The Emperor's New Climate Scenarios report is published in July 2023 by the Institute and Faculty of Actuaries (IFoA) and the University of Exeter. The report examines the limitations and assumptions in relation to climate-change scenario modelling practices in financial services, focusing on hot-house world scenarios of 3°C or more of warming.
The report finds that many climate-scenario models in financial services are significantly underestimating climate risk, showing benign, or even positive, economic impacts from a hot-house world in which we fail to limit global warming. This is because current techniques exclude many of the most severe impacts we can expect from climate change, such as tipping points and second order impacts.
The report also finds that there is considerable uncertainty around how much and how quickly we expect the climate to warm. This translates to uncertainty in carbon budgets, with a real chance that the carbon budgets for 1.5°C of warming are now negative.
The report concludes that there is an urgent need to develop more realistic climate-scenario models, and that financial institutions and regulators need to be aware of the limitations of current models. It also calls for a race to net zero emissions, with an intentional focus on accelerating a range of positive tipping points in socio-economic systems.
The report has been widely praised by climate scientists and economists, and has been described as a "wake-up call" for the financial sector. It is hoped that the report will lead to a more realistic assessment of climate risk, and to more ambitious action to reduce emissions.
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