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Tools and guidance

Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities

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.

Key points

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, this 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.

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, and Appendix 4 provides other useful references for further reading.