The NACE – CPRS – IAM mapping: A tool to support climate risk analysis of financial portfolio using NGFS scenarios.

Abstract

We propose a mapping from NACE codes of economic activities, into Climate Policy Relevant Sectors (CPRS) and into the variables of the process-based Integrated Assessment Models (IAM) used by the Network for Greening the Financial System (NGFS) to provide its climate scenarios. We discuss the classification of CPRS at the disaggregation level provided by CPRS Granular, which distinguishes across energy technologies (e.g. within transport, motor vehicles powered by combustion vs electric engines). Then, we describe the mapping of NACE 4-digit – CPRS Granular – IAM variables used in the scenarios of the NGFS. CPRS enable users to group the large number of NACE codes into few categories of climate transition risk. At this point, it is possible to identify for each NACE economic activity the most relevant IAM variable to use in the NGFS scenarios. This procedure enables the use of climate scenarios (e.g. NGFS) for climate-related financial disclosure and climate stress testing. The goal of this note, and of the proposed mapping is to support practitioners, financial supervisors, investors and academics in climate transition risk disclosure and climate transition risk assessment, providing a science-based, transparent and operational tool.

Keywords: Climate transition risk, climate finance, CPRS Granular, classification of economic activities, process-based IAM, NGFS scenarios

JEL Classification: Q54, Q43, O11, O16