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  • Writer's pictureGustavo Bernal Torres

Assessing Financial Risks from Physical Climate Shocks: A Framework for Scenario Generation

The World Bank has published a framework to generate climate scenarios to be used in stress tests.

  • Most advances in climate stress test focused on transition risk, using mitigation scenarios elaborated by process-based IAM and recently by the NGFS.

  • The paper identifies five areas, or risk drivers, that make a material contribution to physical climate risks to the financial sector and that are not consistently included in current climate scenarios and tools: (1) extreme weather events; (2) uncertainties in climate models; (3) compound scenarios; (4) indirect economic impacts of shocks; and (5) feedback between the real economy and the financial sector.



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