Maybe climate scenarios are 'malarkey'?

In diplomacy, “double signaling” is the art of sending a message that’s intended to be interpreted differently by multiple audiences.  Central bankers are avid practitioners, since they are required to communicate what they do and why they do it to myriad stakeholders, from frazzled politicians to savvy hedge fund traders.

I couldn’t help but imagine myself the target of such “double signaling” from central banks this week. Two innocuous publications from the Bank of England (BoE) and Basel Committee on Banking Supervision (BCBS) seemed to be conveying an urgent message for those with ears to hear it:  our approach to climate scenario analysis is all wrong.

To be clear, there’s no indication – none at all – that the documents have any subtext to them whatsoever.  The BoE’s is a tightly written guide for financial institutions on how to use scenario analysis to quantify climate change risks.  The BCBS’ contribution, meanwhile, is a discussion paper on “the role of climate scenario analysis in strengthening the management and supervision of climate-related financial risks.”  Harmless stuff, right?

Sure, but grab your tinfoil hat regardless and come for a wander with me.