The Banking sector scenarios (PDF, 5.2 MB) [NZ Banking Association website] were developed on instruction of the New Zealand Banking Association (NZBA).
Three scenario narratives were developed to promote alignment of climate-related scenario analysis and risk disclosures across New Zealand’s banking sector.
In the Orderly scenario there is a steady and constant transition to a low emissions economy, which prevents the worst predicted impacts of climate change.
In the Too Little Too Late scenario transition to a low emissions economy is fragmented and delayed, although New Zealand is ahead of the rest of the world achieving net zero emissions by 2050. Change is too late to prevent wide ranging acute and chronic physical climate impacts.
The Hot House scenario is a worst-case emissions trajectory with minimal ambition to transition towards a low carbon economy. Continued and unabated emissions exacerbate natural biophysical mechanisms resulting in unprecedented climate volatility.
Narrative describes the anticipated climate change impacts under each scenario
These include increases in global:
- temperature
- number of hot days
- sea level rise
- precipitation levels.
Socioeconomic trends explored
These include:
- global GDP
- global population
- proportion of renewable energy
- uptake of EVS
- carbon price.
High-level climate-related risks were identified for the sector and separated into credit level risks for priority sectors and organisational level risks to bank-level operations.
Anticipated impacts on the banking sector
Anticipated impacts on the banking sector are discussed throughout the scenarios, with a focus on anticipated credit risks across the following sectors:
- Agriculture
- Transport
- Shipping
- Energy
- Manufacturing
- Construction
- Residential and Commercial property.
The scenarios also discuss:
- loss of revenue
- increase in funding costs
- an increase in capital and operational expenditure
The Banking scenarios are aimed at supporting New Zealand Banking Association (NZBA) members to better understand and assess climate-related risks and to understand the expectations of meeting reporting standard requirements.
Some public sector entities may find aspects of sector scenarios, such as the Banking scenarios, useful for testing policies or strategies. This will depend on the nature of your organisation and focal question.
Read more about limitations of the Banking scenarios on page 26 of the scenarios report.
To read more about the meta scenarios the Banking scenarios are based on see pages 28 of the scenarios report. Data sources used to construct each scenario are referenced in footnotes throughout the report.
See The Banking sector scenarios (PDF, 5.2 MB) [NZ Banking Association website]
For more on the limitations of existing global climate scenarios, upon which the Banking scenarios are based, see The Emperor’s New Climate Scenarios report from te University of Exeter [Institute and Faculty of Actuaries]. See for example, the discussion on limitations of the NGFS GDP data on page 21.
Entities required to prepare mandatory climate-related disclosures should not rely on any information presented here see Limitations of this toolkit.
There are a total of three Banking scenarios, each with a different narrative and emissions trajectory.
Orderly
The Orderly scenario represents a future world where collective action is taken towards a low carbon global economy.
In this scenario, there are:
- steady and constant societal changes related to technology
- policy and behaviour to support the transition to a lower emissions economy
- increasing carbon price that incentivises low carbon behaviour change.
The coordinated and timely action around the world to curb GHG which occurs within this scenario prevents the worst predicted impacts of climate change.
However, the long-term chronic physical impacts from historic GHG emissions are still likely to occur, although not as severely in comparison with the other scenarios.
Too Little Too Late
The Too Little Too Late scenario represents a fragmented and delayed transition to a low carbon economy between New Zealand and the rest of the world.
In this scenario, New Zealand is:
- an early mover on the transition to a low emissions economy
- introducing policy that brings about net zero emissions by 2050.
Globally, there is:
- less action to shape a low emissions future
- fossil fuel development continuing throughout much of the remaining first half of the century.
From mid-century:
- global efforts to address climate change begin to align and may even exceed those in New Zealand
- large increases in carbon prices may drive a rapid improvement in low emissions technology efficacy and uptake.
This shift is partly driven by the increasing evidence and awareness of the social, economic, and environmental degradation caused by a continued increase in fossil fuel development.
Despite making a concerted effort to reduce emissions and move to a low emissions economy at mid-century, the changes come too late to prevent wide ranging acute and chronic physical climate impacts.
Hot House
This scenario represents a worst-case emissions trajectory with minimal ambition to transition towards a low carbon economy.
Despite widespread increase in:
- severe weather events
- associated destabilisation of social, political, and economic structures.
Low demand for carbon alternatives continues to slow the rate of development and uptake of emissions saving technology.
Continued and unabated expansion of emissions intensive industries is expected to exacerbate natural biophysical mechanisms that moderate temperature, pushing them beyond operating thresholds into a state of unprecedented climate volatility.
Under this scenario, the second half of this century is characterised by high physical risk due to extreme weather events, exacerbated by rising sea levels.