Climate Scenario Analysis
Measuring climate-related financial risks using scenario analysis
How Climate Change and Energy Transition Impact Companies and Markets?
Climate change poses significant risks to the global economy and the stability of our financial system, as well as our natural and social environment. The need to minimize industrial emissions to mitigate climate change presents further risks to companies from disruption to traditional business models and energy production. Future climate patterns, and the consequences of the energy transition, are difficult to predict given the dependency on uncertain factors such as population growth, policy changes, technological development, and the stickiness of traditional fuels as we work to balance energy security and a just transition. Scenario Analysis offers a structural way forward in analyzing the possible impact of climate change, and the physical and transition risks associated.
What is Climate Scenario Analysis?
Climate Scenario Analysis is the process of using specialized climate science data models and deep insight into the global energy sector to explore a variety of plausible futures across climate impacts and time horizons to help understand a wide range of risks and opportunities. Scenarios Analysis is not a pre-determined conclusion about the future, nor does it predict the likelihood of future events happening.
I believe the CI Envisage scenarios/cases are presented with a view on likelihood e.g. Inflections is the base case / most likely case
Importance of Climate Scenario Analysis
Climate Scenario Analysis is a key tool in driving progress towards net-zero, offering important insights to manage risk and mobilize finance towards the energy transition. It is a structured approach to examining material risks and opportunities by identifying and examining the impact of a variety of transition pathways and physical climate hazards under temperature-based, as well as policy-based, scenarios.
What challenges does climate scenario analysis address?
A quantitative approach can yield new insights and potentially turn risks into opportunities by addressing the following challenges:
Evaluating climate impacts across timescales that are relevant to counterparty exposures
Responding to ongoing evolution in climate science and low carbon technology to align strategies with the latest available science and knowledge
Quantifying climate risks (e.g. hazard exposures) and opportunities (e.g. energy efficiency) in financial terms
Assessing how competitive advantage will evolve over time, for example in carbon-intensive sectors of the economy, such as energy, utilities, industrials and transport
Implementation
Key considerations for effective implementation
Our Solutions
Tools and resources for conducting climate scenario analysis
In-house Scenarios for the Energy Transition
Analytics that are Fit for Purpose
Datasets that Power our Offerings
Services to Support your Journey
Industry Segments We Serve
Commercial Banks
- Providing climate stress test submissions to regulators
- Aligning loan portfolio to the Bank’s Net Zero strategy
- Setting pricing and credit limits that commensurate with credit risks due to the impact of climate change
- Identifying transition financing opportunities
- Conducting climate scenario analysis for the purposes of ISSB or local disclosure requirements
Investment Banks
- Identifying transition financing opportunities
- Identifying potential climate risks and opportunities in potential targets for M&A transactions
Insurers
- Providing climate stress test submissions to regulators
- Conducting climate scenario analysis for the purposes of ISSB or local disclosure requirements
Asset Managers
- Quantifying climate risks in portfolios
- Identifying investment inclusion/exclusions in portfolios
- Conducting climate scenario analysis for the purposes of ISSB or local disclosure requirements
Private Equity and Credit
- Impact to investment valuation across climate scenarios
- Identifying transition financing gaps and opportunities
- Climate scenario analysis for the purposes of reporting to GPs/LPs
Manufacturing and Consumer Retail
- Identify climate vulnerabilities in operations and supply chains
- Adopt more sustainable and lower climate risk operational practices
- Demonstrate a proactive approach to climate risk to stakeholders
Energy
- Quantify climate risks to physical assets
- Plan for operational disruptions and develop climate contingency plans
- Comply with regulatory requirements for climate risk analysis
- Guide the transition to renewable energy sources by identifying the most climate-resilient and sustainable option
Transportation and Automotive
- Identify climate vulnerabilities in operations and supply chains
- Optimize manufacturing processes to reduce climate risks
- Comply with regulatory requirements and enhance ESG (Environmental, Social, and Governance) reporting