What are the differences between the two climate scenario options available within ClimateMAPS?
As part of our ClimateMAPS – climate scenario analysis solution, financial institutions have the option to assess and quantify the potential financial and economic implications arising from climate change-related physical and transition risks from two either the Ortec Finance Climate Scenarios or NGFS Phase IV climate scenarios.
The current Ortec Finance Climate Scenarios option translates seven climate scenarios and the NGFS option translates six of the Phase IV climate scenarios into all asset classes and macroeconomic variables. The impacts on macroeconomic variables and returns from asset classes presented relative to a reference baseline between 2°C to 3 °C degrees warming.
How do Ortec Finance Climate Scenarios and NGFS Phase IV Climate Scenarios differ?
| Ortec Finance Climate Scenarios | NGFS Phase IV Climate Scenarios | |
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Captures a wide range of transition risk narratives, including the impact of various regulatory and fiscal transition policies, as well as risks related to stranded assets. | Transition risk proxied by a carbon price which omits the wide-ranging effects from policy implementation. |
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Explores the effects of severe physical risks, including extreme weather events and climate tipping points. | Limited physical risks are quantified, with extreme weather impacts assessed against GDP only. |
 Modeling approach |
Non-equilibrium macroeconomic modeling approach allows for positive transition effects in regions that are well-positioned to benefit from the transition. Realistic modeling of technology take-up, taking account of real-world frictions and technology tipping points. Financial modeling covers many asset classes. |
Equilibrium macroeconomic modeling approach does not reflect potential benefits of the transition. Least-cost optimization modeling of technology take-up excludes key frictions and inertia effects associated with the transition. Very limited scope and coverage of financial modeling. |
 Granularity |
Comprehensive results provided by sector, region and asset class. | Limited results by sector, region, and only covers impacts on equities. |
 Insight |
Includes narratives, interpretation notes and explanations to understand the scenario results and implications, along with a contribution analysis to show the key drivers contributing to net impact. | Very limited narratives or explanations of results. |
Which climate scenarios should I utilize?
Our Climate Scenarios & Sustainability team recommends financial institutions utilize the macroeconomic and asset class impacts generated from the Ortec Finance Climate Scenarios for stress testing, strategic asset allocation, investment strategy development and stakeholder engagement purposes. The Ortec Finance Climate Scenarios are also able to meet a comprehensive range of reporting, disclosure and peer-benchmarking needs.
As an alternative option, the macroeconomic and asset class impacts from the NGFS Climate Scenarios can also be utilized to meet a range of financial institution’s reporting, disclosure and peer-benchmarking needs.
Further insights
- Unlocking the true value of climate scenarios – Discover the differences between the various types of narrative-based climate scenarios.
- The latest release of NGFS climate scenarios– Key highlights for institutional investors – Learn more about the updates and changes within Phase IV of the NGFS climate scenarios, and how it compares to its previous release.
- The fundamentals of climate scenario analysis for investors - Find out how climate scenario analysis can specifically help investors understand climate change's impact on investments.
Climate Scenarios & Sustainability
Contact
Sophie Heald
Senior Climate Specialist, Climate & ESG Solutions
Bronwyn Claire
Senior Climate Specialist, Climate & ESG Solutions