The working group on scenario analysis has produced some really useful guidance and tools that should be useful both to financial firms and to businesses.10  Next steps  It is critical that financial firms recognise now that the race to net zero has started. Indeed many have.11  9  See Climate Biennial Exploratory Scenario. See Climate Financial Risk Forum. The Glasgow Financial Alliance for Net Zero includes 87 asset managers representing $ trillion in assets under management; 43 banks with $ trillion in assets; and 58 asset owners with $ trillion in assets under management. 10 11  In support of their ambitions, and consistent with our expectations, they need to run climate scenarios as part of business as usual risk management and embed climate risk management within day-to-day decision-making. Time is running out. Perfection tomorrow cannot be the enemy of progress today. We also need experts from academia, think tanks and consultancies to fill in the blanks, helping turn the high-level into ground-level decision-useful material. A lot of promising work is already happening – including NGFS-led work to increase the sectoral granularity of risks and to quantify the impacts from flooding and tropical cyclones. But more research is needed. I will highlight three areas in particular:   What are the implications of government policy design on the transition, particularly on jobs, productivity, prices and different sectors of the economy?
Our latest economic modelling suggests that reaching net zero, if the transition is managed well, might have a small or negligible effect on economic aggregates such as GDP, unemployment and inflation [figure 7]. Indeed depending on what investment means for productivity, there is a chance the transition could prove positive overall. However, these costs depend crucially on whether the transition follows an orderly or disorderly path. Emission reductions may not follow a straight line as shown in many scenarios. It takes time for policy to work and policy adjustments will also be needed along the way. There may be higher investment uncertainty. Markets will not allocate capital perfectly, and without certainty about policy and technological outcomes, there may be bumps in the road as they absorb news about our path. In the NGFS we explicitly capture some of these transmission channels in our disorderly scenarios, for example by modelling delays in policy action and policy fragmentation across countries and sectors. They result in much higher impacts, particularly in countries with greater dependence on fossil fuel consumption or exports. This work underlines that central banks and supervisors, and the financial firms and system that we oversee, need to be prepared for a range of outcomes. But it also underlines that early action brings lower risks. 7  Preliminary analysis for the updated NGFS Climate Scenarios. Third, the impacts from physical risks will be significant.