ThinkSpace - Integrating Climate Scenario Analysis into Investment Management: - A 2023 Update

2 The NGFS, of which MAS is a founding member, is a group of over 90 central banks and supervisors that share best practices and contribute to the development of environmental and climate risk management in the financial sector. [...] The paper is organised into the following sections: • How climate change impacts investments • Challenges of using climate scenarios for financial analysis • GIC’s approach to climate scenario analysis • Ortec Finance’s top-down climate scenario modelling methodology • Overview of the four climate scenarios • Results and analysis: the impact on GDP growth and inflation, broad asset class returns,. [...] In this article, we are focusing on the top-down approach.9 For the development of their bespoke climate scenarios and the top-down analysis of climate change-related impacts on investment portfolios, GIC and MAS partnered with Ortec Finance.10 Their tool addressed most of our requirements regarding the financial modelling of climate change. [...] This is expressed in the following manner: • Broad coverage of climate-related risks; • Coverage of all asset classes on the basis of a consistent set of assumptions; • Capture of ‘systemic risk at a granular level’13 Another important attribute of the ClimateMAPS tool is the use of empirically-based climate and financial modelling to best reflect how the real world works in practice:14 • Assumpti. [...] Another important attribute of the ClimateMAPS tool is the use of empirically-based climate and financial modelling to best reflect how the real world works in practice: Integrating Climate Scenario Analysis into Investment Management: A 2023 Update 27 ThinkSpace • Assumption about market efficiency: The macro model does not assume perfectly efficient markets and is able to capture the dynamics of.