Best Practices: Climate Scenarios For Risk Management
22 Nov, 2024
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Executive Summary
Climate scenarios help firms assess risk and improve resilience to climate change. They are particularly valuable for managing the uncertainty surrounding the specifics of future climate change and its impacts. However, the scenarios that firms most commonly use are not perfect. To better support business needs, organizations should consider a variety of models and data sources. Scenarios should incorporate multiple sources of uncertainty – such as emissions pathways, socioeconomic conditions, climate system response, feedbacks and tipping points, and interannual variability – at local and global scales over the short, medium and long term.
Summary for decision-makers
Climate scenarios are a key piece of risk management
Use and misuse of climate scenarios for risk management
Scientific perspective: the good, the bad and the ugly of current approaches
Business perspective: available climate scenarios do not address all needs
Alternative approaches to climate scenarios add value
Scenarios should support business needs
Five recommendations for using climate scenarios in risk management
Climate scenarios are a key piece of risk management
Use and misuse of climate scenarios for risk management
Scientific perspective: the good, the bad and the ugly of current approaches
Business perspective: available climate scenarios do not address all needs
Alternative approaches to climate scenarios add value
Scenarios should support business needs
Five recommendations for using climate scenarios in risk management
Figure 1. Strengths and weaknesses of stochastic and deterministic models
Figure 2. Examples of alternative climate scenarios
Figure 3. Questions to consider when evaluating and selecting climate scenarios
Figure 2. Examples of alternative climate scenarios
Figure 3. Questions to consider when evaluating and selecting climate scenarios
UN Environment Programme Finance Initiative, Netherlands Delta Commission, Intergovernmental Panel on Climate Change (IPCC), Network for Greening the Financial System (NGFS), US Department of Defense, USS (Universities Superannuation Scheme), The Climate Risk Group, UK Government, Risilience, Moody’s, CoreLogic, US Bureau of Reclamation, European Central Bank (ECB), Copperleaf, Southern California Edison (SCE), University of Exeter, Fathom, Commonwealth Scientific and Industrial Research Organisation (CSIRO), CLIMsystems
About the Authors
Emma Cutler
Senior Analyst
Emma is a Senior Analyst in the Verdantix Net Zero & Climate Risk practice. Her current research agenda focuses on physical and transition climate risk, climate resilience…
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Katelyn Johnson
Senior Manager, Risk Management
Katelyn is the Senior Manager in the Verdantix Risk Management practice. Her current research agenda focuses on climate risk and its integration into risk management framework…
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