Ensuring a lower-carbon future is not only necessary but also good for the economy, according to the latest climate scenarios from the Network for Greening the Financial System, a group of 127 central banks and financial supervisors working to manage climate risks and boost green investment.

Indeed, making an orderly transition to net-zero by 2050 could result in global gross domestic product being 7 per cent higher than under current policies.

Economic and financial risks are rising too. NGFS models show that droughts and heatwaves are the largest source of risk across regions. Specifically, countries in Europe and Asia are most exposed to heatwaves, while countries in Africa, North America, and the Middle East are most vulnerable to droughts.

Transitioning to a low-carbon economy will have negative impacts on demand from higher carbon prices and energy costs. But these can be partially offset by recycling carbon revenues into government investment and lower employment taxes. Most importantly, lowering emissions will reduce the physical impacts of climate change, which lowers macroeconomic costs.

The NGFS, established in 2017, aims to strengthen the global response in meeting Paris Agreement goals and helping the financial system manage risks. The climate scenarios, which are aligned with international best practices, supplement those of other international organisations such as the Intergovernmental Panel on Climate Change and the International Energy Agency.

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