The Network for Greening the Financial System (NGFS) has issued a declaration ahead of the 31st Conference of the Parties to the United Nations Framework Convention on Climate Change (COP31), warning that fossil fuel dependence and delayed, uncoordinated climate action pose risks to price and financial stability. Building on its COP30 declaration on the economic cost of climate inaction, the update emphasizes how changes in energy supply, demand and security affect inflation, economic activity and financial risks.
Energy prices are projected to rise by at least 24% on average in 2026 amid geopolitical tensions and supply disruptions. Earlier NGFS analysis indicates that a sustained 25% increase in carbon intensive energy prices could raise inflation by around two to five percentage points in the short run, depending on the weight of carbon intensive sectors in each economy. Progress in the energy transition may reduce energy importers’ exposure to fossil fuel price volatility, while hydrocarbon producers may face material transition risks as global demand adjusts.
Increasingly frequent and intense climate shocks also affect output, employment and prices, with effects spreading internationally through trade, supply chains and financial linkages. The declaration reiterates that monetary policymakers face growing difficulty looking through these shocks and that supervisors must address systemic climate and nature risks and ensure financial institutions manage them adequately. For financial institutions, transparency, robust disclosures, scenario analysis and transition planning remain key tools for assessing and managing these risks.