Climate Risk Scenario Analysis: An Executive Primer

  • Enci Wang, Climate Risk Analyst, Global Risk Institute
Four young plants sprouting from the ground.

Introduction

Climate change poses foreseeable physical and transition risks, but uncertainty remains in the magnitude of impact, timing, and policy pathways that will actually come to pass. As part of the climate risk assessment process, scenario analysis enables firms to investigate how potential future developments may translate into business risks and opportunities. While scenario analysis is a well-established tool used to test plausible economic or financial outcomes, the application to climate risk is a relatively new innovation. In this short primer, we look at why climate scenarios are a useful tool, how policy is evolving, and the challenges and benefits that financial firms are experiencing as they undertake these assessments.