Research suggests that current Integrated Assessment Models (IAMs) do currently not clearly represent the interactions between finance and money creation and climate as well as the risks posed by climate damages to the economy. This section of the report highlights several recent modelling efforts made by Cambridge Econometrics and the French Development Agency to address that gap which sought to better represent the interactions between the financial, macroeconomic and biophysical spheres in their E3ME and GEMMES models, respectively. Various publications showing the increasing recognition from academia and central banks of the threats posed by climate change to the financial system are also highlighted as well as the need to better represent carbon-related systemic risk factors in macroeconomic and financial stability assessments.
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Modelling developments linked to the role of finance in addressing climate change