Decarbonization and Disruption: Understanding the Financial Risks of a Disorderly Transition Using Climate Scenarios

Sustainable real estate finance product-sets and emergent financial products linked to the environmental performance of properties and portfolios will be required to fund the transition and finance climate resilience. This will drive new demand for sustainable financial services including sustainable product-sets and deal-structures. As climate risks are acknowledged to be financial risks, firms, markets, and regulators must prepare accordingly. UNEP FI, Oliver Wyman and 39 International Financial Institutions collaborate to develop approaches for assessing such climate risks and opportunities in a range of portfolios to highlight the ways in which many sectors are exposed to transition risk and the implications for financial stability. They explore how to identify climate risk factors in the real economy and capture such risk factors in climate scenarios used by financial institutions. Such scenarios include both orderly and disorderly transition pathways to net zero, which are assessed through comparative analyses and case studies by banks that participated in UNEP FI’s TCFD program.