Available analytical tools and emerging good practice
Ministries of Finance (MoFs) face an escalating need for public expenditure to deal with extreme climate shocks or chronic events, such as droughts and sea level rise, with physical impacts already putting economic development strategies and investments into the green transition at risk.
This report reflects on the most pertinent physical risk and adaptation questions for MoFs and explores tools and methods to help those working on the core functions of public finance to understand the scale of the physical risk challenge today and in the future, including what this means for their different areas of responsibility. It illustrates the current landscape of existing tools and methods available to MoFs, and provides examples of analysis in practice, before outlining lessons learned, challenges with existing tools, and how to overcome them. The report concludes with recommendations for practitioners, those developing economic tools, and end users, and provides a list of available tools in the Appendix.
The report discusses:
- Tools that draw on models focused on climate hazards, linking them with models that assess the economy to understand the overall economic implications of climate physical risks.
- Tools to identify and quantify potential adaptation solutions.
- Tools and frameworks that can help assess financing requirements and aid MoFs in understanding how to finance adaptation.
The report draws on case study examples of analysis in practice provided by more than 20 contributions to the overall program’s Compendium of Practice, highlighting how they can guide and inform effective decision-making and adaptation strategies. The report:
- Illustrates case studies, tools and approaches for identifying and quantifying current and future physical climate impacts on the macroeconomy and public finances.
- Provides detailed instructions for various tools and models for the estimation of physical climate risk and macroeconomic outcomes relevant for MoFs.
- Outlines case studies, tools, and approaches for identifying and quantifying potential adaptation solutions to manage physical risks.
- Details case studies, tools, and approaches designed to help MoFs decide how to finance adaptation.