Climate scenario analysis is a key element of the Task Force on Climate-Related Financial Disclosure (TCFD) requirements. Sitting under the Strategy pillar, climate scenario analysis is a key aspect of assessing the resilience of a business strategy under a number of potential future pathways the world and its economy could take to limit global warming levels.
“It is clear that a core aspect of future proofing the economy is understanding the plausible pathways that companies should follow in order to achieve their 1.5°C goals. Climate transition scenarios are a key tool to help understand how the future could evolve, however their drivers, assumptions and elements remain relatively unknown. Demystifying Scenarios can help users understand what is driving an output from a climate scenario, to help business and financial institutions make more informed decisions about how to make their business resilient to climate change.”
Jon Williams, Partner, PwC Sustainability
Climate transition scenarios enable companies to develop strategic plans that are flexible and resilient to a range of plausible future states. Climate scenario analysis is a key element of recommendations from the Task Force on Climate-Related Financial Disclosure (TCFD). In October 2021, the TCFD issued its latest Status Report, which showed significant momentum around adoption and support for its recommendations, but the lowest levels of disclosure are in response to the recommendation that companies should assess their strategic resilience taking into consideration different climate-related scenarios.
“Climate scenario analysis is becoming an increasingly important aspect of how businesses make decisions, set targets, and analyse potential risks and opportunities. With the number of available climate scenarios, and the complexity of the modelling which underpins them, increasing with time, it is important that those using climate scenarios understand how they are developed. Our report aims to demystify how climate scenarios are developed and to help readers understand what the key considerations are when interpreting their outputs. A good understanding of climate scenarios will be vital to ensuring informed decisions can be made when using them.”
Alice Melvin, Lead Author, PwC Sustainability
Our report, developed in collaboration with WBCSD aims to:
- provide an overview of the process through which climate scenarios are quantified using models;
- give the reader the tools to be able to interpret the assumptions and modelling methods that form standard climate scenarios;
- form a foundation level of knowledge which readers can build upon through further reading and research.
The document highlights some of the key aspects of climate scenarios and models that can affect the results, such as:
- the underlying assumptions of the climate scenarios that characterise pathways to a temperature target;
- the core modelling methodology used to quantify the climate scenarios;
- how a combination of these factors can describe the same temperature outcome but show a different trend.
The work complements the release of the WBCSD’s Climate Scenario Analysis Reference Approach, including the Climate Scenario Catalogue v1.0, which collates several climate transition scenarios and variables that are relevant to the energy system.
“Climate scenarios are increasingly becoming mainstream, however they are typically taken at face value without understanding why a result is showing the value it is. As climate scenario analysis becomes integrated into standard business processes, it is vital to ensure that the users of these scenarios and models truly understand whether a result is being driven by a climate assumption or a modelling technique. Our report dives into some of these factors to help sustainability and strategy specialists understand and use climate scenarios in the way they were intended.”
Josh Fettes, Author, PwC Sustainability
About the World Business Council for Sustainable Development (WBCSD)
WBCSD is the premier global, CEO-led community of over 200 of the world’s leading sustainable businesses working collectively to accelerate the system transformations needed for a net zero, nature positive, and more equitable future.
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