The Emperor’s New Climate Scenarios

Climate-scenario modelling is a structured exploration of different plausible futures. It is a valuable tool for informing investment decision making, risk management and financial system resilience. It has evolved rapidly in financial services and is becoming mainstream. Regulators should take well-deserved credit for driving this adoption, along with the pioneering organisations and individuals who have led the way. However, there are some important challenges that model users must be aware of, largely caused by the disconnect between climate scientists, economists and model users in financial services.