Assessing the Role of Investors in the Realization of Climate Mitigation Pathways

Financial institutions face growing demand from investors and regulators to assess climate risk on their portfolios. Financial authorities recommend basing these assessments on NGFS scenarios (future trajectories of carbon prices and production output across the high- and low-carbon sectors of the economy, depending on future introductions of climate policies).

Even with these assessments, several challenges remain to integrate climate risk into risk management. The circularity between materialization of risk and risk perception can cause uncertainty about which scenario may occur. While risk is endogenous to finance in other contexts, in climate risk it impairs the use of standard risk assessment tools.

This talk is a collaboration with scientists of the IAM community involved in the development of NGFS scenarios and explains how a new framework can provide scenarios that assess the role of investors in the realizations of climate mitigation pathways.