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Publication(Washington, DC: World Bank, 2022-02-01) Ranger, Nicola Ann ; Mahul, Olivier ; Monasterolo, IreneClimate change has become a main concern of ministries of finance, central banks, and financial regulators. In response, a suite of scenarios and tools have been developed tthe potential scale of climate risks and underprice investments in resilience. This is particularly important for emerging markets and developing economies where exposure to physical climate risks is already high and is expected to further increase with climate change. The paper identifies five areas, or risk drivers, that make a material contribution to physical climate risks to the financial sector and that are not consistently included in current scenarios and tools: (1) extreme weather events; (2) uncertainties in climate models; (3) compound scenarios; (4) indirect economic impacts of shocks; and (5) feedback between the real economy and the financial sector. We derive a framework for generating scenarios to assess acute physical climate-related financial risks, which is inspired by the “Realistic Disaster Scenarios” that are used in risk management and supervision in the insurance sector. The framework is illustrated through an application of the EIRIN macroeconomic model. This framework aims to complement recent work by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and the Financial Stability Board (FSB) to inform ministries of finance, central banks, financial regulators, and financial institutions on climate financial risk assessments, both for micro- and macroprudential risk management, and to incorporate climate risks into wider financial decision making and disclosures.o assess the financial risks from physical climate shocks (for example, hurricanes, droughts, wildfires, flooding). However, those scenarios do not fully capture such shocks, which could lead financial institutions to underestimate.
Publication(World Bank, Washington, DC, 2022-02) World BankThis report presents a qualitative review of inclusive approaches to disaster risk management (DRM)—a part of the first stocktaking exercise that the Global Facility for Disaster Reduction and Recovery (GFDRR) conducts to assess lessons learned and generate knowledge to help mainstream inclusive approaches and strategies across GFDRR activities. The findings are based on a literature review, analysis of portfolio data, and internal consultations with World Bank task team leaders of GFDRR-funded activities. The reviewed literature includes GFDRR project documentation and knowledge products, World Bank operational documents and research findings, and relevant publications from other scholars and organizations. The stocktaking exercise emphasizes gender, disability-inclusive DRM, citizen engagement, and community participation. It will help create a framework for GFDRR engagement on inclusive DRM and inform development of an inclusive DRM work plan for implementation beginning in fiscal year 2022. As such, GFDRR’s work in these areas reflects its commitment to the World Bank Group’s Gender Strategy 2016–2023 (World Bank Group 2015), the Disability Inclusion and Accountability Framework (World Bank 2018), and the Strategic Framework for Mainstreaming Citizen Engagement in World Bank Group Operations.