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 through the use of scenario analysis.
Scenario analysis is a well-established method for developing input to strategic plans in order 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 relatively 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 in light of these risks and opportunities. It also can provide useful forward-looking information to investors, lenders, and insurance underwriters.
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:
- Using scenario analysis
- Considerations for applying scenario analysis
- Analytical choices involved in scenario analysis
- Types of climate-related scenarios
- 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