To quantify climate risks that lack deep historical data, financial stability teams use long-term scenario analysis frameworks established by the Network for Greening the Financial System (NGFS).
The Standardized NGFS Climate Pathways
The NGFS provides a structured framework for analyzing potential economic outcomes across three main future pathways:
  NGFS Scenario Pathway |   Transition Policy Execution Style |   Systemic Stability Risk Profile
------------------------+-------------------------------------+---------------------------------------
  Orderly Transition    | Fast, coordinated carbon taxes      | Low physical risks; low transition risks
  Disorderly Transition | Delayed, abrupt regulatory shocks   | Low physical risks; high transition risks
  Hot House World       | Limited global environmental action | High physical risks; low transition risks

By running bank asset portfolios and mortgage books through these standardized scenarios, risk teams can identify long-term structural vulnerabilities and adjust macroprudential requirements to manage emerging climate risks.
 
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