NGFS Scenarios
The climate scenarios that central banks use to stress-test the world
The Network for Greening the Financial System (NGFS) scenarios are the most widely used reference for climate risk assessment in financial regulation · and a core input for IFRS S2 strategy resilience.
Background
What is the NGFS?
The Network for Greening the Financial System (NGFS) is a coalition of 130+ central banks and financial supervisors from 91 jurisdictions. Founded in 2017, its mandate is to help the financial sector understand and manage climate-related financial risks.
The NGFS publishes a set of climate scenarios specifically designed for financial risk analysis. Unlike pure climate science scenarios (IPCC SSPs), NGFS scenarios combine climate projections with macroeconomic models · translating temperature pathways into GDP impacts, carbon prices, energy prices and asset valuations.
THE THREE CATEGORIES
Climate policies introduced immediately, transition is smooth. Low physical risk but significant transition adjustment.
Policies introduced late or divergently. Higher transition risk due to abrupt changes and policy uncertainty.
Policies are insufficient. Warming exceeds 2.5·C. Severe physical risks to assets, supply chains and communities.
Why are NGFS scenarios relevant to companies?
Regulators increasingly require companies to use the same scenarios that central banks use for supervisory stress-testing. NGFS alignment signals analytical rigour to investors, lenders and auditors.
NGFS v4 Scenarios
Six scenarios across three pathways
Each scenario represents a distinct combination of transition action and physical warming. IFRS S2 requires at least one below-2·C and one high-warming scenario.
Net Zero 2050
by 2100
Climate policies are introduced immediately, and net zero CO2 is reached globally by 2050. Physical and transition risks are minimised · but only under rapid, decisive global action.
Risk profile: High transition cost / low physical risk
Below 2·C
by 2100
Divergent net-zero policies are introduced immediately but vary across regions and sectors. Net zero is not reached globally but warming is kept below 2·C with a high probability.
Risk profile: Moderate transition cost / moderate physical risk
Delayed Transition
by 2100
Action is delayed until 2030, then severe policies are implemented abruptly to achieve climate targets. The late, sharp pivot creates stranded assets and significant economic disruption.
Risk profile: Very high transition risk / moderate physical risk
Divergent Net Zero
by 2100
Net zero is achieved by 2050 but via divergent pathways · some sectors over-decarbonise while others lag. Carbon prices and technology costs vary significantly by region.
Risk profile: High transition cost / low physical risk
Nationally Determined Contributions (NDCs)
by 2100
Only currently pledged policies are implemented. Global warming reaches ~2.5·C. Physical climate risks intensify significantly, particularly for infrastructure and agriculture.
Risk profile: Low transition cost / high physical risk
Current Policies
by 2100
No new policies beyond currently implemented ones. Global warming reaches 3·C or more by end of century. Severe, widespread physical climate risks materialise.
Risk profile: Very low transition cost / very high physical risk
Risk vs Transition Trade-off
The physical-transition risk matrix
The NGFS illustrates a fundamental insight: the more aggressively we transition, the lower the physical risk · but the higher the near-term transition cost.
| Scenario | Category | Warming | Transition Risk | Physical Risk | Net Financial Risk |
|---|---|---|---|---|---|
| Net Zero 2050 | Orderly | 1.5·C | High | Low | Moderate |
| Below 2·C | Orderly | <2·C | Medium | Low | Low |
| Delayed Transition | Disorderly | <2·C | Very High | Moderate | High |
| Divergent Net Zero | Disorderly | 1.5·C | High | Low | Moderate |
| NDCs | Hot House World | ~2.5·C | Low | High | High |
| Current Policies | Hot House World | 3·C+ | Very Low | Very High | Very High |
How to use NGFS
Six ways NGFS scenarios power your disclosure
Aretia maps each NGFS scenario to your specific assets, operations and financials · turning abstract scenarios into concrete risk and opportunity assessments.
Platform Integration
NGFS built into every analysis
Aretia's Climate Scenarios Analysis module is natively powered by NGFS v4 data. When you run a scenario analysis, you are working with the same data that the Bank of England, ECB and Reserve Bank of Australia use for their climate stress-testing exercises.
NGFS scenarios available in Aretia
Run NGFS scenario analysis on your portfolio
Aretia applies all six NGFS scenarios to your specific assets and operations · producing financial impact estimates ready for IFRS S2 disclosure. Need expert support?