The Network for Greening the Financial System (NGFS) has released its latest Phase V scenarios for assessing long-term climate risks. These scenarios are designed to aid in forward-looking climate risk assessments. Alongside these updates, NGFS has published three documents offering guidance on their use: an overview of the Phase V package updates, a note explaining the new damage function used for physical risk assessment, and updated technical documentation on the NGFS modeling framework and assumptions.
Additionally, NGFS provided a note highlighting the importance of climate adaptation for central banks and supervisors, as well as a report on climate finance which includes nine recommendations to further promote greening in the financial system.
A key feature of these developments is the updated assessment of physical risk within the fifth phase scenarios. The inclusion of a new damage function aims to enhance physical risk modeling by extending beyond temperature increases. This function has been calibrated using recent climate and economic data and covers various climate variables such as temperature variability, annual precipitation, wet days, and extreme daily rainfall. Consequently, estimated global losses from chronic physical risk are significantly higher than previous estimates—by two to four times across different scenarios by 2050.
These scenarios employ version 3.0 of Shared-Socioeconomic Pathways (SSPs) while considering country-level commitments up to March 2024. Population projections indicate growth from 8.2 billion today to 9.6 billion by mid-century based on SSP 3.0 data.
Incorporating targets and policies published by March 2024 underlines that slow implementation has resulted in higher near-term emissions. Thus, peak temperatures reached in Phase V’s orderly scenarios like Net Zero 2050 or Low Demand exceed those seen in Phase IV due to delayed transitions requiring higher carbon prices.
