The Criticality of Country-Specific Scenarios to Inform Transition Risk Assessment for the Financial Sector: A Case Study for India

Climate transition risks arising from shifts in policy, technology, and market behaviour pose systemic challenges to financial stability. Central banks around the world are establishing disclosure frameworks for climate-related financial risks, with scenario-based assessments as a key tool for evaluating transition risks. Most financial institutions currently rely on global scenario frameworks such as those developed by the Network for Greening the Financial System (NGFS). This paper contends that while NGFS scenarios provide a coherent and standardised framework with easily accessible results and documentation, further refinement is needed, especially because national financial systems require more granularity and region-specific detail. Using India as a case study, we conduct a comparative analysis of key socio-economic drivers and granular energy-system transition variables across NGFS Phase V scenarios and a range of India-specific net-zero studies, the latter serving as a benchmark. Our findings reveal divergences between NGFS scenarios and national scenarios. NGFS scenarios typically project lower near-term GDP growth and per capita income than national studies. More importantly, when comparing the rate of change for 58 granular transition indicators from 2020 to 2040, the NGFS outcomes aligned with only 48 per cent of the range reported in Indian studies. This indicates that NGFS scenarios may, in their current form, misestimate the near-term timing and scale of sectoral transformation, as well as the resulting financial risk exposure in the country. While our findings are specific to India, they raise questions that merit investigation in other countries We provide three key recommendations based on these insights. First, while recognising the significant improvements NGFS scenarios have already made, they should be better tailored to the Indian context through improved data calibration, additional higher-growth pathways, more realistic near-term projections, deeper sectoral engagement, and stronger consideration of non-economic constraints such as finance, land use, and behavioural factors. Second, the Reserve Bank of India should lead the development of complementary national scenarios, co-produced with modelling teams and financial and energy sector experts, with transparent assumptions and results that directly serve domestic transition risk assessment needs. Third, substantial, and sustained capacity building within financial institutions is essential, alongside structured dialogue between scenario modellers and banks, to improve interpretation of scenarios, link them to financial impacts, and embed them within India’s broader economic and energy transition.