Mel George

and 9 more

Financial institutions’ investment and lending portfolios could be affected by both physical climate risks stemming from impacts related to increasing temperatures, and from transition climate risks stemming from the economic consequences of the shift to a low-carbon economy. Here we present a consistent framework to explore near term (to 2030) transition risks and longer term (to 2050) physical risks, globally and in specific regions, for a range of plausible greenhouse gas emissions and associated temperature pathways, spanning 1.5-4oC levels of long-term warming. We draw on a technology-rich, regionally disaggregated Integrated Assessment Model representing energy system, agricultural and land-based greenhouse gas emissions, a reduced complexity climate model to simulate probabilistic global temperature changes over the 21st century, and a suite of impacts models to estimate regional climate-related physical hazards and impacts deriving from the temperature change pathways and their underlying socio-economics. We consider 11 scenarios to explore the dependence of risks on both temperature pathways, as well as socio-economic, technology and policy choices. This builds and expands on existing exercises such as the Network for Greening the Financial System (NGFS). By 2050, physical risks deriving from major heatwaves, agricultural drought, heat stress and crop duration reductions depend greatly on the temperature pathway. By 2030, transition risks most sensitive to temperature pathways stem from economy-wide mitigation costs, carbon price increases, fossil fuel demand reductions and potential stranding of carbon-intensive assets such as coal-fired power stations. The more stringent the mitigation action, the higher the abatement costs and sector-specific transition risks. However, such scenarios result in lower physical climate hazards throughout the century. Our study also explores multiple 2 deg C pathways which demonstrate that scenarios with similar longer-term physical risks could have very different near-term transition risks depending on technological, policy and socio-economic factors. As such, “a single scenario will not answer all questions”.