What is a Climate Scenario Analysis?
A climate scenario analysis is a tool used to evaluate the potential impacts of different future greenhouse gas emission scenarios on the Earth's climate. This is an important tool for businesses, governments, and other organizations that are concerned about the impacts of climate change and are seeking to understand and prepare for the potential risks and opportunities associated with different emission pathways.
It involves the development of scenarios, or plausible future pathways, based on different assumptions about future greenhouse gas emissions, economic development, technological progress, and other factors that could influence the trajectory of global climate change. These scenarios are used to project future levels of temperature, precipitation, sea level rise, and other key climate variables, as well as the potential impacts on natural and human systems.
Essentially, a climate scenario analysis combines the widely used scenario analysis exercise and scientific climate analysis to enhance critical strategic thinking when it comes to climate change’s future impact on a business, investment, process, project, government, or community.
The scenario analysis portion focuses on the assessment of risks and opportunities as it relates to making business decisions with uncertain future pathways – assessing a variety of possible future scenarios and how they will affect the company in question. This allows the company to be prepared for and to plan for different situations going forward.
The climate analysis portion examines key climatic models and trends that are evaluated at spot-specific locations around the world. For example, a company might choose to evaluate climate impacts on all of their physical asset locations, potential new asset locations, and supply chain production locations – or some combination of these material sites.
When these analyses combine to form a climate scenario analysis, it creates a powerful tool for businesses that informs potential impacts on operations, efficiency, supply chain, and company longevity in the wake of a changing global climate. By evaluating the potential impacts of different emission pathways, organizations can make informed decisions about how to adapt to and mitigate the impacts of climate change, and how to take advantage of emerging opportunities. Simply put, it can help companies make strategic decisions that will be effective for many plausible futures.
Undeniably, business conversations about a future based on the idea that everything will continue to work out fine tomorrow because tomorrow is a continuation of today’s experience do not produce companies that increase their resiliency. However, business conversations that change this way of thinking and consider alternative while still very plausible futures do produce companies that are prepared for a wide range of events that would otherwise be surprising. In fact, one of the key features of a climate scenario analysis is challenging conventional wisdom and simplistic assumptions about the future. This is why the Task Force on Climate-related Financial Disclosures (TCFD) criteria states that a climate scenario analysis should use plausible, distinctive, consistent, relevant, and challenging scenarios.
At 1 World Sustainability, our methodology meets the criteria from the TCFD and International Sustainability Standards Board (ISSB) for conducting a climate scenario analysis. It complies with the U.S. Securities and Exchange Commission’s (SEC’s) proposed climate risk disclosure rule for identifying material climate impacts and making climate transition plans. This service also aids in CDP and EU Corporate Sustainability Reporting Directive (EU CSRD) submissions. And it can help with setting and meeting goals related to the 2015 Paris Agreement, which aims to limit global temperature rise to 1.5°C or less.
We analyze a curated list of location specific, material climate metrics such as temperature, heat zones, precipitation, sea level rise, flood zones, solar irradiance, extreme weather events (wildfires, earthquakes, hurricanes, drought, landslide, ice storms, etc.), and more. Our climate scenario analysis identifies business opportunities to reduce climate risks (physical and transitional), improve operating efficiency, reduce costs, and increase profitability in the long term.
In summary, a climate scenario analysis is a powerful tool that helps businesses and other organizations understand and prepare for the potential impacts of climate change. By evaluating different future emission scenarios and their potential impacts on the climate, organizations can make informed decisions about how to adapt to and mitigate the risks and take advantage of the opportunities associated with a changing climate.