a tool to evaluate the impact of climate change on the financial sector over a period that is in line with the policy and planning horizons for most businesses and governments.

The dynamic of climate change as a source of economic and financial risk did not emerge naturally. It arose as a result of two hundred years of historical emissions, and the process of generating those emissions involved significantly unequal sharing of the benefits. For the process of addressing the impacts of climate change, the costs should be similarly skewed towards developed countries to produce an equitable outcome for humanity. 

Although there are some limitations of short-term climate scenarios in capturing the most likely outcome, they can be useful if users acknowledge the limitations and don’t allow their expectations of future climate risk to be anchored to either the most optimistic or pessimistic scenarios. These tools also shouldn’t be used in a vacuum because they could create unintended consequences for OIC markets and other emerging & developing markets by inhibiting flows of investment and climate finance that are already insufficient. 

If short-term scenario analysis is instead viewed as a way to prioritise projects based on their ability to mitigate climate change, support the transition or invest in adaptation, then it may be able to play a more constructive role. The efforts to ‘rewire finance’ will still be necessary to reduce barriers to the flow of finance to OIC markets and others that are EMDEs, and efforts to improve the realism of outcomes covered by short-term climate scenarios will be more fruitful in directing capital where it can be most effective.