Climate change scenario analysis.
https://www.fsb-tcfd.org/publications/
For many organizations, the most significant effects of climate change are likely to emerge over the medium to longer term, but their precise timing and magnitude are uncertain.
This uncertainty presents challenges for individual organizations in understanding the potential effects of climate change on their businesses, strategies, and financial performance.
To appropriately incorporate the potential effects of climate change into their planning processes, organizations need to consider how climate-related risks and opportunities may evolve and their potential business implications under different conditions.
One way to assess such implications is using scenario analysis.
Inputs required by investors, lenders, and insurance underwriters. Scenario analysis is a well-established method for developing input to strategic plans to enhance plan flexibility or resiliency to a range of future states. The use of scenario analysis for assessing climate-related risks and opportunities and their potential business implications, however, is recent. Given the importance of forward-looking assessments of climate related risk, the Task Force believes that scenario analysis is an important and useful tool for an organization to use, both for understanding strategic implications of climate-related risks and opportunities and for informing stakeholders about how the organization is positioning itself considering these risks and opportunities. It also can provide useful forward-looking information to investors, lenders, and insurance underwriters. Task Force on Climate-related Financial Disclosures - technical supplement.To assist organizations in using climate-related scenario analysis to support the development of disclosures consistent with the Recommendations of the Task Force on Climate-related Financial Disclosures, the technical supplement sets out and discusses: 1. Using scenario analysis
2. Considerations for applying scenario analysis.
3. Analytical choices involved in scenario analysis
4. Types of climate-related scenarios 5. Publicly available climate-related scenarios from the International Energy Agency (IEA), the Intergovernmental Panel on Climate Change (IPCC), and others that can provide context and a basis for company, industry or sector scenarios. The technical supplement is organized as follows. Section B discusses why scenario analysis is useful, what a scenario is, and how selected companies have used scenarios. Section C discusses the application of scenario analysis; key parameters, assumptions, and analytical choices organizations should consider when they undertake scenario analysis; and some of the key benefits and challenges. Appendix 1 discusses in greater detail the IEA and IPCC scenarios that may be useful as a starting point in developing organization-specific scenarios. Appendix 2 provides a glossary of key terms, Appendix 3 lists sources referenced in this supplement.Appendix 4 provides other useful references for further reading.
Inprovement over time.
Given both the current limited use of scenario analysis for climate-related risks and opportunities and the challenges involved in implementing a rigorous climate-related scenario analysis process, it is important that organizations begin to use scenario analysis and develop supporting capabilities, with the expectation that their capabilities will improve over time.
What Is a Scenario?Scenario analysis is a tool to enhance critical strategic thinking. A scenario is not a forecasts, prediction or a sensitivity analyses. It is a hypothetical construct. It describes a path of development leading to a particular outcome, by drawing attention to the key factors that will drive future developments.
A key feature of scenarios is that they should challenge conventional wisdom about the future. In a world of uncertainty, scenarios are intended to explore alternatives that may significantly alter the basis for “business-as-usual” assumptions.