Economic impacts of climate change: Exploring short-term climate related shocks for financial actors with macroeconomic models

Macroeconomic impacts caused by climate change may create significant credit, market, and operational risks for financial institutions. Considering these risks, many firms are beginning to explore the integration of macroeconomic impacts into climate scenario analysis.

To advance financial industry knowledge on this important topic, UNEP FI and UK-based National Institute of Economic and Social Research (NIESR) have partnered to explore short-term climate-related shocks for financial actors with macroeconomic models. This report features three new climate-driven macroeconomic shock scenarios developed by UNEP FI and NIESR as part of UNEP FI’s Taskforce on Climate-related Financial Disclosures (TCFD) Programme. The three short-term scenarios are:

• Sudden rise in carbon price
• Spike in oil price
• Trade war

An in-depth analysis of the economic impacts of these scenarios for financial institutions is provided in the report, as well as recommendations for using short-term scenarios. Finally, the authors suggest ways for the financial sector to enhance climate scenario analysis.