Climate Scenario Analysis

Physical climate risks may affect assets, sites, supply chains, employees and operations. These risks can include flooding, heat stress, extreme rainfall, water stress, sea level rise, storms and other climate-related hazards.

Scenario analysis helps companies understand how these risks may change over time under different warming pathways. The process can assess exposure by location, business activity, asset type or operational dependency, helping management identify areas that may require further adaptation or monitoring.

Transition risks arise from the shift towards a lower-carbon economy. These may include carbon pricing, regulatory changes, energy cost increases, technology shifts, market expectations, customer requirements and investor pressure.

Scenario analysis can test how different policy and market pathways may affect emissions costs, operating expenditure, capital planning and business strategy. This helps companies assess whether current plans remain resilient under orderly, delayed or high-emissions futures.

Scenario analysis should use clear assumptions and recognised reference pathways. Depending on the project scope, scenarios may draw on sources such as NGFS, IPCC, IEA or other accepted climate references.

The analysis can compare different futures, such as an orderly transition, delayed transition and hot house world pathway. This allows companies to assess a wider range of potential outcomes rather than relying on a single forecast. Scenario analysis training can also help boards and management teams interpret the results with confidence.