Climate Scenario Analysis

What is Climate Scenario Analysis?

Climate scenario analysis is an essential tool for understanding the implications of climate change for your business. Climate scenarios represent different plausible futures based on human impact and subsequent greenhouse gas emissions, and the subsequent analysis of those scenarios identifies the various physical and transitional risks that might impact a business or community. Climatrends uses a number of different sources of of information and models to build out climate scenarios for our clients, including the IPCC AR5 Representative Concentration Pathway (RCP) scenarios. You can read more about the RCP emissions scenarios here.

The Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) is a market-driven initiative, set up to develop a set of recommendations for voluntary and consistent climate-related financial risk disclosures in mainstream filings. More and more investors around the world are asking companies they invest in to report their climate related risks and opportunities using the TCFD framework. Conducting a climate scenario analysis is a critical step in fully reporting on TCFD recommended disclosures and feeds into four of the eleven TCFD disclosures including:

1) Describe the climate-related risks and opportunities the organization has identified over the short, medium, and long term.

2) Describe the impact of climate related risks and opportunities on the organization’s businesses, strategy, and financial planning.

3) Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.

4) Describe the organization’s processes for identifying and assessing climate-related risks.

Physical vs. Transitional Risks

A climate scenario analysis will present a company with numerous climate-related risks facing an organization. These various risks are broken down into two categories: physical risks and transitional risks. 

Physical Risks are the physical impacts of changing weather due to climate change. This includes, but is not limited to, temperature change, extreme storms, rising sea level, flooding and precipitation. 

Transitional Risks include all other changes in society that might be associated with future climate scenarios including policy and legal changes, market and technology shifts and changing consumer expectations.

Climate Scenario Analysis: What We Offer

Climatrends brings deep expertise in climate, weather, and sustainability. We work with companies to conduct a detailed climate scenario analysis of the physical and transitional risks associated with their business. This analysis can then be used to assess the resiliency of the company’s current strategy, develop a corporate climate strategy and conduct accurate and authentic reporting for TCFD disclosures.   

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