Task Force on
Climate-related
Financial Disclosures
Guidance on Scenario Analysis
for Non-Financial Companies

October 2020

The Task Force on Climate-related Financial Disclosures

Executive Summary
Climate change is spawning a host of long-term and short-term
effects that affect businesses broadly and fundamentally. The
World Economic Forum ranks climate risks among the top fivebusiness risks, saying “climate change is striking harder and more
rapidly than many expected.”Companies will be affected by climate change across multiple
dimensions (strategic, operational, reputational, and financial),
along the entire value chain, across regions, and over long periodsof time. But assessing and planning for these risks — andopportunities — is challenging given the associated uncertainties.
Scenario analysis helps companies in making strategic and risk
management decisions under complex and uncertain conditions
such as climate change. It allows a company to understand therisks and uncertainties it may face under different hypothetical
futures and how those conditions may affect its performance,thus contributing to the development of greater strategy resilienceand flexibility.
• Scenario analysis is not new. It is a long-established planning
tool with a rich and extensive literature and practice.
• Scenario analysis informs strategic management in a
structured, systematic, and analytical way. It provides new
perspectives and unique insights, clarifies the predictable anduncertain elements in different futures, and reorients decisionmakers’ mental models.
• Scenario analysis contributes to strategy resilience. It broadens
strategic thinking, and identifies options to address different
climate-related circumstances. It “road-tests” different strategy
options, and provides a lens through which to assess a company’s
strategic position.

“No matter how well we prepare ourselves,
when the imagined future becomes the very
real present, it never fails to surprise.”– Alan AtKisson, Believing Cassandra• Scenario analysis allows for the continual exploration ofalternative strategies, even if current strategies seem to beworking. Scenario analysis can identify key drivers of change
and pathways of development that a company can monitor tounderstand which futures are emerging and allow for “midcourse
corrections.” This is a cornerstone of resilient strategies.
• Scenario analysis is used beyond climate issues. Scenario
analysis is applicable to a wide range of issues facing companies
under conditions of uncertainty (e.g., the COVID-19 pandemic).
Scenario analyses should be an integral part of a company’s
decision-making process.
Scenario analysis has limitations. Scenarios, for example, rely ona snapshot of external drivers that allow a company to explore only
a limited range of uncertainties. Acquiring climate data at the rightscale and granularity to craft a scenario also can be challenging.
Disclosure regarding strategy and scenarios is important.
The Task Force on Climate-related Financial Disclosures (TCFD)
recommends disclosure of “the actual and potential impactsof climate-related risks and opportunities on the organization’s
businesses, strategy, and financial planning where such information
is material” including “the resilience of the organization’s strategy,
taking into consideration different climate-related scenarios.”

1

The Task Force on Climate-related Financial Disclosures• Adjustments to a company’s strategy and financial plans
represent a key disclosure element. Investors (e.g., current
and potential shareholders, debt holders, banks, and insurers)
and other stakeholders want to understand how a company ispositioning itself strategically, operationally, and financially inlight of potential climate-related impacts.
• Companies should disclose sufficient information for investors
and other stakeholders to (1) determine the potential impacts on
the company of climate-related risks and opportunities, and how
the company plans to address them in its strategy and financial
plans; (2) understand the soundness of a company’s scenario
analysis; and (3) judge the resilience of the company’s strategy
to the material climate-related risks and opportunities that may
emerge under different climate futures.
Getting started using scenario analysis is not difficult. A typicalscenario analysis process often takes only a handful of full-time staff
and less than a year (often three to nine months) depending on the sizeof the company and the scope of the decisions under consideration.
• This guidance can help you to get started. It provides apractical, process-oriented way for businesses to use climaterelated scenario analysis. It extends and deepens the TCFD’s 2017
Technical Supplement on The Use of Scenario Analysis in Disclosureof Climate-related Risks and Opportunities. This guidance, however,is not a checklist of everything a company should do to meet the
TCFD’s Strategy c) recommended disclosure. Rather, it is meant
to illuminate common practices, considerations, and questions
that a company needs to think about, taking into consideration
its particular circumstances.

• Before embarking on scenario analysis, a company should think
through its implementation of the full TCFD recommendation
framework (Governance, Risk Management, Strategy, and Metrics
and Targets). Scenario analysis is not standalone but is supportiveof overall strategy, governance, and risks management.
• Nothing in this guidance should be read as altering or adding
to the TCFD’s 2017 recommendations. It provides suggestions
for, and considerations about, process-oriented methods to assistin undertaking scenario analysis to assist with implementing the
TCFD Strategy recommendation.
• The target audience of this guidance is large- and midsized
non-financial companies in the early stages of implementing
climate-related scenario analysis. However, small companies
will also find useful information and considerations to help themundertake scenario analysis.
• Senior executives and those tasked with sponsoring scenario
analysis in their companies will benefit from the highlights andkey messages in the guidance. Those executives include corporate
leaders in strategic planning, sustainability, corporate reporting,and risk management functions.
• Those tasked with implementing a scenario program in theircompanies may benefit from the more detailed content in theguidance and its appendices.

2

Contents
Executive Summary

1

A. Introduction

4

B. Getting Organized8

1. Inform, Educate, and Engage

92. Build the Case for Scenarios

9

3. Clear Governance and Executive-Level Leadership10

4. Establish a Strong, Dedicated Scenario Team11

5. Internal and External Resource Requirements

12

C. The Scenario Process

14

1. The ABCs of Scenarios

15

2. The Scenario Development Process

20

D. Strategic Management Using Scenarios

32

1. Strategic Management and Strategy Resilience34

2. Applying Scenarios to Strategy Formulation

37

3. Managing Strategy Resilience40

E. Disclosure: Demonstrating Strategy Resilience42

1. What Information Do Investors and Other Stakeholders Desire?

44

2. What Information Should Be Disclosed Around Strategy and Scenarios?

46

3. Other Disclosure Considerations

51

Conclusion

54

Appendix 1: An Overview of Public Scenarios and Models

56

Appendix 2: Scenario Construction

69

Appendix 3: Summary of Selected Scenario Tools and Information

84

Appendix 4: Interviewed Organizations

107

Glossary and Abbreviations

109

References

115

Acknowledgments

132

A.
Introduction

The Task Force on Climate-related Financial Disclosures

A. Introduction
This section explains why this work has been carried out and the broader context that makes
this contribution timely.
Key Messages•	Companies use scenario analysis increasingly as a tool in their climate-related risk management
and strategy formulation processes, but they face challenges.
• 	In response to these challenges, the TCFD developed this guidance to assist non-financial
companies wishing to implement climate-related scenarios as part of those risk management
and strategy formulation processes.
• 	This guidance is aimed at non-financial companies at the early stages of using scenario analysis
to assess climate-related risks and opportunities.

Executive Summary

Scenario analysis is useful for assessing the business implications of climate change.

Table of Contents• 	Scenario analysis helps in making strategic and risk management decisions under complex
and uncertain future conditions such as climate change.

A.
Introduction• 	Scenario analysis allows a company to understand how it might perform under different
hypothetical climate futures.

B.
Getting Organized• Scenario analysis contributes to greater strategy resilience and flexibility by:- testing a strategy and strategy options against a set of scenarios;C.
The Scenario Process- identifying possible future threats or opportunities;- identifying trigger points to set contingency plans in motion; andD.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation- serving as a basis for continuous monitoring and strategy adjustment.

In July 2017, the TCFD issued a set ofrecommendations for disclosing clear, effective,
and consistent information about the businessrisks and opportunities presented by climatechange. Those recommendations form an
integrated framework for assessing and disclosing
climate-related risks and opportunities in theareas of governance, risk management, strategy,
and metrics and targets.
The TCFD’s Strategy recommendation calls on
companies to disclose the strategic and financial
implications of their material climate-relatedrisks and opportunities, as well as to describe theresilience of their strategy to different climaterelated scenarios.1 This recommendation rests onfour premises:

1.	Strategic thinking, planning, and risk
management are fundamental aspectsof a business.
2.	Climate change presents a number of strategicrisks, opportunities, and uncertainties.
3.	These uncertainties place a premium
on forward-looking methods of strategy
formulation.
4.	Scenarios are a well-established toolfor enhancing strategic thinking in
uncertain conditions.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments1 he Strategy recommendation calls on companies to “disclose the actual and potential impacts of climate-related risks and opportunities onTthe organization’s businesses, strategy, and financial planning where such information is material.” It further recommends that companies“describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower
scenario.” TCFD, “Recommendations of the Task Force on Climate-related Financial Disclosures,” 2017.

5

The Task Force on Climate-related Financial Disclosures

Companies are increasingly using scenario
analysis as a tool in their risk management
and strategy formulation processes, but they
face challenges.2
Many companies find the TCFD Strategy
recommendation to be one of the morechallenging to implement, citing:• difficulty developing relevant scenarios thatare decision-useful in a business context;• gaps in availability of business-relevant data
and tools to support scenario analysis;• difficulties quantifying risks, opportunities,
and related financial implications;Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models• challenges around how to characterizestrategy resilience; and• concerns about disclosing forward-looking
scenario analysis involving confidential
information.3
In response to these challenges, the TCFD
developed this guidance to assist large- andmidsized non-financial companies wishing to
implement climate-related scenarios as part oftheir risk management and strategy formulation
processes.4 Smaller companies will also finduseful information and considerations that may
help them with scenario analysis appropriate totheir needs. This guidance extends and deepens
the TCFD’s 2017 Technical Supplement on The Useof Scenario Analysis in Disclosure of Climate-Related
Risks and Opportunities — by providing practical,
process-oriented ways businesses could use
scenarios to assess climate-related risks andopportunities. It should be read and applied

A number of challenging issues are touched
upon in this guidance. Where the guidance isunable to provide definitive answers to particularchallenges, it aims to raise and frame theappropriate considerations to assist companies
in their own particular context.

WHY SCENARIO ANALYSIS?
Climate change is a systemic phenomenon,
affecting ecological, social, and economic
systems, including far-ranging implications forbusinesses.5 These implications come at an
economic cost but also present opportunity.6
The physical and transition implications ofclimate change do not lend themselves wellto traditional business planning methods orcycles for a number of reasons — such ascomplex interrelationships between causes andimpacts, nonlinear behavior, differing spatial
and temporal scales, delayed feedback, anduncertainties regarding the extent and timingof impacts and consequences.

In its 2019 status report, the TCFD found that 56% of survey respondents (110 of 198 companies) said their companies use scenarios forstrategy formulation purposes, while another 19% (37) said scenario analysis is in development or early stages of implementation. This
corresponds to the 2019 trend among a larger group (2,514) of CDP reporting companies, where 50% (1,261) reported using scenarios
and another 35% (882) said they were planning to use it in the next two years. TCFD, 2019 Status Report,
pp. 62–74.

3 isclosure of strategy resilience and scenario assumptions lags the use of scenarios — only 9% of reviewed companies (1,126) in 2018Ddisclosed information on their strategy resilience. TCFD, 2019 Status Report, 2019.

4

 he Task Force decided to not include financial institutions in the scope of this guidance because of the number of initiatives underway
Tby international and national groups, including regulators, in the area of scenario analysis and stress testing for financial institutions
and the financial system around climate-related risks. See, for example, Network for Greening the Financial System (NGFS), Guide toclimate scenario analysis for central banks and supervisors, 2020; UK Prudential Regulation Authority (PRA), Enhancing banks’ and insurers’
approaches to managing the financial risks from climate change, 2019; NGFS, A call for action: Climate change as a source of financial risk, 2019.

5

 limate change, like all changes, generates risks and opportunities. For example, chronic or acute changes in the physical climate couldC
directly affect business facilities, operations, and supply chains (Raymond, C. T., Matthews and R. M. Horton, The emergence of heatand humidity too severe for human tolerance, 2020). Climate change also drives changes in the ecosystem, which supplies raw materials
and other inputs to businesses. (World Economic Forum, The Future of Nature and Business, 2020). Societal impacts of climate change
generate transition risks in markets, policies, legal frameworks, and technological innovations, as well as other impacts (Mearns andNorton, Social Dimensions of Climate Change: Equity and Vulnerability in a Warming World, 2010; Watts, et al., The 2019 report of The Lancet
Countdown on health and climate change, 2019). Climate-related risks also can diffuse through the outputs of one sector that are used
as inputs to other sectors; products that compete for the consumers’ finite budget; and sectors that compete for the primary factorsof production (labor, capital, land, water) (Intergovernmental Panel on Climate Change (IPCC), “Fifth Assessment Report (AR5) Climate
Change 2014: Impacts, Adaptation, and Vulnerability,” 2014). Finally, businesses may be exposed to cascading effects from climaterelated events that may impact production schedules, supply chains, distribution networks, and employee and customer mobility(Zscheischler, et al., Future climate risk from compound events, 2018; Lenton and Ciscar, Integrating tipping points into climate impact
assessments, 2013; Center for Climate and Energy Solutions, “Business risks, opportunities, and leadership.” Briefing Note. 2019).

6

 or economic costs of climate change, see Martinich and Crimmins, Climate damages and adaptation potential across diverse sectors of theF
United States, 2019; Delink, Lanzi and Chateau, The sectoral and regional economic consequences of climate change to 2060, 2017; Houser,
Hsiang and Kopp, Economic Risks of Climate Change: An American Prospectus, 2015. For opportunities, see Morgan Stanley, Climate Change
Mitigation Opportunities Index 2017; International Energy Agency (IEA), Putting CO2 to Use: Creating Value from Emissions, 2019.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

In developing this guidance, the TCFD
interviewed a number of companies regarding
their challenges, needs, and experiences asregards the use of climate-related scenario
analysis (Appendix 4). It also received input froman Advisory Group of companies and otherorganizations familiar with the use of climaterelated scenarios. Finally, input was received
from a number of external reviewers.

2

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformationin the context of the recommendations in the2017 TCFD Final Report and the 2017 TCFD
Technical Supplement.

6

The Task Force on Climate-related Financial Disclosures

However, scenario analysis is a useful tool
for strategic and risk management decisionmaking under such conditions, because it: 7• provides an integrated approach to thinking
about and “picturing” the possible ways inwhich the world could evolve;• allows a better understanding of the dynamics
of change — the how and why different future
outcomes may come about;• offers a level of process transparency
that enhances communication and utility
in decision-making;Executive Summary
Table of Contents
A.
Introduction• helps to identify major leverage points at which
a company may take action to start, accelerate,or change strategic initiatives;• gives consideration to a wider range ofopportunities, risks, and strategic options;• helps to “rehearse” the future, allowing more
rapid responses to changes;

B.
Getting Organized• provides for a more thorough assessmentof risks;C.
The Scenario Process• reduces vulnerabilities by thinking throughvarious futures and their company
implications; andD.
Strategic Management
Using Scenarios• provides greater strategy resilience andflexibility by delivering:- strategy testing against a set of scenarios;

E.
Disclosure: Demonstrating
Strategy Resilience- development of contingency plans topossible future threats or opportunities;

Scenario-based planning circumvents theimpossible task of trying to predict the futureand instead focuses on the key uncertainties
relevant to a company’s strategic decisions. It
does this by providing a structured methodof developing new perspectives and uniqueinsights, understanding the predictable anduncertain elements in different futures, andchanging the mental models of decision-makers.
In particular, scenarios describe pathways fromtoday to tomorrow, helping executives to look at
a number of plausible possibilities and to develop
flexible options and timely responses.
For a company, the ultimate purpose of
scenario analysis is to understand how it might
perform under different hypothetical futureclimate states — thus positioning itself to makebetter strategic decisions and improve its strategy
resilience. Climate-related scenarios allow anorganization to build an understanding of how
the physical and transition risks and opportunities
of climate change might plausibly develop in
different ways, and how the business might be
impacted over time.8
Scenario analysis, however, should be
conducted in a coherent way across physicaland transition climate-related risks.
Analysis of these risks should not occur in silos.
Companies run the risk that they miss important
feedback effects from physical risk that may be
crystallized into transition risk. Physical risks are
not solely an exercise in simple “projections ofimpacts” but often are subject to socioeconomic
assumptions around adaptation, investment,
and growth. Those should be consistent with theassumptions being made on the transition side.

- establishment of trigger points to set
contingency plans in motion; andConclusion- basis for continuous monitoring andstrategy adjustment.

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

7

Adapted from Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

8

Institute for Climate Economics, Understanding transition scenarios: Eight steps for reading and interpreting these scenarios, 2019.

7

B.
Getting Organized

The Task Force on Climate-related Financial Disclosures

B. Getting OrganizedThis section explains the elements of establishing organizational structures and processes
to conduct scenario analysis and potential organizational pitfalls.
Key Messages• 	Informing and educating decision-makers and internal stakeholders about scenariosand climate-related risks and opportunities is a necessary first step.
• 	Executive-level sponsorship of scenario analysis, sound governance arrangements,
and clear reporting relationships are all important.
•	A facilitator and an administrator play important roles on the scenario team.
•	Sufficient internal and external resources are required. External expertise, especially,helps in transferring appropriate knowledge to, and embedding it in, the organizationin order to make scenarios a repeatable, normal business process.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

Why is organization of the scenario process so
critical? Scenario analysis is often a new approachto planning and can challenge many traditional
practices and structures within a company, as
well as its culture. For a company implementing
climate-related scenario analysis for the firsttime, an effective organizational approach will
help ensure success.9, 10

1. INFORM, EDUCATE, AND ENGAGE 11
A first step in the scenario process is often
to inform and educate board members andsenior management about the basics ofclimate change, its risk manifestations, andthe potential business implications for thecompany. Informational sessions should also
include heads of business lines and corporate
functions, such as risk management, finance,
procurement, and marketing. The goal is tocreate a general level of understanding aboutclimate change, climate-related risks andopportunities, and the business implications.

Engagement of internal stakeholders in the
scenario process promotes company-wide
ownership and involvement. Failure to create
understanding and buy-in among internal
stakeholders is a key reason for scenario analysis
to become ineffective. Engagement is necessary
to mobilize the involvement of business units
and management throughout the company,
and overcome inertia and resistance.
A critical next step is to spell out the company’sview on climate change in order to set theconditions for further scenario work. Without anendorsed company-wide view, personnel may
feel permitted to express personal or political
viewpoints on climate change during scenario
engagements, resulting in clouded contributions,disruptions, and poor-quality input. A company
view, for example, may take the form of an explicit
statement by senior management or the board.
Whatever its form, it should come from the board
or the Chief Executive Officer (CEO) and spell out
the company’s view of climate change, be clear on
the level of its commitment, set out some broad
aspirational goals, and offer a timeframe.

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

9 or a more in-depth discussion of organizational issues, we suggest Chapters 5–6 and 8–10 in Ralston and Wilson, The Scenario PlanningF
Handbook: Developing Strategies in Uncertain Times, 2006; Chapters 5 and 10–12 in Chermack, Scenario Planning in Organizations: How toCreate, Use, and Assess Scenarios, 2011; and Chapter 2 in Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019.

10

 s an example of one organization’s approach, a case study on scenario analysis conducted by the Danish healthcare company Novo
A
Nordisk is described in several boxes throughout this guidance. Please see Box B1 (p. 11), Box C2 (p. 19), Box C4 (p. 24), and Box D2(p. 37). Several other examples and perspectives from companies that conduct scenario analysis are also provided throughout theguidance.

A lso see Lendlease example in Box C3 (p. 22).

11

9

The Task Force on Climate-related Financial Disclosures

2. BUILD THE CASE FOR SCENARIOSClosely aligned with informing and educating
is making the case for scenarios, and gaining
internal support for conducting the scenario
analysis process. This can be facilitatedby the development of a project proposal
containing: 12• an explanation of the purpose and decisionoriented focus of the exercise;• a description of how climate change could
potentially affect the company;

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models• how scenarios might be useful in the company’s
current situation;• a description of the recommended approachfor using scenarios and making decisions;• the benefits of the recommended approachand alternative approaches; and• execution requirements (e.g., budget,
resources, time).
Using the project proposal, an executive
sponsor can engage key decision-makers andstakeholders to create understanding about
scenarios, and to clearly explain the scenario
project, addressing questions such as:• What is and is not a scenario?

The scenario process needs well-defined
governance roles and clear reporting
relationships to senior levels. Ideally, thescenario process would report to the CEO as a
critical strategic function. The CEO may choose
to oversee the scenario process through asteering group consisting of relevant C-suite
executives (e.g., Chief Financial Officer (CFO),
Chief Strategic Planning Officer (CSO), Chief
Risk Officer (CRO). The CEO or the designatedexecutive sponsor of the scenario process
should ensure that the board is aware of key
developments in the scenario analysis process.
The board can also take an active role by clearly
assigning a committee to oversee the scenario
process in alignment with the company’s climatechange policy. Failure to ensure top leadershipsupport and poorly defined roles and reporting
relationships are key pitfalls.
Many companies undertaking scenario
analysis cite the critical importance ofdesignating an executive-level sponsor.
Executive sponsors are typically the CFO, CRO,
and CSO.13 Along with providing visibility andaccountability, the sponsor will likely need to: 14• articulate the case for scenarios and gain
support for establishing a scenario process;• What is the purpose of scenario analysis?

• oversee the design of the scenario process
and ensure it has the resources it needs;• What does the process of scenario analysis
look like?

• ensure decision-makers and stakeholders
are engaged in the scenario process; and• What is the expected outcome?

• integrate scenarios into the company’s strategy
and risk management culture.

• What is the expected effort frominternal stakeholders?
• Why is the company starting the scenario
analysis process?

Appendix 2:
Scenario Construction

Two Key Lessons from Downer Group’s
Experience with Scenario Analysis

The executive sponsor is the champion forthe scenario process. He or she not only
promotes the process but also addresses any
roadblocks and works with less cooperative
parts of the organization to engage
constructively in the process.

• Education – working with people to demystify
the challenge and understand the financial andcommercial impacts

Appendix 3:
Summary of Selected
Scenario Tools andInformation• Leadership – Board and Executive sponsors
are required to help with learning, education,
and advocacy

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

3. CLEAR GOVERNANCE AND
EXECUTIVE-LEVEL LEADERSHIP

12

 aigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019, p. 29; Chermack, Scenario Planning in Organizations: How to
H
Create, Use, and Assess Scenarios, 2011.

13

Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019, pp. 31–32.

14

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

10

The Task Force on Climate-related Financial Disclosures

Box B1
Integration of Scenario Analysis at Novo Nordisk
Scenario analysis should not be treated as anindependent, one-time exercise. Scenarios aremost effective when integrated into a company’s
regular planning and risk management processes
and cycles, as well as corporate reporting processes.
It is important that the scenario process is seen by
the whole business — supply chains, procurement,
product development, operations, and distribution— as an integral part of the company’s approach toplanning across the value chain.
Novo Nordisk is a global Danish healthcare company,
established in Copenhagen in the 1920s. It produces
insulin for over 30 million diabetes patients across
169 different countries (more than 29% of the global
market), as well as pharmaceuticals for otherchronic diseases.

Executive Summary
Table of Contents

For Novo Nordisk, the main concern has been tominimize complexity by integrating scenario analysis
into existing risk processes instead of creating aparallel process. In recent years, Novo Nordisk
has expanded its enterprise risk management(ERM) processes to include emerging physical andA.
Introduction
B.
Getting Organizedtransitional risks (3+ years). The company currently
focuses on short-term risks of 0–3 years andemerging risks of 3–10 years. A long-term horizon
at Novo Nordisk would be anything longer than 10
years. When planning new production facilities, forexample, Novo Nordisk includes long-term risks (10+years) related to climate change.
Novo Nordisk is currently using its existing enterpriserisk management system, which ranks risks
depending on likelihood and impact, and reports
to executive management. However, in order toincorporate emerging long-term climate risks,
Novo Nordisk is investigating how these can bebenchmarked directly to other risk types. This effort
includes experimenting with adding a time or urgency
dimension to the risk matrix. Moreover, the ERM
processes are being shaped so that smaller risks arehandled locally (e.g., building improvements), while
bigger risks are reported to executive management
if relevant at the tactical or strategic level. In this way,
the risks can be used for future strategic decisions
and evaluation of existing strategies.

(Prepared by Novo Nordisk)

C.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

4. ESTABLISH A STRONG, DEDICATEDSCENARIO TEAM
A dedicated scenario team comprised ofbusiness representatives is suggested forlarge- and midsized companies. Key positions
on the scenario team often include a teamleader, a facilitator, and an administrator. Teamsize depends on the scale and complexity of
the company, but generally is only a handfulof personnel working full-time on the scenario
analysis effort while it is in process.15
The team leader should ideally be a seniorperson from the strategic planning or
sustainability areas. The team leader manages
the overall process, engages with stakeholders,
communicates progress, and presents theresults. They need strong project management
and communication skills, as well as in-depth
knowledge of the company and its industry.
Team members should possess multidisciplinary expertise across the company’svalue chain, divisions, and functions, andunderstand different aspects of its businessmodel, assets, operations, organizational
structure, mission, and strategy. The teammembers should understand what scenarios
are and what they are not, their purpose, andscenario characteristics. They should be able
to apply historical, political, economic, social,
and technological trends to the developmentof the scenarios. Finally, they should be able
to draw upon specialists within the company
or from the outside when necessary, and havea creative, imaginative, open-minded, andforward-looking mindset.
A facilitator plays a key role on the team.
This role keeps the scenario team and internal
stakeholders focused, stimulating openmindedness and urging those involved to go
beyond conventional thinking. The facilitator
should understand and have strong experience
with scenario planning methods, and no conflictsof interest with a company’s scenario project. A
facilitator can be someone internal or external tothe company, as long as (s)he is acceptable to the
executive sponsor and key executive decisionmakers. Strong interpersonal and meeting
facilitation skills are important.16
An administrator also plays an important roleon the scenario team. It is important to have a
dedicated administrator responsible for managing

15

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006, p. 59, Figure 8-1.

16

 or further information on the facilitator’s role, see Chapter 9 in Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies inF
Uncertain Times, 2006.

11

The Task Force on Climate-related Financial Disclosuresschedules, setting up meetings, maintaining
internal communication mechanisms, andhandling meeting logistics. Poor coordination of
meeting logistics and other project activities canresult in thinly attended workshops; in reduced
learning, buy-in, and ownership; and in failure
to implement project outcomes.17
Common pitfalls when forming a scenario
team are failure to select the right leadershipskills and expertise for the team, a lack ofbalance between line and staff people, poorly
defined roles and reporting relationships, andunrealistic expectations.

Executive Summary

5. INTERNAL AND EXTERNAL RESOURCEREQUIREMENTS

Table of Contents

5.1 Internal ResourcesA.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

The amount of internal resources and time
devoted to scenario analysis will vary,depending on the scope of the analysis, thesize of the company, and the decision focus.
In their 2006 Scenario Planning Handbook, Ralston
and Wilson indicate that scenario teams often
range in size from four people, for smallersized companies and more narrowly focuseddecisions, to up to 20 people, for large-sizedcompanies and major strategic decisions. A
scenario team may spend from two to 40 days
researching key topics, and two to 15 days
writing scenarios depending on the nature of thedecisions to be made and the company.18 In theirobservation, workshops involving executives andother stakeholders generally ranged from two
half-day workshops to four workshops of two
to three days each. Senior leaders (e.g., C-suitelevel) typically spent one to four days involved
over the course of the effort. Overall durationof a scenario planning exercise ranged from two
weeks to six months, depending on the nature of
the project.
These estimates are generally consistent withthe processes conducted by companies on theadvisory group for this guidance.19 One large
multinational company on the group indicatedit had two full-time equivalent people on its
scenario team who spent one to three months
designing and writing the scenario narratives,17

and another two to 12 months quantifying
various aspects of the scenarios. Senior leaders
devoted about three days to workshops andother meetings on scenarios.
Another large multinational company on theadvisory group said its scenario team consistedof fewer than five full-time personnel and thatthe overall duration of the project was less thana year, with about six months of that time spentresearching and writing the scenario narratives.
A third company on the group devoted three tofive internal people (plus five external people
for modeling), with three months to explore andwrite the scenario. The third company’s overall
process took about 12 months.20
The time commitments involved in a typicalscenario process consist of initial meetings
to discuss the scenario focus and scope, set
a project schedule, and prepare briefing notes
and readings; interviews of senior leaders,senior managers, and other internal andexternal thought-leaders on climate-relatedrisks and opportunities facing the company
in the future; a series of workshops to discussvarious scenario aspects; and preparationof discussion papers, draft scenarios, final
scenarios, and an assessment report andstrategic options. 21
Common pitfalls as regards internal resources
include not allowing enough time and, related
to that, a failure to keep on track.
5.2 External Resources
Companies often highlight the importanceof external expertise for helping to transfer
appropriate climate knowledge so that
scenarios become a repeatable, normal
business process. External expertise can
support a sound climate-related scenario
analysis process in the following areas:• conducting desktop research to identify
climate-related trends, milestones, and futures;• identifying climate risks specific to a company’sgeographic footprint and type of business;• understanding transition risks across the various
jurisdictions in which a company operates;

Chermack, Scenario Planning in Organizations: How to Create, Use, and Assess Scenarios, 2011.

18

See Table 8-1, p. 59, Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

19

See Acknowledgments.

20

 his company suggested that any companies initially undertaking scenario analysis with limited resources avail themselves ofTresources such as the TCFD Knowledge Hub, the NGFS Scenarios, and scenario materials produced by the Bank of England.
Other resources also are provided in Appendix 3 and the References section of this guidance.

21

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006, p. 58.

12

The Task Force on Climate-related Financial Disclosures• facilitating a climate-oriented scenario
development process, including workshops;• challenging the process from an outsider
and/or expert perspective;• building and using climate-related models andconducting (quantitative) scenario analysis; and• understanding and conveying important
aspects of climate science.
Two of the common pitfalls in scenario analysis
are groupthink and a business as usual (BAU)
mentality. Engaging external experts may help
to counter these pitfalls.
Executive Summary
Table of Contents

External experts may involve researchers,
private-sector consulting firms, climate modelingexperts, or companies with specialized datasetsand tools. For example, some companies

engage university researchers involved inclimate scenario development and modeling.
Researchers can help them understand relevant
scenarios and models, identify relevant climate
risks, and scale scenarios and models to thecompanies’ needs. Appendix 3 provides a sample
of selected services, tools, and data available
commercially or as open source.
While external resources can be helpful
and important, a company should carefully
consider the roles that external experts willplay and their relevance to a company’s needs.
Different types of experts can play different roles.
For example, scientific researchers can assist
in technical, methodological, climate change,and economic analysis, while consulting firms
can serve as experts in establishing scenario
processes and facilitation.

A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
13

C.
The Scenario Process

The Task Force on Climate-related Financial Disclosures

C. The Scenario ProcessThis section describes scenarios as well as some of the misconceptions of scenarios, typesof scenarios, and sources of scenarios. It also addresses the scenario development process.
Key Messages•	Scenarios are descriptions of hypothetical, plausible futures (not forecasts) that help
companies to answer the question “What would be the potential implications for our strategy
if the future described in a scenario came to pass?”•	The number of scenarios should be sufficiently diverse to create challenging “what-if”
analyses and capture a wide range of insights about uncertain futures.
•	Publicly available scenarios (e.g., Intergovernmental Panel on Climate Change (IPCC),
International Energy Agency (IEA)) are useful starting points and can serve to provide
context, and as anchors for in-house-developed scenarios.

Executive Summary
Table of Contents•	Scenario analysis starts with a crisp, concise focal question that provides direction
for the analysis and a link to decisions and actions to which the analysis contributes.

A.
Introduction•	Scenarios basically describe two things — an outcome at a certain time horizon,
and a pathway from today to the selected outcome.

B.
Getting Organized- A scenario’s driving forces and assumptions about how those forces interact and develop
over time define a pathway from the present to the future scenario outcome. There are
multiple possible pathways to any particular outcome.

C.
The Scenario Process- Scenarios should consider both transition risks and physical risks, and the interaction
between them.
•	It is important to develop a sound scenario narrative first and then proceed toquantifying the scenario if necessary. Quantification at some level should be a goalin a mature scenario process; investors expect a company to quantify potential impacts.

D.
Strategic Management
Using Scenarios•S cenarios should be high quality, periodically updated, and transparent
to be an effective decision tool and to have credibility with investors.

E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

1. THE ABCS OF SCENARIOS
1.1 What Is a Scenario?
A scenario describes a plausible, but
hypothetical, path of development leading
to a particular future outcome. Scenarios are
not forecasts or predictions — they are “whatif” narratives designed to inform and challenge
strategic thinking (Table C1, p. 16).22 Scenarios also
are not intended to represent a full description of
the future, but rather to highlight central elementsof a possible future, draw attention to the key
factors that may drive future developments,and explicitly identify critical uncertainties andassumptions around a path and outcome.23
They help companies to answer the question:

What may be the potential implications for our
strategy if the future described in the scenario
came to pass?
1.2 Types of Scenarios
The two main types of scenarios are (1)exploratory scenarios used to explore a rangeof different possible futures and (2) normative
scenarios used to plan for a preferred future,
as shown in Figure C1 on the next page.
For normative scenarios, scenario analysis starts
with a preferred or desired future outcome andthen back-casts plausible pathways from thepreferred future to the present in order to inform
decisions on what is needed to achieve that22

TCFD, Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities, 2017.

23

Spaniol and Rowland, Defining Scenario, 2018.

15

The Task Force on Climate-related Financial Disclosures

Table C1Key Elements and Misconceptions of Scenarios
Scenarios Are Not:

Scenarios Are:

• Predictions• Descriptions of alternative plausible futures• Variations of a single base case• Significantly different views of the future• Snapshots of endpoints• Movies of the evolving dynamics of the future• Generalized views of feared or desired futures• Specific decision-focused views of the future

Executive Summary• Products of outside futurists• Products of management insight/perceptions

Table of Contents

Source: (Ralston & Wilson, 2006) Box 2-1, p. 16

A.
Introduction

Figure C1
B.
Getting Organized

Exploratory versus Normative ScenariosC.
The Scenario Process

Exploratory Scenarios

Normative Scenarios
Preferred
FutureFuture 1D.
Strategic Management
Using Scenarios
Present

E.
Disclosure: Demonstrating
Strategy Resilience

Future 2

Future 3

Present

Future 2

Future 3

Conclusion

Different pathways leading
to different plausible futures

Appendix 1:
An Overview of Public
Scenarios and Models

Reaching a targeted future by back-casting
to understand the pathway

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

preferred future. Examples of normative climaterelated scenarios are those targeting net-zeroemissions in 2050.24 Normative scenarios are
typically used for assessment and setting ofspecific targets and implementation plans,rather than assessment of climate-relatedrisks and uncertainties.

24

Exploratory scenarios describe a diverse
set of plausible future states. These scenarios
are then used to assess potential climaterelated risks and uncertainties, and test theresiliency of various strategies to a wide rangeof future conditions.

 ifteen jurisdictions have established national sector road maps for net-zero emissions, and another seven support those targets
Fwith effective policy framework. Many investors also are now asking for how companies are planning to achieve net-zero emissions(e.g., the members of the Net-Zero Asset Owner Alliance). See World Economic Forum, The Net-zero Challenge: Fast-Forward to Decisive
Climate Action, 2020.

16

The Task Force on Climate-related Financial Disclosures

Some companies use both approaches —the exploratory approach when testing theirstrategies for resilience, and the normative
approach for setting specific targets
such as net-zero emissions.
The TCFD Strategy recommendationand this guidance focus on the use ofan exploratory approach (i.e., a company
assessing a range of scenarios spanninga number of plausible futures). Companies
may also use other special types of scenarios
as part of their efforts to understand theimplications of climate change as describedin Box C1.
Executive Summary

Box C1
Special Types of Scenarios

Table of Contents

Stress tests are a type of scenario typically usedin the financial sector, although some non-financial
companies are beginning to use them. They use
hypothetical, unfavorable scenarios to determine
whether an organization has enough capital,
earnings, and/or cash flow to withstand the impactof adverse developments. Stress tests focus on “tailrisks” — risks that seemingly have a low probability
but that could still present significant impacts.

A.
Introduction
B.
Getting OrganizedC.
The Scenario Process

A close cousin is the reverse stress test, whichuses scenarios and circumstances that would makea business model unworkable; reverse stress tests
focus on identifying potentially fatal businessvulnerabilities. Stress tests and reverse stress tests
are specialized forms of scenarios.

D.
Strategic Management
Using Scenarios

Another special type of scenario is the reference
scenario, sometimes called a baseline or businessas usual scenario. A reference scenario is used asa “yardstick” for comparing alternative scenarios.
A reference scenario is based on future patterns ofactivity assuming that there will be no significant
change in business priorities, or no major changes
in external technology, economics, or policies, sothat existing circumstances can be expected tocontinue unchanged. A reference scenario cantake the form of a trend scenario. In this instance,
existing development trends are extrapolated into
the future. Or it can consist of a null scenario (i.e.,
one or more components are assumed to remain
permanently or temporarily unchanged). A reference
scenario can be helpful in highlighting the differencein change and impact between it (e.g., business as
usual) and planning scenarios.

E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

1.3 Scenario Structural Elements
A scenario is structured around a numberof basic elements such as a scope of coverage,
a time horizon, and the choice of the numberof scenarios used.
1.3.1 Scope of the Scenario Analysis
To conduct an effective scenario process,a company needs to define the scope of its
analysis. Ideally, scenario analysis should
encompass the company as a whole, including
supply and distribution chains.25 This is in linewith the intent of the TCFD recommendations
regarding disclosure of how current and potential
climate-related risks and opportunities affectthe company. Initially, however, a company
may focus on a particular critical business unit,
product line, geography, asset, or input(s) that
may be highly impacted by climate-related risks
or opportunities before expanding the scope of
its scenario analysis. This narrower focus allows
a company to gain experience with scenario
analysis while at the same time focusing on a
climate-critical aspect of its business. However,a company should quickly expand its scope to allof its operations and its entire value chain in amature scenario analysis process.
1.3.2 Time Horizon
Scenarios describe a future outcome at aparticular time horizon. Choosing a time horizon
involves a trade-off between too short —where developments may not be sufficiently
differentiated — and too long — where
uncertainties may overwhelm useful analysis.
“The time horizon for scenarios should be shortenough so that they are plausible but long enoughfor us to imagine that important changes with an
impact on the future business can take place.” 26
In setting climate-related scenario time
horizons, companies should challenge
their thinking about traditional planninghorizons, which are often too short. Scenario
time horizons are typically longer than many
corporate planning horizons. Scenario time
horizons that are too short may result in simple
extrapolations of current thinking and trends,
and therefore not reveal the information needed
to assess the resilience of the company’s climaterelated strategy.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments25

 ee Pettit, Fiksel and Croxton, Ensuring Supply Chain Resilience: Development of a Conceptual Framework, 2010; Norton, Ryan and Wang,
S
Business Action for Climate-Resilient Supply Chains, 2014; Wei and Marshall, Climate and Supply Chain: The Business Case for Action, 2018; andCDP, From Agreement to Action: Mobilizing suppliers toward a climate resilient world, 2016.

26

Lindgren and Bandhold, Scenario Planning: The Link Between Future and Strategy, 2009.

17

The Task Force on Climate-related Financial Disclosures

In setting time horizons for its scenario analysis,
a company should consider:• time horizons that are compatible with thecompany’s (1) capital planning and investment
horizons and (2) the useful life of major
company assets and• time horizons that are harmonized or anchoredwith those of national and international climate
policy communities (e.g., 2030 and 2050).
Harmonizing company scenario time horizons
to key years and the cycle of the climate policy
community can provide an important anchor
to, and context with, global climate scenarios,
as well as enhance comparability.
Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

1.3.3 Number and Diversity of Scenarios
The range of scenarios should be sufficiently
diverse in order to create challenging “whatif” analyses and capture a wide range ofassumptions about uncertain futures. Analysis
based on a single scenario will not be effective orprovide the benefits of using more comprehensive
scenarios. Multiple scenarios allow a company to
explore how different assumptions about critical
driving forces can yield very different outcomes.
By considering these different outcomes, acompany can better assess the range of its
potential risks, opportunities, and uncertainties.
What is the optimal number of scenarios? Somecompanies undertaking scenario analysis for the
first time begin with two scenarios, usually at
opposite ends of temperature outcomes (“bookend scenarios”). While this may be a practical way
to start, gain experience, and generate buy-in to
the scenario process, there are drawbacks to only
using bookend scenarios. For example, with two
scenarios, there may be a tendency to interpret
one as “good” for the company and one as “bad,”introducing bias into the scenario analysis.
Most scenario methodologies recommend threeor four scenarios.27 While three scenarios canlikely provide adequate diversity, a company
should be careful to ensure true diversity. With
three scenarios there is a tendency to have apreferred “probable” scenario as an anchor andto construct other scenarios around it in theform of high, medium, and low versions. This
type of thinking reduces diversity and can negate
the strength of scenario analysis.28 Using four
scenarios may help to avoid these pitfalls while
keeping the exercise manageable.

The TCFD recommendations do not stipulate
a suggested number of scenarios, but rather
ask companies to disclose strategy resilience
informed by “different climate-related scenarios,[emphasis added] including a 2°C or lower
scenario.” While this recommendation is
not changing, this guidance suggests thatcompanies consider using three or four diverse
scenarios as part of a mature scenario process(see Appendix 2 for a further discussion).
No matter the number of scenarios a company
uses, the key principle is that the differences
between scenarios are sufficiently great to
capture the key impacts and uncertainties ofthe drivers a company has identified.29 A lack of
scenario diversity (scenarios having too narrowa perspective) may be a signal that insufficientconsideration is being given to different
perspectives, a diversity of input is lacking,or critical challenge in the scenario process islacking. Increasing inputs from, and engagementof, insightful people and thought-leaders, forexample, can help to avoid this pitfall. Other pitfalls
to avoid include scenarios based on uncertainties
that are not really uncertain; scenarios that are
detailed, but not comprehensive; and scenariosthat are too general.
1.4 Sources of Scenarios: Public and In-House
Scenarios
Companies tend to use either existing publicly
available scenarios (e.g., IPCC, IEA, or the
published scenarios), develop their own scenarios,
or combine public and in-house scenarios. Eachapproach has benefits and drawbacks.
1.4.1 Public Scenarios
Publicly available scenarios are typicallydeveloped by international research or policy
groups (see Appendix 1). Such scenarios
include useful information about plausible
pathways for emissions, physical climate change,
environmental impacts, and socioeconomic
conditions (see Box C2, p. 19). The benefits for
a company of using public scenarios include:• jump-starting a company’s research byleveraging public scenarios’ extensive analysis
and modeling of key macro-factors such as
demographic and energy demand projections,emission pathways, carbon budgets, andcertain policy and technology assumptions;

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

27

A mer, Daim and Jetter, A review of scenario planning, 2013; Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019; Ralston
and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006; Lindgren and Bandhold, Scenario Planning: The
Link Between Future and Strategy, 2009; Van Der Heijden, Scenarios: The Art of Strategic Conversation, 2010.

28

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

29

Trutnevyte, Guivarch and Lempert, Reinvigorating the scenario technique to expand uncertainty consideration, 2016.

18

The Task Force on Climate-related Financial Disclosures• helping to identify blind spots or areas
requiring further research;• providing a starting point on the way to a more
tailored, company-specific scenario process; and• providing a larger contextual anchor for
a company’s scenario analysis.
Companies might use the insights provided bypublic scenarios in a qualitative or quantitative
manner to highlight uncertainties to explore,
to identify factors and considerations regarding
physical and transition climate risks, to provide
information on quantitative trends, or for
general context.
Executive Summary
Table of Contents
A.
Introduction

Drawbacks of using public scenarios include:• public scenarios are developed for researchand policy purposes, not company-level or
sector-level analysis of climate-related risks
and opportunities;• public scenarios often do not provide insights
with sufficient granularity, nor provide
meaningful quantitative benchmarks forassessing company-level risks.30 In particular,
a company should assess the pathway
characteristics, feasibility of scenarios,
economic cost, and assumptions about energy
transformation, technology, and policy in these
global scenarios.31
When using publicly available scenarios,
therefore, a company should consider which
ones are relevant to its analytical and decisionmaking needs and what role they can play inits scenario analysis.

Box C2Companies’ Use of Public Scenarios

B.
Getting Organized

Downer Group designs, builds, and sustains assets,
infrastructure, and facilities. It is a leading provider
of integrated services employing more than 53,000
people across more than 300 sites, primarily inAustralia and New Zealand but also in the Asia-Pacificregion, South America, and Southern Africa.

C.
The Scenario Process
D.
Strategic Management
Using Scenarios

In its implementation of the TCFD recommendations,the Downer Group used climate scenario analysis
as a key step to understand the resilience of thebusiness under different climatic futures.

E.
Disclosure: Demonstrating
Strategy Resilience

Global scenarios were used to inform a top-down
assessment of how the physical climate mightchange, the hazards that its workforce might be
exposed to, and how the services provided to
key sectors and markets may change. This wasparticularly important to Downer as its purpose
is to create and sustain the modern environmentby building trusted relationships with customers.
The scenario analysis informed strategic planning
processes by looking longer-term to critically assess
the products and services provided by the businessin changing markets.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction(Prepared by Downer Group)

Appendix 3:
Summary of Selected
Scenario Tools andInformation

Novo Nordisk is at the early stages of implementing
scenario analysis as part of its TCFD implementation.
As one of the first steps, Novo Nordisk chose to use
the IPCC’s Representative Concentration Pathway(RCP) scenarios.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments• many public scenarios are at a global or subglobal scale, and not the local and regional
scales meaningful to company- or sectorspecific analysis (however, this is changing); andThe RCPs provide a uniform framework for exploring
and analyzing climate impact, adaption, andvulnerability. The main value of the RCP scenarios
comes from the fact that they are widely used inacademic circles to perform and develop climate
simulation modeling data. Therefore, by using RCP
scenarios, Novo Nordisk’s risk teams are given
the opportunity to access and use a large range ofstandardized climate simulation data. Novo Nordisk
has developed training materials utilizing this climate
data to identify potential risks within operations andthe value chain. This ensures that management andanalysts get a common understanding and can drawlines from climate hazards at local sites and suppliers
to corporate strategies — and vice versa.
The scenarios that Novo Nordisk uses represents
a range of possible global temperature changes,
depending on the future reduction in CO2 emissions.
The “business as usual” scenario is the IPCC RCP8.5
scenario where no change in emissions is expected
and which leads to an increase in average global
temperature of 3.2–4.5°C by year 2100. The “Paris
Agreement” scenario is represented by the IPCC
RCP2.6 scenario, where global emissions are
reduced to net-negative and the global temperature
only increases with 0.9–2.3°C by 2100. In between
these two scenario extremes, Novo Nordisk has
chosen the IPCC’s RCP4.5 scenario, which represents
a scenario with less ambitious carbon emission
reductions than RCP2.6, but more than RCP8.5.
(Prepared by Novo Nordisk)

30

Rose and Scott, Review of 1.5˚C and Other Newer Global Emissions Scenarios, 2020.

31

 or example, the most ambitious temperature targets (2˚C and lower) often assume negative emissions technologies (e.g., bioenergyFwith carbon capture and storage, afforestation); infeasibility arises when these technologies are not available or are constrained. Roseand Scott, Grounding Decisions: A Scientific Foundation for Companies Considering Global Climate Scenarios and Greenhouse Gas Goals, 2018;
Rose and Scott, Review of 1.5˚C and Other Newer Global Emissions Scenarios, 2020.

19

The Task Force on Climate-related Financial Disclosures

1.4.2 In-House Scenarios
A company may choose to develop its own setof climate-related scenarios. There is rich andextensive literature on scenario development anduse (see Appendix 2 and References).
The advantage of in-house climate-related
scenarios is that a company can tailor the
scenarios to the risks and opportunities it faces,
as well as the key drivers and uncertainties most
relevant to its planning and decision needs.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Drawbacks to in-house scenarios are that (1) theyrequire a multiyear organizational commitment,32
and (2) companies will need to ensure sufficienttransparency around the process and content of
the scenarios.
External stakeholders, such as investors, tend to
consider in-house bespoke scenarios to be lesstransparent and less comparable than publicscenarios. Companies, therefore, should havea robust and accountable process to ensurein-house scenarios are objective, diverse, andtransparent, with strong disclosure practices.

2. THE SCENARIO DEVELOPMENT PROCESS
There are a number of ways to develop andconstruct scenarios. This section provides an
overview of the high-level aspects of scenario
development. For more detailed process steps,
see Appendix 2.
2.1 Engaging Stakeholders
Engagement of stakeholders is a key input tothe scenario development process.33 Internal
stakeholders include those management andfunctional leaders with important interests instrategic decisions, such as board members,senior executives, and function heads for risk,
finance, sustainability, and strategy.34 Investors
and other external stakeholders also have aninterest in a company’s use of scenarios toinform strategy and may usefully be consulted
in the development process.
Engagement should focus on decisions about
the development and application of scenarios
to strategy decisions. On the next page, Table C2
provides examples of select internal functions

to engage and Table C3 shows some examples
of topics and questions to discuss whenengaging with stakeholders.
When engaging stakeholders, it is importantto keep in mind three key points:
1.	Scenarios must be relevant for (and havelegitimacy in the eyes of) the managers
who will use them. Scenarios that failto capture the things that managers areconcerned with in their everyday decisionmaking will have little impact.
2.	Excessive focus on quantification permeating
stakeholder discussions or scenario teamdeliberations can impair strategic thinking.
3.	Discussions dominated by business as
usual mental models can impair theengagement process. The company should
be ready to challenge its own thinking about
the organization and its business (model).
Engagement activities within a typical scenario
process typically consist of the following: 35• initial meetings to discuss the scenarios’ focus
and scope, set a project schedule, and identify
briefing notes to prepare and backgroundreadings to inform and educate;• interviews with senior leaders, senior
managers, and other internal and external
thought-leaders on views regarding climaterelated risks and opportunities facing thecompany in the future; and• a series of workshops, such as:- a first workshop with senior leaders to agree
on focus and key decision factors, identify
initial forces/drivers, and set research topics
for needed discussion/background papers;- a second workshop with a broader array ofinternal stakeholders to discuss background
papers, conduct an impact/uncertainty
assessment of drivers, agree on scenario
logic and structure, and select scenarios
for exploration; and- a third workshop with senior leaders
to review draft scenarios and assess
implications (opportunities, threats,
issues, and strategy options).

32

 uch a commitment involves the establishment of organizational structures and processes, employment of expertise (possiblyS
external expertise), and development of organizational learning; this takes time and resources.

33

 ngagement can take a number of approaches, including prescribed readings, videos, workshops, one-on-one interviews, andE
small-group discussions. See Figures 6-1 and 8-1 in Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in
Uncertain Times, 2006, for examples.

34

 epending on how climate change is anticipated to affect a company, others may need to be involved, including functions such asDprocurement, production, distribution, corporate reporting, and legal (Reed, Kenter and Bonn, Participatory scenario development
for environmental management, 2013).

35

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006, p. 58.

20

The Task Force on Climate-related Financial Disclosures

Table C2

Examples of Internal Stakeholders to Engage
in Scenario Analysis
Function

Relevant Expertise

Brands, Marketing,
Product
Development• Conduct customer, market analysis
for business as usual• Understand customer/consumer behavior,needs, expectations, and trends

Executive Summary
Table of ContentsC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience• Provide a forward-looking view on market’s
evolution, customers, consumer change inbehavior, need, expectation, social activism
in different scenarios, and time horizon• Provide insight into possible political andlegal evolution in certain markets• Understand policy changes
Procurement/
Supply Chain• Understand the complexity of the
supply chain• Have already seen the physical impactof ESG/climate change on suppliers
and supplies

A.
Introduction
B.
Getting Organized• Have already seen the impact of environmental,social, and governance (ESG)/climate change on
customer/consumer behavior

How This Expertise Can Benefit
the Scenario Analysis

Site/Operations• Understand assets, technologies,
infrastructure, market demand, and supply• Provide views on vulnerabilities andopportunities in the supply chain undera range of climate change impacts• Understand the implications of local climatechanges on operations• Link between the upstream anddownstream value chain
Research andDevelopment(R&D)/Innovation/
Technology• Work on future technological development• Provide views on plausible technologicaldevelopments and breakthroughs

Advocacy/Public
Affairs• Global and regional policy trends• Provide views on future developments ofclimate policy and international and national
climate action

Sustainability/ESG• Understand environmental and social
impacts of business• Provide insights on environmental and social
cause-effect relationships of climate change

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Table C3

Examples of Engagement Topics and Questions
Looking at the Current Situation

Looking Back

Looking Forward• What current climate-related risks
do you think the company faces today
and that could affect business strategy
and ambitions?

• What previous trends, cycles,or risks related to climate do you
think might reoccur and impact
business strategy and ambitions?

• In your view, which climate-relatedrisks do you think the company
needs to get right to fulfill its
ambition and mission?

• What climate-related risks do you
think are being underestimated by thecompany in their ability to meet theirbusiness strategy and ambitions?
• What is your recent experience ofactual climate-related impacts on yourspecific activity (and more broadly on
the company’s business)?

• What emerging trends or signals
related to climate change
concern you?
• What do you think could be thepotential implications on yourspecific activity (and more broadly
on the company) for climate factors— such as (1) an increase in average
global temperature and (2) a lowcarbon economy — and when could
these occur?
21

The Task Force on Climate-related Financial Disclosures

Box C3
Lendlease’s Scenario Journey
Lendlease is an international property andinfrastructure group with core expertise in shaping
cities and creating strong and connected communities.
Dick Dusseldorp, the founder, was an early pioneer ofcorporate responsibility, with a vision that was guided
by two simple principles — doing the right thing andleaving a legacy for future generations.

Executive Summary
Table of Contents

In 2018, Lendlease committed to incorporating the
TCFD framework into its disclosure regime. When it
made this commitment, Lendlease knew it needed
to make climate change easier to engage with andmost importantly actionable by its senior leaders.
One of the biggest challenges to any organizationon this journey is to get busy business leaders tofocus, understand, absorb, and assess the risks andopportunities of climate-related impacts.
Tailored ApproachA.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

To address this challenge, Lendlease decided toprepare its own climate scenarios that were relevant to
its business and to design a scenario-planning process
tailored to its business. Creating its own scenarios
allowed Lendlease to break down the complexity ofclimate science and climate impacts for its seniorleaders, making the scenarios relevant to Lendleaseactivities, and therefore, more readily understoodand relatable. To do this, Lendlease took key data andindicators from “off the shelf” scenarios and climaterelated research and translated that information into
small vignettes and a collective narrative that told thestory of plausible futures for Lendlease, across four
different global warming scenarios.
To bring the scenarios to life, Lendlease produced
a simple in-house video for each scenario thatconnected the key facts, indicators, and data to
Lendlease, using real-life photography, written
prompts, and thought-provoking questions, backed
with a soundtrack, to fully immerse the audience inthese future worlds. Using video provided a realism
to the facts and data presented, such as pointing
to actual events that signpost possible futures. The
short videos made the data and the knowledge
accessible to the point where senior leaders wanted
to show the videos not only to their teams, but also
to their friends and families. The videos conveyed
information, evoked emotion, changed theconversation, and created an engaged audience.
In addition to the videos, each scenario was also
supported by written “Pathways to the future” thatprovided a narrative on how the current world could
unfold through the four scenarios, again using thesame data, research, and information utilized in
the videos.
Both the videos and the Pathway documents havebeen invaluable tools that received the supportof the Global Leadership Team and the Lendlease
Board, who approved the publishing and sharing of
the Pathways with others, via the Lendlease website.

Risk and Opportunity Workshops
One-day “Risk and Opportunity Workshops,”
delivered to over 200 senior leaders globally,
were another key mechanism to engage internal
stakeholders. At the start of every workshop,
Lendlease purposefully stated that it did not expect
the participants to be climate science experts, butthey did need to bring their business knowledge tothe table. Nobody knows their business, market,
clients, and suppliers like they do, so to truly unpack
and understand the climate-related risks andopportunities to the business, Lendlease needed theuninhibited expertise that only they could provide.
The sessions were designed to educate theparticipants about scenario planning, the intent of
TCFD, climate change (including physical and transition
risks), and how to view these impacts through thelens of Lendlease’s business activities. The immersion
into each scenario began with viewing the scenario
videos, followed by personal reflection and thengroup discussion. Once participants could visualize
the future and possible climate-related impacts, they
could unpack what that meant for Lendlease in termsof risks and opportunities and they could start to see
and realize the impact they could personally havethrough their own roles in the business.
The level of engagement that was achieved throughthe process generated immediate actions during
the workshops, enabling Lendlease’s scenario team
to identify strategic insights, both climate- andbusiness-related, and ultimately, helped inform newsustainability metrics and targets that will allow
Lendlease to measure its success in how it executedon its three global sustainability imperatives.
Business Transformation
When Lendlease made the decision to prepare its own
scenarios, it hoped it would create greater engagement
in assessing climate-related impacts within its
business. It has found that the result has gone far
beyond just assessing impacts, to taking action to
manage the impacts. Engagement with internal
stakeholders has also honed in-house capabilities,
improved awareness, and fueled an importantdebate and discussion across the organization.
Lendlease believes that creating its own scenariosand designing its own scenario planning process
has resulted in a deep engagement among seniorleaders. As a result, scenario analysis has become
part of Lendlease’s short-term business planning andlong-term strategic thinking and has enabled it to
set new and ambitious sustainability targets, alignedwith its TCFD work.
TCFD could just be seen as another layer of
disclosure, but for Lendlease, it has helped transformthe way the organization is positioning itself to
respond to the climate crisis and the way in which it
will be communicating and executing on its ambition
to be 1.5°C aligned.
(Prepared by Lendlease)

22

The Task Force on Climate-related Financial Disclosures

2.2 Problem Definition
Scenario analysis needs crisp, concise,and focused questioning on the strategy
decisions and actions to which the scenario
analysis is meant to contribute.36 Having suchquestioning “has two immediate advantages— it concentrates thinking about the futureon the trends and forces that most affect theorganization and on the decisions it has to make,and it provides a link to action.” 37

A.
Introduction

For instance, a company might start with broad
questions such as: How might our identified
climate-related risks and opportunities plausibly
affect our [company, business unit, product,commodity input, customer segment] over [whattime horizon]? What should we do? And when?38
These broad questions can be further refined tofocus on the relevant decisions and uncertainties
around the climate-related risks and opportunityof most concern to the company. The following
supplemental questions may help:

B.
Getting Organized• What potential developments about climaterelated risk and opportunities related to ourbusiness need to be probed?

Executive Summary
Table of ContentsC.
The Scenario Process
D.
Strategic Management
Using Scenarios• What variables need to be looked at to assist
decision-making around strategy options?
• What climate-related forces and developments
have the greatest ability to shape our future
performance? What is their likely timing
and potential impact?

E.
Disclosure: Demonstrating
Strategy Resilience

2.3 Assessing Context and Identifying
Driving Forces and Uncertainties
Before formulating scenarios, it is important
for a company to understand the climaterelated context in which it is operating.
Techniques such as environmental scanningand trend analysis can assist a company in theidentification of current and emerging risks,and more broadly for assessing a company’s
contextual situation.39 Additional techniques,
tools, and information are available and moreare emerging.40
Driving forces (or “drivers”) are external
factors that influence the events, trends,
and patterns that determine outcomes inthe business environment. 41 In the context
of a climate-related scenario analysis, important
driving forces are the risks and opportunities
that may result in material financial impacts
on the company or affect the resiliency of thecompany’s strategy. To be considered a driver,a factor needs to (1) be continuous over a periodof time and (2) influence the outcomes of the
focal question durably and consistently.
Some points to consider include: 42• the possible outcomes caused by the driver;• what the driver will influence and what thedriver is influenced by; and• what the uncertainties are about the force ordriver. Some drivers may be relatively certain
and predictable, and others highly uncertain as
to their development and impacts over time. It
is important to identify these uncertainties andassess them as part of the scenario analysis.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation36

 or further information, see Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006, p. 51–56,
F
and Haigh (2019) p. 38–41.

37

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

38

Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019.

39

 nvironmental scanning is the process of analyzing trends in those external factors that affect a company’s performance in order toEmake assumptions about the future. Hayden, The Handbook of Strategic Expertise, 1986; Lustsig, Strategic Foresight: Learning from the
Future, 2017; IPCC, Fifth Assessment Report (AR5) Climate Change 2014: Impacts, Adaptation, and Vulnerability, 2014, Chapter 10,
pp. 1052–1062.

40

 uropean Bank for Reconstruction and Development, Advancing TCFD Guidance on Physical Climate Risks and Opportunities, 2018;
E
Blackrock Investment Institute, Getting Physical: Scenario Analysis for Assessing Climate-related risks, 2019; Bank of England, A framework
for assessing financial impacts of physical climate risks, 2019; ClimateWise, Physical risk framework: Understanding the impacts of climatechange on real estate lending and investment portfolios, 2019; ClimateWise, Transition risk framework: Managing the impacts of low carbon
transition on infrastructure investments, 2019; Institute for Climate Economics, Getting started on physical climate risk analysis in finance:
Available approaches and the way forward, 2018; Institute for Climate Economics, Understanding transition scenarios: Eight steps for reading
and interpreting these scenarios, 2019; Deutsche Asset Management, Measuring Physical Climate Risk in Equity Portfolios, 2014; Four
Twenty Seven, Scenario Analysis for Physical Climate Risk: Foundations (website); Urban Land Institute, A Guide for Assessing Climate Change
Risk, 2015; IPCC, “Fifth Assessment Report (AR5) Climate Change 2014: Impacts, Adaptation, and Vulnerability,” 2014; United Nations
Environment Programme Finance Initiative, Changing Course, 2019, p. 120; see also Appendix 3 of this guidance.

41

 an Der Heijden, Bradfield and Burt, The Sixth Sense: Accelerating Organizational Learning with Scenarios, 2002; Haigh, Scenario Planning forV
Climate Change: A Guide for Strategists, 2019.

42

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

23

The Task Force on Climate-related Financial Disclosures

Box C4
Novo Nordisk’s Assessment Approach
Novo Nordisk conducts training specifically focusedon identifying and mitigating climate-related risks
and uses risk managers as experts to identify local
tendencies/weaknesses at operating sites andacross the supply chain. Novo Nordisk differentiates
between physical risks and transitional risks and,within these risks, first- and second-order risks.
•	First-order risks exist as the direct impact froma physical hazard or transition — for example,
property damage caused by storm surge and sea
level rise for a coastal site. Physical risks can beinvestigated using probabilistic methods, whiletransition risks can be analyzed by investigating
what transitions are needed to align with a given
scenario outcome.

Executive Summary
Table of Contents•	Second-order risks are indirect risks from a given
first-order risk or opportunity — for example,
a shortage of manpower after an evacuation.
Second-order risks are typically not as important
if there is no evidence of a related first-order risk.

A.
Introduction
B.
Getting Organized

Climate Risk Impact Matrix

First OrderC.
The Scenario Process
D.
Strategic Management
Using Scenarios

Second Order

E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

Acute or chronic climate
hazards that directly
affect:Preliminary climate
actions:• Operations• Supply chains• Markets• Legislative adaption• License to operate• Taxes, fees & fines• Shift in technologies

Indirect climate hazards
effects:

Reactive climate
actions:• Support functions• Home communities ofworkforce• Local infrastructure• Shift in consumer
behaviors• Reputation

Some pitfalls to avoid in assessing context andidentifying driving forces and uncertainties are:• identifying trends not based on observedchange;• too many trends;• not supporting trends with evidence;• selection of the wrong scenario dataset; and• inability to identify the most relevant
uncertainties.
2.4 Understanding and Describing Scenario
Outcomes and Pathways
Once the focus questions for the scenario
analysis are formulated, and a company’s context
and key drivers assessed, the scenarios canbe developed. A key step is understanding the
scenario outcomes and development pathways.
Describing and discussing the pathways andoutcomes will form the core of the scenario anddifferentiate one scenario from another.
Climate-related scenarios describe both an
outcome at the scenario time horizon and apathway from today to the future outcome. A
scenario’s driving forces — and the assumptions
about how those forces interact and develop
over time — define a pathway. Vary the driving
forces or assumptions and the pathway, theoutcome, or both changes.
Scenario outcomes and pathways, therefore,
are important considerations in company-level
scenarios for at least two reasons. First, scenario
outcomes describe the hypothetical context inwhich a company might find itself operating in the
future — that is, the climate-related conditions

Appendix 3:
Summary of Selected
Scenario Tools andInformation

Glossary, Abbreviations,
References, andAcknowledgments

Transitional(Prepared by Novo Nordisk)

Appendix 2:
Scenario Construction

Appendix 4:Interviewed Organizations

PhysicalThere are many methods to identify relevant
patterns, trends, driving forces, and related
uncertainties. 43 A good starting point is theassessment of a company’s climate-related
context. A company also can use Social,
Technology, Economic, Environmental, andPolicy (STEEP) anaylsis to identify relevant
drivers (see Figure C2, p. 25). 44 STEEP analysis
can be applied at the local, national, or global
levels to identify forces of consequence that
may vary by scale.

43 an Der Heijden, Bradfield and Burt, The Sixth Sense: Accelerating Organizational Learning with Scenarios, 2002, pp. 202–216; Van Der Heijden,
V
Scenarios: The Art of Strategic Conversation, 2010, pp. 230–235; Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019, pp.
46–69; Lindgren and Bandhold, Scenario Planning: The Link Between Future and Strategy, 2009, pp. 59–74; Ralston and Wilson, The Scenario
Planning Handbook: Developing Strategies in Uncertain Times, 2006, pp. 87–92.

44

 TEEP is commonly used to gain insight into developments in the external environment during times of uncertainty. For further elaborationSon possible climate drivers by STEEP category, see Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019, pp. 110–146, andcolumn 1 in Figure 3 of the 2017 TCFD Technical Supplement.

24

The Task Force on Climate-related Financial Disclosures

Figure C2

STEEP Model of Driving Forces
SocialTechnology

Economic

Social/Lifestyle Factors

Basic Research Trends

Macroeconomic Trends

Demographic Patterns

Emerging Technologies

Microeconomic Trends

Health & Education Trends

Technology Diffusion

Regional/National Variations

Civil Stability & Tensions

Financial Capital Trends
Trade Rules/Protectionism

Executive Summary

Environment

Table of Contents
A.
Introduction
B.
Getting Organized

Political

Ecosystem Trends

EnergyPolicies

Climate/Weather Trends

Waste Disposal

Laws/Regulations

Pollution

Land Use

Court Decisions

Recycling

Political Attitudes

C.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

and associated risks and opportunities it may faceat the stated time horizon. Second, assumptions
about how climate-related driving forces relevant
to a company may develop over time (pathways)
are important for understanding potential
physical and transitional impacts on the company
over the scenario’s life cycle. By choosing or
constructing scenarios with different pathway
characteristics and outcomes, companies canbetter understand the landscape of their risks,
opportunities, and uncertainties.
Typical climate-related scenarios are basedon a targeted temperature outcome, with acorresponding set of underlying explicit or implicit
emissions, energy, policy, and/or technology
assumptions. This is how IPCC scenarios areconstructed. For instance, scenarios may achievea temperature outcome only assuming significant
negative emissions in the future; this implicitly
makes assumptions about available technology.
Scenarios based on temperature outcomesare especially helpful to understand effects ofphysical risk and to anchor company scenarioswith recognized temperature targets.
To complement these temperature outcome
scenarios, companies may wish to supplement
their analysis with scenarios that have statedpolicy and technology outcomes (i.e., without
specifying a particular emissions or temperature
outcome). The Principles for Responsible
Investment’s (PRI) Inevitable Policy Response(IPR) scenario and the De Nederlandsche Bank’s(the Dutch central bank) Energy Transition stresstest scenario are examples of this approach.45
These scenarios may help in understanding
the resilience of business models to transition
risk created by different plausible sets of policy
measures and technology developments.
2.4.1 Scenario Outcomes46
The scenario outcome should define thepotential future climate state at a particular time
horizon.47 For example, a company may choose
an outcome where global mean temperature has

45 ee PRI Inevitable Policy Response and Vermeulen, Schets and Lohuis, An energy transition risk stress test for the financial system of theS
Netherlands, 2018, pp. 17–35.

46

Typically, scenario outcomes are defined in terms of temperature (e.g., a 2°C scenario), an emissions outcome (e.g., IEA scenarios), or alevel of greenhouse gas (GHG) atmospheric concentration (e.g., RCP2.6, RCP4.5, RCP6, and RCP8.5).

47

 hile many climate-related scenarios define outcomes in terms of a temperature target, a scenario outcome can also be stated in terms
Wof a carbon budget, CO2 atmospheric concentration, or emission outcomes.

25

The Task Force on Climate-related Financial Disclosuresbeen limited to a 2°C increase by 2050. Typically,
companies choose two to four scenarios covering
a range of outcomes at a regional or local scale
and a time horizon at least ten years into the
future. Among scenario outcomes, the TCFD
has recommended disclosing the resilience ofa company’s strategy, taking into considerationdifferent climate scenarios, including a “2°Cor lower” scenario.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

In thinking about outcomes for theirscenarios, companies should consider the
climate-related transition risks and physicalrisks they face. In general, transition risks tend
to increase the more stringent the emissions
or temperature target; conversely, physicalrisks tend to increase or tend to be increased
with higher emissions and temperature
outcomes. There are also important feedbacks
and interrelationships between physical andtransition risks.
Some companies attempt to capture both theirtransition and physical risks by choosing a rangeof scenario outcomes at both low and hightemperatures and emissions, such as IPCC’s
RCP2.6, RCP4.5, and RCP8.5 scenarios, which
imply a temperature range from 2°C or lessto over 4°C.
In assessing transition risks, a company
should consider using or developing
a 1.5°C scenario for the “2°C or lower
scenario” suggested by the TCFD. The TCFD
recommendation calls on companies to take
“into consideration different climate-related
scenarios, including a 2°C or lower scenario.” 48
A 1.5°C scenario would provide stronger diversity
in assumptions about future policies andtechnologies. In combination with a scenario thatmodels policy and technology as an outcome(e.g., PRI’s IPR), a company could better highlight
key transition risk uncertainties and their
possible implications for the company.
A 1.5°C scenario also aligns with the latest
scientific research from the IPCC, the growing
momentum of pledges to limit emissions to
net-zero by 2050, and the spirit of the Paris
Agreement, demonstrating a company’salignment to recognized temperaturetargets. Since the publication of the TCFD
recommendations, a number of policy makers,
governments, and investors have embraced

a 1.5°C ambition, and public information
is now available to craft such a scenario.49
A 1.5°C scenario, therefore, may be usefulfor risk assessment and planning purposes,
irrespective of concerns about the achievabilityof such a target.
2.4.2 Scenario Pathways
An axiom of scenario analysis is that there isno single pathway to a particular scenario
outcome. Different combinations of driving
forces and assumptions will result in different
plausible development pathways, even to thesame temperature or emissions outcome.
Multiple pathways reflect uncertainties “aboutclimate system dynamics, economic conditions,energy use, available technologies, and thetiming of policy action” resulting in different“ranges of global emissions, carbon budgets(cumulative emissions over time), and annual
global [greenhouse gas] GHG reduction levels…
consistent with a global temperature outcome.” 50
Figure C3, on the next page, illustrates multiple
pathways consistent with a 2°C outcome.
Understanding the underlying assumptions ofdifferent pathways is critical for understanding
company-level risks, impacts, and uncertainties.
Differences in assumptions (and hence different
pathways) can make big differences in companylevel impacts.
2.4.3 “Orderly” and “Disorderly” Pathways
Most global climate scenarios, such as IPCC
scenarios, assume smooth and “orderly” pathways
in order to simplify what are otherwise potentiallycomplex development pathways. In other words,
they often assume smooth physical changes
in the climate over time, and a set of idealized
climate policy and technology actions that arecoordinated globally and applied with immediate
effect to the global economy as a whole.
Companies need to be cautious about useof orderly pathways. Assumptions of orderly
pathways are not intended to be predictions of“realistic” outcomes, but rather to test different
combinations of assumptions, albeit in a
simplified construct. Therefore, in all likelihood,different pathways may emerge in reality that
may trigger different climate-related impacts orsocial-economic responses, which in turn may
affect the costs of various sectors, individualcompanies, and individual investments.51

48“…and where relevant to the company, scenarios consistent with increased physical climate-related risks.” TCFD, “Recommendations of the
Task Force on Climate-Related Financial Disclosures,” 2017.

49

IPCC, Special Report – Global Warming of 1.5°C, 2018. See also Investor Leadership Network, Climate change mitigation and your portfolio,(2020) for practical tools to evaluate companies’ decarbonization scenarios in line with the Paris Agreement and a pathway to 1.5°C.

50

Rose and Scott, Grounding Decisions: A Scientific Foundation for Companies Considering Global Climate Scenarios and Greenhouse Gas Goals, 2018.

51

Rose and Scott, Review of 1.5°C and Other Newer Global Emissions Scenarios, 2020.

26

The Task Force on Climate-related Financial Disclosures

Figure C3Multiple Emissions Pathways Consistent
with 2°C Scenario
60

Executive Summary
Table of Contents
A.
Introduction

Billion metric tons CO2 (GtCO2) / year

40

20

0

-20

B.
Getting Organized-40

C.
The Scenario Process-60

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

2010

Appendix 3:
Summary of Selected
Scenario Tools andInformation

2040

2050

2060

2070

2080

2090

Current Policies versus 2°C Temperature Goal
The setting: current policies fail to get even close to 2°C let alone the Paris
Agreement ambition of well below 2°C.
80
60

40

Current policies incl.
baseline IEA STEPS
and NDCs
2.7–3.5°C.

20

0Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

2100

Figure C4

Global yearly CO2e emissions

Appendix 2:
Scenario Construction

2030

The range of 2°C pathways (white space) and selected emissions pathways (dashed lines) are based on 408 different scenarios.
Source: Rose & Scott, 2018

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

2020

1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

2°C consistent
1.5°C consistent

Source: Climate Action Tracker, Dec 2018 update

27

The Task Force on Climate-related Financial Disclosures

To consider this possibility in its scenario
analysis, a company needs to understand boththe assumptions underlying “orderly” pathways
and consider incorporating assumptions
about potential “disorderly” pathways forthe same scenarios. Ultimately, companies
need to evaluate different policy designs andassumptions about technology innovation anddiffusion to understand the uncertainties andrisks of various pathways.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

On the transition risk side, a “disorderly”
pathway is likely to be characterized by variationin the speed and magnitude of changes
along the pathway over time, driven by policy
delays, uncoordinated or disjointed policy
implementation, unanticipated technology
transformations or disruptions, or abrupt
market, social, or legal shifts in response to
climate-related changes.
For example, current national climate policy
commitments are projected to achieve a 2.7°C
to 3.5°C temperature rise by the end of the
century (Figure C4, p. 27). If the world is toachieve the international commitments of theParis Agreement by transitioning to a below
2°C carbon footprint, these policies will require
adjustment.52 The uncertainty is how thisadjustment will proceed — on a coordinated andtimely basis, or on a delayed, potentially abrupt,
and disjointed basis — with potentially different
socioeconomic outcomes.
On the physical risk side, disorderly pathways
may be driven by the existence of so-called
climate system tipping points — the notionthat small changes at critical thresholds canhave large, long-term consequences, possibly
irreversible, for the climate system (i.e., regime
shifts).53 These climate tipping points havebusiness implications regarding physical impacts,
ecosystem services, and biodiversity.
Therefore, when undertaking scenario
analysis, companies should (1) understandand assess the potential policy, technology,
and other socioeconomic assumptions in
global or regional scenarios they mightwant to use, and (2) consider incorporating

assumptions of a “disorderly” pathway intosome of their scenarios around key policy andtechnology drivers and climate tipping points
important to their business.
For companies just beginning theirimplementation of scenario analysis, use of
global scenarios (e.g., IPCC, IEA) may be an easy
way to start. However, such scenarios are not“plug and play.” Understanding the assumptionsof various pathways and the implications of
those assumptions for the company is important.
As a company gains experience with scenario
analysis, it may want to modify existing scenariosor develop its own scenarios that incorporate
more realistic (to the company) “disorderly”
assumptions around the transition to a particulartemperature outcome. For example, a powercompany may want to evaluate plausible
policy assumptions for renewable portfolio
standards, carbon pricing policies, or carbon
emission standards. Incorporating more specificassumptions around policy or technology drivers
may assist a company in highlighting different
risks from global scenarios based on idealized,“orderly” transitions. While not explicitly
mentioned in the TCFD recommendations,“disorderly” scenarios are being emphasized byregulators and investors in recent publications.54
2.5 Writing Qualitative Scenario Narratives
and Quantification55
A scenario narrative tells a story with a sequenceof events; a plot; a beginning, middle, and end;
characters, and a setting. The narrative describes
developments in the scenario around different
economic, technical, environmental, and social
dimensions. The main reasons for formulating
narratives or storylines are to: 56• help the company to think more coherently
about the complex interplay between driving
forces within each scenario and acrossalternative scenarios;• make it easier to explain the scenarios tovarious stakeholders and user communities;

52

See PRI Inevitable Policy Response.

53

 uch tipping points may trigger cascading impacts beyond the climate system. See Arctic Council, Arctic Resilience Report, 2016, sectionsS
3.2 and 3.3, particularly Figure 3.4b, and Kinzig, Ryan and Etienne, Resilience and Regime Shifts: Assessing Cascading Effects, 2006. See also
Gladwell, The Tipping Point, 2000; Lenton, et al., Tipping elements in the Earth’s climate system, 2008; Lenton and Ciscar, Integrating tipping
points into climate impact assessments, 2013; Lemoine and Traeger, “Economics of tipping the climate dominos,” 2016; and Van Ness, et al.,What do you mean, ‘Tipping Point’?, 2016.

54

 s an example, NGFS has developed a scenario that includes a disorderly transition where policies with respect to carbon pricing wouldA
be delayed, resulting in sharper carbon price increases once a carbon price is introduced (NGFS, Guide to climate scenario analysis forcentral banks and supervisors, 2020). See also UK PRA, Enhancing banks’ and insurers’ approaches to managing the financial risks from climatechange, 2019; NGFS, A call for action: Climate change as a source of financial risk, 2019; and PRI, What is the Inevitable Policy Response?, 2019.

55

See Appendix 2 for a more in-depth discussion of turning STEEP analyses into scenario narratives.

56

IPCC, Special Report on Emissions Scenarios, 2000, p. 27.

28

The Task Force on Climate-related Financial Disclosures• make the scenarios more useful, in particular
to company leaders and managers who
contribute to a company’s strategic, financial,and operational planning; and• provide a guide for additional assumptions to
be made in detailed planning analyses, because
at present no single scenario can possibly
respond to the wide variety of informationaland data needs of the different users within
a company and its external constituencies.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process

Scenario narratives are the qualitative part ofa scenario that describes a hypothetical futurein terms of a potential trajectory over time.
The narrative is determined by key drivers,
and assumptions about their developmentthat leads to an outcome. It identifies and lays
out the drivers, constraints, assumptions, andlogical relationships that lead to and define that
hypothetical future in terms of developments
in physical and transition climate-related risks
and in socioeconomic conditions (such as
demographics, technology, and policies).
Each scenario narrative is internally consistent;
logical, plausible, and credible; distinctive; andhighlights central elements of a possible future,
key factors that will drive future developments,
and key uncertainties. Importantly, narratives
challenge conventional thinking about the future.

D.
Strategic Management
Using Scenarios

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations

A challenge in writing scenario narratives is linking
global climate scenarios to a company-level scale,as illustrated in Figure C5. Use of a participatory
scenario approach can help to visualize and craft
local-scale scenario narratives.59

Understanding the Relationship Between
Global Climate Goals and Companies
Climate Goals(e.g., limit < 2°C)

Company

10
9
8
7
6



5
4
3
2

Potential
GlobalGHG Budgets& Pathways?



Potential
National
GHG
Pathways?

Potential
Subnational
GHG
Pathways?



1
0
2000

2200

Potential energy systems, economic activity, and policy?

Source: Rose and Scott, 201857

Glossary, Abbreviations,
References, andAcknowledgments

Narratives consist of themes, logic, and astoryline. Scenario themes are developedaround the driving forces with high impact andhigh uncertainty for a company.58 Scenario
logic describes the relationship between various
drivers and resulting change, including thecausal assumptions underlying the described
relationship. In other words, it seeks to explain
the hypothetical cause-effect relationship among
drivers and the resulting development pathway.
Scenario storylines link historical and present
events with hypothetical futures by presenting aseamless and integrated narrative describing thecausal train of events (pathways) and underlying
drivers, assumptions, and affected systems.
The objective is to create compelling stories that
capture historical trends and forces and how
they may unfold in the future according to theinternal scenario logic.

Figure C5

Degrees Celsius Above Pre-industrial

E.
Disclosure: Demonstrating
Strategy Resilience

Scenario narratives seek to “stimulate, provoke,
and communicate visions of what the future
could hold…they aim for creativity, rigor, internal
coherence, and plausibility.” 57 Scenario narratives
are based on the focal question, identificationof risks and opportunities, critical driving forces,causal assumptions, and uncertainties.

Rounsevell and Metzer, Developing qualitative scenario storylines for environmental change assessment, 2010.

58

Appendix 2 describes approaches to developing scenario themes.

59 haw, Sheppard and Burch, Making local futures tangible — Synthesizing, downscaling, and visualizing climate change scenarios forSparticipatory capacity building, 2009; Fame, Lawrence and Reisinger, Adapting global shared socio-economic pathways for national and local
scenarios, 2018.

29

The Task Force on Climate-related Financial Disclosures

2.5.1 Scenario Quantification
Scenarios may be “quantified” through the useof descriptive statistics or through the use ofmodels. Models are a simplified representation ofreality that attempt to explain assumption-effectrelationships between key drivers and outcomesin a particular system (e.g., climate system,
economic system, ecological system).
Scenario drivers, constraints, assumptions,and logic from the scenario narrative areoften used as inputs to models. Models use
this information to characterize the system inquestion, assign mathematical relationships
to assumptions and effects, and quantitatively

describe the pathway(s) and outcomes of the
scenario that have previously been described
qualitatively in the narrative.
Climate-related models can provide useful
insights regarding uncertainties and the larger
potential climate, socioeconomic, and ecologicalfutures that might develop (context-setting), butwill have limitations and caveats if they are used
at more granular levels (e.g., sector or company
levels). In particular, models may attempt
to be “too precise” and come with layers ofassumptions and limitations.
Do not rush to quantification. The first stepis to understand the impacts of climate-related

Executive Summary
Table of Contents
A.
Introduction

Table C4

Factors to Assess in Checking Scenario Quality#

FactorCheck That the Scenario Narrative:

1

Time Horizon

Has a future cutoff time that is sufficiently in the future (e.g., 2030, 2050, 2100)

C.
The Scenario Process2

Focal Question

Has well-formulated and focused critical question(s) or potential decision(s)the company seeks to assess by scenario analysis

D.
Strategic Management
Using Scenarios

3

Driving Forces

Has a clearly articulated set of underlying causes of change in relation to the focal
question, and that these driving forces derive from external social, technological,
economic, environmental, and policy processes

4

Scenario Logic

Has a clearly stated relationship between various drivers and change, including
the causal assumptions underlying the described relationship, and an internalconsistency between various statements and assumptions that underpin the
scenario storyline

Conclusion

5

Pathways

Appendix 1:
An Overview of Public
Scenarios and Models

Has a clearly described trajectory between the present and the future outcome ofthe scenario that results from the drivers and related cause-effect relationships laidout by the scenario logic

6

Uncertainties

Has explicitly described the uncertainties and their sources surrounding how
drivers may play out

7

Storyline

Presents a seamless and integrated narrative describing the causal train of events(pathways) and underlying drivers, assumptions, and affected systems

Appendix 3:
Summary of Selected
Scenario Tools andInformation

8

Plausibility

Is possible and credible as to the events it describes

9

Distinctive/
Diverse

Focuses on different assumptions about key driving forces in each scenario, andshould have enough scenarios to provide diversity in pathways and outcomes

Appendix 4:Interviewed Organizations

10

Consistency

Is consistent in the application of the scenario logic between scenarios

11

Relevance

Contributes insight into the futures that relate to the strategic and/or financial
decisions facing a company

12

Challenging

Challenges conventional wisdom and simplistic assumptions about the future

B.
Getting OrganizedE.
Disclosure: Demonstrating
Strategy Resilience

Appendix 2:
Scenario Construction

Glossary, Abbreviations,
References, andAcknowledgments

30

The Task Force on Climate-related Financial Disclosuresrisks and opportunities from a qualitative
perspective. Rushing to quantify a scenario
may result in developing complex quantitative
scenarios (mostly with external assistance),
before the qualitative narrative, which should
serve as a robust framework and communication
tool, has been thought through and developed.
Quantification should proceed in steps; forexample, by starting with a qualitative analysis
followed by quantification of impacts through“orders of magnitude” or directional indications.
More detailed quantitative approaches andmodels may be developed later once these
impacts are well understood and the necessary
data has been obtained.
Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

Quantification, however, is a necessary goalin a mature process. Not only is quantification
important for managing strategy and businessoutcomes, but also investors and otherstakeholders expect a company to quantify its
expected impacts from climate change.
2.6 Checking the Quality and Avoiding Pitfalls
For scenario analysis to be effective
and credible with internal and external
stakeholders, scenarios should be of highquality, decision-useful, and periodically
updated. A quality assurance process for
scenarios ensures their credibility with internaland external stakeholders. This involves suchthings as assessing the scenarios’ overall
structure, internal logic, plausibility, and thelikelihood of assumptions, among other factors
as outlined in Table C4 (p. 30). It may also involvea review of scenarios by selected external
parties, such as investors, to get their feedback
and suggested adjustments to scenarios.

Further Reading
The Scenario Planning Handbook: Developing
Strategies in Uncertain Times. Bill Ralston and Ian
Wilson. Thomson Corp., 2006.
Scenario Planning for Climate Change: A Guide forStrategists. Nardia Haigh. Routledge Press, 2019.
Scenarios: The Art of Strategic Conversation. Kees Van
Der Heijden. Wiley Press, 2010.
Scenario Planning in Organizations: How to Create,Use, and Assess Scenarios. T. J. Chermack. 2011.
Developing qualitative scenario storylines forenvironmental change assessment. Mark D. A.
Rounsevell and Marc J. Metzger. 2010.
The Art of Scenarios and Strategic Planning: Tools andPitfalls. Michel Godet. Technological Forecasting
and Social Change, 65: 3–22, 2000.
Models of Scenario Building and Planning: Facing
Uncertainty and Complexity. A. Martelli. 2014.
How to improve scenario analysis as a strategic
management tool? Theo J. B. M. Postma and Franz
Liebl. Technological Forecasting and Social Change,
72: 161–173, 2005.
Understanding transition scenarios: Eight steps forreading and interpreting these scenarios. Institutefor Climate Economics, 2019.

Scenarios also have a shelf life, so a process
to periodically refresh and update them isneeded. This ensures continued relevancy andefficacy to a company’s overall strategy planning
process. The frequency with which scenarios
should be updated is a matter of judgment
driven by considerations of a company’s planning
cycles, the dynamics of its external environment,
updates in scientific understanding of climatechange, developments in climate-related policies,and developments in climate and emission
projections. Companies generally update theirscenarios from as often as annually to every
three to four years.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
31

D.
Strategic Management
Using Scenarios

The Task Force on Climate-related Financial Disclosures

D. Strategic Management Using Scenarios
This section discusses how to apply the insights gained from scenario analysis to informa company’s strategy, enhance its resilience, and improve flexibility and adaptability
to future climate change.
Key Messages•	Scenario analysis is a useful tool for strategic management.
- It broadens views and considerations going into strategy formulation.
- It contributes to strategy resilience.
- It builds organizational capacity in planning for climate change.
Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios•	Identifying the implications of scenarios for strategy starts with a simple question:- How would our company’s existing (or proposed) strategy likely perform under eachscenario if it were true?
•	Applying scenario analysis to strategy involves identification of options that address
the impacts suggested by the scenarios.
- Options that address impacts occurring across multiple scenarios are preferable
to enhance resiliency.
•	Evaluating and selecting strategy options involve a number of criteria:- strategic focus of the option and the level of the option’s risk;- programs and products affected;- ability to execute (e.g., timeframes, resources required, success factors);- the potential value generated by the option; andE.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction- alignment with overall company strategy and business model.
•	When developing and choosing strategy options, companies should be mindfulof blind spots — options existing beyond current operations, the nonlinear natureof climate-related risks, and business as usual interpretations.
•	A climate-resilient strategy requires continual exploration of alternative strategies,
even if the current strategy seems to be working fine.
- Monitoring and reassessing the external environment (e.g., using relevant indicators/
signposts) is particularly important to allow for “midcourse corrections” and isa cornerstone of resilient strategies.

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
33

The Task Force on Climate-related Financial Disclosures

1. STRATEGIC MANAGEMENT
AND STRATEGY RESILIENCE

Executive Summary

Strategic management consists of two
interrelated and complementary processes— strategic thinking/dialogue and strategicplanning (see Figure D1).60 Strategic thinking
and planning are “distinct, but interrelated andcomplementary thought processes” that sustain
and support one another for effective strategic
management. The role of strategic thinking is“to seek innovation and imagine new and very
different futures that may lead the company toredefine its core strategies and even its industry.”
Strategic planning aims “to realize and to support
strategies developed through the strategic
thinking process and to integrate these back into
the business.” 61

1.1 Scenarios and Strategic Management
Scenario analysis helps to broaden the views
and considerations that go into strategic
thinking, and also improve specific planning
decisions to help strengthen the resilience ofa company’s strategy. In the context of strategic
management, scenarios serve two broadfunctions (Figure D2, p. 35). First, they promotestrategic thinking — the creative, intuitive, andinnovative thinking about divergent futures that
may affect a company. Second, scenarios providea systematic and logical process to identify
various strategy options in the light of thesefutures, and aid in the decision-making process
to select among options.

Table of Contents
A.
Introduction
B.
Getting Organized

Figure D1Strategic Management ProcessC.
The Scenario Process

Strategic
Thinking/Dialogue

D.
Strategic Management
Using Scenarios

Synthetic
Divergent
Creative
Intuitive
Innovative

E.
Disclosure: Demonstrating
Strategy Resilience

Role of Strategic Thinking/Dialogue
To seek innovation and imagine newand very different futures that may
lead a company to redefine its core
strategies and even its industry

Strategic
Management

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

Strategic Planning
LogicalSystematic
Conventional
Prescriptive
Convergent

Appendix 2:
Scenario Construction

Role of Strategic Planning
To realize and support strategies
developed through strategic thinking
processes and integrate these back into
the business

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Adapted from: Graetz, F. (2002), “Strategic thinking versus strategic planning: towards understanding thecomplementarities,” Management Decision, Vol. 40 No. 5, pp. 456–462

60

 trategic thinking/dialogue involves exploring possible organizational futures and challenging conventional thinking to foster decisionS
making. Strategic planning is an organization’s process of taking the results of strategic thinking, defining a strategy or direction, andmaking decisions on allocating its resources and determining actions to pursue this strategy.

61

Graetz, “Strategic thinking versus strategic planning: towards understanding the complementarities,” 2002.

34

The Task Force on Climate-related Financial Disclosures

Figure D2

The Role of Scenarios in the Strategic
Management Process

Executive Summary

External Drivers
& Uncertainties

Strategic Thinking& DialogueStrategic Planning Strategy

Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Scenario analysis as an aid to open up thinking
and generate different perspectives and options

These functions of scenario analysis servecompanies well in the context of climate change,
which is often termed a “wicked strategy problem”
imbued with a great deal of uncertainty.62
1.2 Strategy Resilience and Scenarios
A key desire of investors and other stakeholders
is to understand how a company’s managementis (or is not) positioning the company withregard to potential climate-related risks andopportunities (i.e., how resilient a company’s
strategy is to these risks).63 Resilience refers
to the way in which a company’s strategy
supports and maintains a company’s capacity
to survive, adapt, and grow in the face of
turbulent change under different climaterelated scenarios.64 A resilient strategy is able
to tolerate disruptions or adapt to changes or

Scenario analysis as an aid to making strategic
decisions and creating focus“A robust strategy is morethan a specific company’s
emissions target or pathway; it
is an approach that recognizes
uncertainty, provides flexibility,
and can respond appropriately
to the future as it unfolds.”– Rose and Scott, 2018

uncertainties in the business environment thatmight affect the organization’s performance andto remain effective under most situations andconditions. Resilience has three characteristics —resistance, recovery, and robustness.65

62

 erkhout, van den Hurk and Bessembinder, Framing climate uncertainty: socio-economic and climate scenarios in vulnerability and adaptationB
assessments, 2013; Camillus, Strategy as a Wicked Problem, 2008; Lempert, Nakicenovic and Sarewitz, Characterizing climate-change
uncertainties for decision-makers, 2004; L. Mearns, The drama of uncertainty, 2010.

63

 he TCFD’s recommended disclosure Strategy c) calls for companies to “describe the resilience of the organization’s strategy, taking intoT
consideration different climate-related scenarios….”

64

Fiksel, Sustainability and Resilience: Toward a Systems Approach, 2006.

65

Grafton et, al., Realizing resilience for decision-making, 2019.

35

The Task Force on Climate-related Financial Disclosures• Resistance is the capacity of a businessto actively or passively maintain desirable
operational and financial performance in theface of change.
• Recovery is the time it takes for a business’s
operational and financial performance
to recover to desired levels following
adverse change.
• Robustness is the probability that a businesswill not cross an undesirable (and possibly
irreversible) performance threshold following
adverse change.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

Scenario analysis contributes to all threecharacteristics — resistance by improving
the range of strategy options effective under
different climate circumstances; recovery
by reducing the likelihood of surprises andidentifying actions that can be taken to mitigate
or adapt to potential risks if they occur; androbustness by broadening strategic thinking
about plausible futures.
Scenario analysis also helps improve
resilience by building organizational capacity
through promoting systems thinking, personal
mastery, new mental models, shared vision,and team learning as well as reducing
organizational fragmentation, internal
competition, and reactiveness.

Box D1
Applying Scenarios at Novo Nordisk
Novo Nordisk has developed a method that draws
from current supply chain risk management
practices to explore how scenario analysis isapplicable for analyzing physical and transition risk
across supply chains.
Assessment of scenario analysis results.
When assessing physical risks at local sites,
it is necessary to acquire data that is locallyapplicable. Novo Nordisk is currently investigating
how downscaled regional climate model data
can be made available to local risk managers toincorporate in their current processes. However,the use of climate model data is not a simple
task. Therefore, Novo Nordisk is still investigating
how risk managers can be trained in climate risks
without diverting their focus from other risk types.
Until this has been resolved, Novo Nordisk is using
global climate model (GCM) data, which is easier tosource and can be found at various sites by a simple
user interface, noting that the results of the analysis
only produce a rough estimate of a regionalsituation as the average resolution in CMIP5 GCMs
is 200 km2 per data point.
For transition risks, the assessment is also quite
complex. To simplify the process, Novo Nordisk
collects emission data from its supply chain, which
in turn is used as the foundation to assess the risks
associated with transitioning toward a certain RCP
scenario. From this, the costs for a full transition ortransition failure can be estimated. Transition failure
is estimated by applying a carbon tax as an indicator.
The carbon tax can be estimated using IPCC’sguidelines, which provides an indication of the costs
that are associated with each RCP scenario.
(Prepared by Novo Nordisk)

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
36

The Task Force on Climate-related Financial Disclosures

2. APPLYING SCENARIOS TO STRATEGYFORMULATION
Developing a climate-resilient strategy involves
identifying the implications of scenarios, developing
strategy options from the scenarios that enhance
resiliency, and making strategic decisions.
2.1 Identifying the Implications of Scenarios
for Strategy

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Identifying the implications of various scenarios
for a company’s strategy is encapsulated in
the basic question: How would existing (orproposed) strategies, decisions, or actions
perform under different futures (scenarios)?
Answering this question is more challenging.
Answers require identifying the key uncertainties
and potential consequences of a range ofplausible climate futures, and how potential
consequences and uncertainties are to be
managed, including how to capture potential
opportunities (see Box D2). The objective isto understand the potential implications ofscenarios’ hypothetical conditions for thecompany’s strategy.66
In scenario analysis, each scenario describes
a unique set of plausible future conditions thatthe company may find itself in based on thecompany’s decided focal question(s) and thekey drivers of interest to the company. These
scenarios are a lens through which a company canthink about the various climate-related risks andopportunities it faces, how the related impacts
may evolve under different scenario conditions,
how its current strategy might perform, and what
adjustments to its strategy may be needed.67
Here are some principles of strategic thinking
and some pitfalls to avoid: 68• think in paradoxes and visions;• think in improvisation and pragmatism —sorting out what can be controlled fromwhat cannot;• think in time, resources, and life cycles;• think in experiments and bets;• avoid standard answers to nonstandard
environments;

Box D2
Questions to Ask Regarding Strategy
Implications of Scenarios• At the level of the company’s external stakeholders:-	For each group of external stakeholders, whatvalue changes are involved in each scenario?
What are the associated business opportunities?
-	What are the new bottlenecks in the market?
Who is getting squeezed and what will they want
to do about it?
• At the level of the company:-	How does the company’s current strategy,
policies, and capabilities prepare it for the
future described in each scenario?
-	Does the company’s current strategy andassociated strategic posture look sound acrossonly one or several scenarios?
-	If you knew this scenario would occur, what
opportunities and risks/threats would thecompany face based on the earlier identified
vulnerability factors?
-	What strategies could you implement to best
take advantage of the opportunities and remove
the risks/threats?
-	What signposts or leading indicators might alert
you that this scenario and associated dynamics
are going to occur, or would signal that a particular
strategy option should be implemented?
Sources: Drawn from texts by Chermack, Haigh, Ralston and Wilson,
and Van Der Heijden. See References for full sources.

• avoid clinging to old strategies because
they feel safe;• avoid translating long-term strategies
into short-term developments;• avoid having the scenario information
only used by a few; and• avoid forgetting the future once thescenario process is over.
Using these principles and pitfalls, a company
should brainstorm and identify a broad rangeof scenario implications and insights. Box D2
provides some questions a company can use inassessing its current strategy and new strategic
possibilities through the lens of its scenarios.

66

 an Der Heijden, Scenarios: The Art of Strategic Conversation, 2010, pp. 273–287; Menzie, Cantor and Boehm, Business planning for climateVchange: Identifying vulnerabilities and planning for changes in water, temperature, sea level, natural resources, health effects, and extreme
events, 2011.

67

 or alternative approaches using scenarios to identify strategic implications, see Star, Rowland and Black, Supporting adaptation
F
decisions through scenario planning: Enabling the effective use of multiple methods, 2016; Maier, Guillaume and van Delden, An uncertain
future, deep uncertainty, scenarios, robustness and adaptation: How do they fit together?, 2016; Dittrich, Wreford and Moran, A survey ofdecision-making approaches for climate change adaptation: Are robust methods the way forward?, 2016; and Milestad, Svenfelt and Dreborg,
Developing integrated explorative and normative scenarios, 2014.

68 indgren and Bandhold, Scenario Planning: The Link Between Future and Strategy, 2009. Also see Lustsig, Strategic Foresight: Learning fromL
the Future, 2017.

37

The Task Force on Climate-related Financial Disclosures

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion

2.2 Developing Strategy Options
from Scenarios

2.3 Moving From Strategy Options
to Strategy Decisions

Following an assessment of strategy
implications informed by scenarios, a company
should develop a set of suggestions foraddressing the implications of each scenario
and then cluster those suggestions into strategy
options to be evaluated.69

To evaluate the strategy options and selectthose to incorporate into the company’s
strategy, companies typically apply criteriathat measure the level of risk and thevalue generated by the option, alignment
with overall company strategy, and ability
to execute.73 Evaluation may be based on
a combination of risk management criteria(e.g., degree of risk mitigation), financial criteria(e.g., potential change in financial performance),or competitive criteria.74

Generally, a company should seek first to
identify suggestions that address impacts
occurring across multiple scenarios in
preference to those addressing impacts
occurring under only one scenario.
However, some options may be “low-hanging
fruit” that could be implemented regardlessof the scenario.70
Suggestions for addressing the implications of
the scenarios will likely fall into clusters aroundclimate mitigation (e.g., emissions reduction),
adaptation efforts a company might undertaketo manage its risks, or actions to increase its
opportunities. Strategy options in the adaptation
cluster might be further framed as soft
adaptation or hard adaptation.71
The resulting options may build on existing plans
and strategies by reassessing and reprioritizing
actions with a climate change focus or be
new approaches to climate change risks andopportunities. For each scenario, the scenario
team and internal stakeholders identify what
they believe is an initial set of sound options tobe evaluated. For each option, they can thenwork on a description of the strategic focus of
the option, programs and products affected,
resources required, success factors, timeframe,
relevant indicators and signposts to monitor,
and initial priorities to initiate the option.72

Appendix 1:
An Overview of Public
Scenarios and Models

The following questions can also guide theevaluation of options:• What strategy options are the most attractive(e.g., from a value or competitive standpoint)?
• What options could generate the most value
in each scenario (high payoff)?
• What contingencies could protect high-payoff
options against those scenarios in which theoption is weak?
• What options could generate the most value
across all scenarios?
• How could options be combined to increasevalue across the scenarios?
• What steps are needed to move to a highervalue, more resilient strategy?
When developing and choosing strategy options,companies should be mindful of several blind
spots or shortfalls.75
Options “beyond the fence line.” Options
should consider the potential for scenario
implications beyond a company’s direct
operations. Supply chains, employees, customers,
and the communities in which a company
operates also will be affected and, in turn,Appendix 2:
Scenario Construction
69

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations

 or suggestions, see Hallegatte, Strategies to adapt to an uncertain climate change, 2009; Kolk and Pinske, Market strategies for climateFchange, 2004; and Kolk and Pinske, Business responses to climate change: Identifying emergent strategies, 2005.

70

Haigh, Scenario Planning for Climate Change: A Guide for Strategies, 2019, pp. 97–100.

71

 oft adaptation approaches are substantive yet physically intangible responses to climate impacts, such as planning and de-risking
Sprocesses, finance, knowledge generation and information flows, and human resources development. Hard adaptation approaches
encompass such things as capital investments in technology or engineered infrastructure and sustainable management. Goldstein,
Turner and Gladstone, The private sector’s climate change risk and adaptation blind spots, 2019.

72

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

73

Ibid.

74

Internal carbon prices are one method used by companies to evaluate the financial implications of various options. See Aldy and
Gianfrante, How to create the climate strategy your company needs, 2019; Ackerman and Stanton, Climate risks and carbon prices: revising thesocial cost of carbon, 2012; Harpankar, Internal carbon pricing: rationale, promise and limitations, 2019; CDP, Carbon Pricing Corridors: The
Market View, 2017; CDP, Putting a price on carbon: Integrating climate risk into business planning, 2017; CDP, How-to guide to corporate internalcarbon pricing – Four dimensions to best practice approaches, 2017; TruCost S&P Global, TCFD Scenario Analysis: Integrating future carbon
price risk into portfolio analysis, 2019.

75

Research and experience have highlighted these points (Goldstein, Turner and Gladstone, Op. Cit., 2019).

Glossary, Abbreviations,
References, andAcknowledgments

38

The Task Force on Climate-related Financial Disclosures

affect the company. “Fewer than 3% of companies
indicated that climate change would impact theirbusiness through ‘wider social disadvantages.’” 76
Such a narrow view of risk leads to more narrowly
focused strategic options.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Novo Nordisk stresses theimportance of climate risks to
upstream and downstream
supply chain partners. It
considers that its value chain
is only as strong as its weakest
link. Novo Nordisk shares data
and approaches among its local
sites and value chain partners
in order to have holistic andrealistic scenario analysis. It
also believes it is important tosupport investors and financial
institutions in their TCFD journeyby providing TCFD relevant datafrom its supply chains.
(Prepared by Novo Nordisk)

Lack of clarity around value generated.
Strategy options should clearly delineate theincremental costs and benefits relative to otheroptions. The value of various options should also
be distinguished from the value of initiatives andinvestments that a company would undertakeeven in the absence of climate change.
“Low regrets” options. Companies should
consider what options may be effective undera range of future climate scenarios and/or
provide co-benefits with low risks.77
The nonlinear nature of climate risks.
Most climate scenarios presume quasi-linear
pathways to a particular temperature outcome.
In assessing and valuing strategy options, acompany should consider the potential for
nonlinearities and their implications for strategy.

76

Box D3
Scenarios and Strategy Decisions
at Downer Group
Downer’s scenario analysis is fed directly into
strategy sessions and executive forums, where
it is a permanent consideration of the Board’s
strategy process. Broader sustainability issues fromscenario analysis are also built into Board-level
discussions. From a tactical perspective, Downerundertakes an annual exercise to test its strategic
position against the scenario analysis.
“The outcomes of the scenario analysis contributed
to change in the overall strategy of the business,”– Downer’s Group General Manager Sustainability,
Reporting and Data Analytics, Ricky Bridge
In February 2020, Downer CEO Grant Fennannounced that Downer would shift investment
from high-capital-intensive activities to lowercapital-intensive and lower-carbon activities.
Climate change and sustainability were also
elevated with an intention to retain market shareand to secure new customers.
(Prepared by Downer Group)In other words, inputs and outputs from theclimate system are not proportional, change isoften episodic and abrupt, rather than slow andgradual, and multiple equilibria are the norm.78“Business as usual” interpretations. Manycompanies too often translate the complexities
of climate change into strategic options that alignwith business as usual practices.79 The underlying
assumption for business as usual interpretations
is that “current economic and social conditions
will continue to flourish regardless of unfavorable
biophysical conditions in Earth’s natural andclimate systems.” 80
Whichever options are ultimately incorporated
into the company’s strategy, the strategy
should be an adaptive one — one that can makemidcourse corrections based on observationsof the climate and economic systems. It should
be adaptive so that it can take into accountuncertainties around future developments;for example, the possibility of large and/or
abrupt climate changes and/or of technology
breakthroughs that significantly lower
projected costs of strategic initiatives.81

Goldstein, Turner and Gladstone, “The private sector’s climate change risk and adaptation blind spots,” 2019.

77

Hallegatte, Strategies to adapt to an uncertain climate change, 2009.

78

 cNeall, Halloran and Good, Analyzing abrupt and nonlinear climate changes and their impacts, 2011; Rial, et al., Nonlinearities, feedbacks,Mand critical thresholds within the Earth’s climate system, 2004; Schneider, Abrupt Non-Linear Climate Change, Irreversibility and Surprise, 2003.

79

Wright and Nyberg, An inconvenient truth: How organizations translate climate change into business as usual, 2017.

80

Winn, Kirchgeorg and Griffiths, Impacts from climate change on organizations: A conceptual foundation, 2011.

81Lempert, Schlesinger and Bankes, When we don’t know the costs or the benefits: Adaptive strategies for abating climate change, 1996.

39

The Task Force on Climate-related Financial Disclosures

Adaptive strategies allow a company to makecorrections in its strategy along the way andavoid significant errors.
The final step should be to assess if the selected
options and recommended strategy (1) improves
how well prepared the company will be for climate
surprises or disruptions, (2) identifies important
uncertainties and contingency plans for those
uncertainties, and (3) strengthens resiliency.82

3. MANAGING STRATEGY RESILIENCE

Executive Summary
Table of Contents
A.
Introduction

Managing strategy resilience involves the ongoing
monitoring, adaptation, and transformation
actions to influence the three characteristics ofresilience: resistance, recovery, and robustness.83
Managing for resilient strategies requires
adaptive probing — a continual explorationof alternative strategies, even if the current
strategies seem to be working fine. Thismeans periodic refreshment of a company’s
scenario analysis, regular monitoring of
the key indicators and signposts of theexternal environment, and adjustments
when necessary. Monitoring of the external
environment starts with the key forces anddrivers, and uncertainties, identified in acompany’s scenarios. A company should
develop appropriate indicators and measures,or thresholds (signposts), to monitor thedevelopment of key forces and uncertainties
over time and track whether they are evolving
in a consistent or inconsistent manner withscenario assumptions.
One type of metric — signpost metrics — isparticularly important in scenario analysis.
Signposts help to monitor what scenario theworld might be moving toward, as well as
strategic options that might be increasing invalue.84 Signpost metrics are indicators of which
key drivers and scenario development pathways
remain consistent with assumptions or are
deviating toward a different outcome (Figure D3).

B.
Getting Organized

Figure D3

Scenario Signposts

D.
Strategic Management
Using Scenarios

Time

E.
Disclosure: Demonstrating
Strategy Resilience

A

Conclusion
B

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

C

D

Pathways

Different Future States of the ClimateC.
The Scenario Process

Today
Signposts
Scenarios

A

B

C

D

82

 or more information on fitting the pieces together, see Maier, Guillaume and van Delden, An uncertain future, deep uncertainty,
F
scenarios, robustness and adaptation: How do they fit together?, 2016.

83

 ee Helfgott, Operationalizing systemic resilience, 2018; Grafton et, al., Realizing resilience for decision-making, 2019; and Rowe, WrightS
and Derbyshire, Enhancing horizon scanning by utilizing pre-developed scenarios: Analysis of current practice and specification of a process
improvement to aid the identification of important ‘weak signals’, 2017.

84

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

40

The Task Force on Climate-related Financial Disclosures

Signposts may involve such things as important
trends, events, or dynamics (drivers) that
determine scenario pathways, or juncturesin pathways where uncertainties may indicate
a critical threshold around the pathway
direction. Examples of signposts used bycompanies include the following:85• introduction of carbon prices in a certain
jurisdiction and trends in carbon prices;• changes in energy subsidies — fossil fuelsversus renewables;• costs of renewable energy sources(e.g., wind, solar, biofuels);
Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience• trends in energy efficiency/intensity
in major sectors;• carbon capture developments (e.g., carbon
dioxide removal, carbon capture and storage,
deforestation, reforestation);• development, costs, take up of certain
technologies (e.g., battery technologies,
electric vehicles);Further Reading“Strategic thinking versus strategic planning:towards understanding the complementarities,”
Fiona Graetz, Management Decisions 40(5/6):
456–462, 2002.
Business strategies for climate change, Per-Anders
Enkvist, Tomas Naucler, and Jeremy Oppenheim,
McKinsey Quarterly, No. 2, 2008.
Business Responses to Climate Change: Identifying
Emergent Strategies, Ans Kolk and Jonatan Pinkse,
California Management Review, 47(3): 6–20,
Spring 2005.
How Climate Resilient Is Your Company? Meeting
A Rising Business Imperative, Marsh & McLennan
Companies, Global Risk Center, 2017.
Resilience: The Concept, a Literature Review and Future
Directions, Ran Bhamraa, Samir Daniab, and Kevin
Burnarda, International Journal of Production
Research, 49(18): 5375–5393, 2011.
Reporting Climate Resilience: The Challenges Ahead,
Marsh & McLennan Companies, Global Risk Centerand CDP, 2018.

• frequency and intensity of storms, droughts,
and floods and locations; and• climate policy developments (e.g., multilateral,national, sectoral).
A company should ensure that there is sufficient,easily available, cost-effective information forthe signpost; that the information is reliable
and trustworthy; and that signposts arereviewed regularly.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
85

See also Figure A5 in TCFD, Technical Supplement – The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities, 2017.

41

E.
Disclosure: Demonstrating
Strategy Resilience

The Task Force on Climate-related Financial Disclosures

E. Disclosure: Demonstrating
Strategy Resilience
This section describes the importance of disclosure around strategy and scenarios, what should
be disclosed, and challenges to disclosure.
Key Messages•	Disclosure about a company’s strategy and scenarios is an important demonstrationof a company’s attention to climate-related risks and opportunities.
- However, many companies do not disclose their strategy’s resilience to climate-relatedrisks and how a scenario process informed their strategy choices, or their disclosures
have significant shortcomings.

Executive Summary•	A company should disclose, at a minimum, basic information regarding their scenario
analysis, how it informed the company’s strategy, and related financial implications.
Among other things, investors want to understand:

Table of Contents
A.
Introduction- how a company assessed its potential climate-related future(s) and the insights it gleaned
from scenario analysis;

B.
Getting Organized- what changes, if any, the company may be considering to its business model in response
to its scenario analysis;- how resilient management believes the company’s strategy is to various future climate
states; andC.
The Scenario Process- where the uncertainties are regarding the company’s strategy and its resilience to climaterelated risks and opportunities.

D.
Strategic Management
Using Scenarios•	Companies should approach disclosure of forward-looking information with the rightmindset — instead of asking “What are we required to report?” companies should ask“What should we withhold?”E.
Disclosure: Demonstrating
Strategy Resilience- Companies should be aware that materiality is not a static concept.
- Companies are encouraged to disclose climate-related issues that could be material in the future.

Conclusion- Business confidentiality should not be used as an excuse for avoiding disclosure. Companies
should err on the side of disclosure.

Appendix 1:
An Overview of Public
Scenarios and Models- Companies are unlikely to face material legal risk in disclosing forward-looking climate-related
information if they take necessary precautions to ensure that their disclosures are notmaterially misleading or inaccurate, including cautionary statements.
•	A company should ensure its strategy and scenario disclosures comply with soundcorporate reporting principles and are subject to appropriate controls and quality checks,
including oversight and review by boards, audit committees, and management.

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations

The central focus of the TCFD Strategy
recommendation is on disclosure of “the actualand potential impacts of climate-related risks andopportunities on the organization’s businesses,
strategy, and financial planning where such

Glossary, Abbreviations,
References, andAcknowledgments
86

information is material.” The recommendation
goes on to say that as part of this disclosure,a company should “describe the resilience of theorganization’s strategy, taking into considerationdifferent climate-related scenarios.” 86

TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017.

43

The Task Force on Climate-related Financial Disclosures

Investors often view climate-related disclosurearound strategy and scenarios as an importantdemonstration of a company’s attention toclimate-related risks and opportunities and thestarting point for conversation and engagementwith the company. Companies conducting
scenario analysis need to provide investors(and other stakeholders) with sufficient
information to understand the company’s
scenario process, assumptions, and outcomes,
and how those scenarios have informed
a company’s resulting strategy with regard
to climate-related risks and opportunities.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience“Climate change will drive someof the most profound changes
to businesses. Frequent andsevere climate-related events are
already causing major impacts
on products and services, supply
chains, loss of asset values, andmarket dislocation. These effects
are now compounded by policy
and regulatory change andinvestor demands. Companies
are facing increasing pressure
from investors to disclose moremeaningful information related
to climate change risks.”–D eloitte (2020) “Clarity in financial reporting:Disclosure of climate-related risks”

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

Unfortunately, many companies do notdisclose information about their strategy
resilience and scenario process or havesignificant shortcomings in their disclosures. 87
Among the observed shortcomings are:• Lack of clarity around the type of information
investors consider important.
• Lack of information on key scenario drivers,
assumptions, and pathways.
• Lack of quantitative information, particularlyaround potential financial implications.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments• Lack of context. Even when quantitative
outputs are disclosed, presentations often lack
important information needed to interpret theresulting analysis. This hampers clarity andmakes it difficult, if not impossible, to interpretthe analysis.
• Telling half a story. Many climate‑related
disclosures provide only half the story withregard to scenarios and strategy resilience:either an analysis of a company’s climate
risks (or opportunities) without disclosing
a corresponding strategy to address thoserisks, or a description of the company’s
climate change strategy without any
disclosure of the scenarios used to informthe strategy. Disclosures also often fail todiscuss potential impacts specific to thecompany — what changes, if any, the company
may be considering to its business model in
response to its scenario analysis; how resilient
management believes the company’s strategy
is under various future climate states; theuncertainties regarding the company’s strategy
and its resilience; and how the company ismonitoring emerging climate-related issues.
In addition, scenario and strategy disclosures arehampered by the concerns of companies aroundmateriality, confidential business information,and legal liability associated with forward-looking
information. These concerns are not unique toclimate-related issues and will be discussed laterin this section.

1. WHAT INFORMATION DO INVESTORSAND OTHER STAKEHOLDERS DESIRE?
Investors want to understand how a company
is positioning itself strategically in light of its
climate-related risks and opportunities. Theyfrequently indicate that climate-related risks andopportunities have a significant impact on theirinvestment decisions.88
Investors often see climate-related disclosurearound strategy as important. One study, in asurvey of 439 institutional investors with a likely
high awareness of climate risk, found “51% of
respondents believe that climate risk reportingis as important as traditional financial reporting,and almost one-third considers it to be more
important. Only 22% of respondents regarded
climate reporting as less (or much less) importantcompared to financial reporting.” 89 The study87 ee European Financial Reporting Advisory Group, How to improve climate-related reporting: A summary of good practices from Europe andSbeyond, 2020; Goldstein, Turner and Gladstone, The private sector’s climate change risk and adaptation blind spots, 2019; Massachusetts
Institute of Technology (MIT), Climate-Related Financial Disclosures: Use of Scenarios, 2019; and TCFD, 2019 Status Report.

88

Morrow Sodali, Institutional Investor Survey, 2020.

44

The Task Force on Climate-related Financial Disclosures

Executive Summary
Table of Contents
A.
Introduction

concluded that “climate disclosure is perceived
as more important among those investors who
also believe more strongly that climate risks
matter, and among those who expect larger
global temperature increases due to climatechange.” 90 In a 2019 TCFD survey, investors rated
information on the resiliency of a company’s
strategy and how its strategy might be affectedby or changed to address potential climaterelated issues as very useful.91

that gives them confidence that companies areon top of climate-related issues (Table E1).93

Some investors believe that “current quantitativeand qualitative disclosures on climate risks
are uninformative and imprecise.” 92 A lack oftransparency and appropriate disclosure drives
investor uncertainty, which, in turn, generally
increases risk premia and depresses thevaluation of financial assets.

• a company’s sensitivity to carbon pricing,
if applicable;

What are investors looking for in company
disclosures about scenarios and strategy?
In short, investors are looking for information

Other disclosure elements that investors
indicated would be very useful are: 94• how climate-related issues affect products
and services;• how climate-related issues affect capital
expenditures and capital allocation;• the scenarios used by a company to inform
its strategy, and their associated time
horizon(s); and• a company’s identified material climate-relatedrisks and opportunities over the long andmedium term.

B.
Getting Organized

Table E1C.
The Scenario Process

Disclosure Category

PurposeGovernance – Board
oversight of strategy
and scenario process• Indicate an awareness and understanding of climate-related issues;level of expertise on or available to the Board on climate issues; reporting
relationships to the Board regarding scenario analysis

Risk Management• Indicate the risks and uncertainties evaluated through scenario analysis;
how the company believes these risks may develop over time based on
scenario analysis; how the company plans to manage or address these risks

Strategy – Scenario analysis
process• Describe processes used for scenario analysis; the range and assumptionsof scenarios used; key findings; whether it is a standalone analysis or
integrated with company’s risk management and strategy processes

Strategy – Strategy resilience• Indicate awareness and planning for the potential physical climate andtransitional changes indicated by scenario analysis; indicate adjustments
made to strategy in light of scenario analysis

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

Information Investors Desire• Indicate whether financial plans are aligned with strategic plans related
to climate risks and opportunities (e.g., capital expenditures, investments,
R&D, etc.)

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Targets and Metrics

89• Indicate whether useful metrics have been identified related to strategy,
strategy resilience, and scenario signposting; how these metrics areconnected to the organization’s strategy and scenario analysis; andhow they are being used

Ilhan, Krueger and Saunter, Institutional Investors’ Views and Preferences on Climate Risk Disclosure, 2020.

90

Ibid.

91

See Table A5-5 in Appendix 5 in the 2020 TCFD Status Report.

92

Ilhan, Krueger and Saunter, Institutional Investors’ Views and Preferences on Climate Risk Disclosure, 2020.

93

Drawn from input provided by PRI investor signatories, including those on the Climate Action 100+.

94

TCFD, 2019 Status Report.

45

The Task Force on Climate-related Financial Disclosures

While investors are not a homogenous group,
they are increasingly looking to standardize
their climate-related disclosure requests ofcompanies. A leading example of this is the
Climate Action 100+, a group of 450 investors
with $40 trillion in assets and an engagement
program with 160 of the world’s most carbonintensive companies. This investor group is
working to develop a benchmarking framework
to compare sector peers and assess companies’
progress against a standard set of key
performance indicators. Other investors also
are increasingly using other benchmarking tools
provided by the Transition Pathway Initiative,
Influence Maps, CDP, 2° Investing Initiative,
and Carbon Tracker.
Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

2. WHAT INFORMATION SHOULD BEDISCLOSED AROUND STRATEGY ANDSCENARIOS?
To demonstrate a company’s strategy
resilience to climate-related risks andits ability to capture climate-related
opportunities, a company should disclose
publicly, at a minimum, some basic
information regarding scenarios, how they
impacted the company’s strategic planning,
and related financial implications.
2.1 Disclosure Around Strategy
The 2017 TCFD recommendation on strategy, inpart, indicated that companies should “describe
the resilience of the organization’s strategy,
taking into consideration different climaterelated scenarios, including a 2°C or lower
scenario.” 95 Among the information a company
might disclose around the climate-related
aspects of its strategy, it might discuss:• The company’s strategy with regard to climaterelated risks and opportunities and related
targets (e.g., key performance indicators,
key risk indicators), especially with regard
to emissions, technology mix over time, andproduct mix over time.

• What effects have climate-related scenarios
used by the company had on the company’s
strategy, including financial implications?
• What strategic alternatives/options wereconsidered and chosen based on its
scenario analysis?
• What general strategic positioning and specificactions are planned as a result of each option?
• What are the financial implications of thosechoices, including use of internal carbon prices?
• What changes, if any, the company may beconsidering to its business model in response
to its scenario analysis.
• How resilient does management believe thecompany’s strategy is under various futureclimate states?96 For instance, how will thecompany’s strategy:- enable the company to survive and flourish
in any of the multiple, plausible futureenvironments and- position the company to develop its
business(es) in the right areas, considering
its business model and the range of climaterelated outcomes it may encounter?
- overall, is the company well prepared to face
the uncertainties of the future as portrayedin the complete set of scenarios?
• Where are the uncertainties regarding thecompany’s strategy?
• How the company is monitoring its strategy for
emerging climate-related issues (e.g., signposts,
revisiting strategy, contingency plans).
• How flexible/adaptable does management
consider its chosen strategy in light of thefull range of relevant climate-related risks,
opportunities, and uncertainties consideredin its scenario analysis?

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

95

TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017.

96

 trategy resilience refers to the way in which a company’s strategy supports and maintains its operations under differentS
climate scenarios in terms of a company’s capacity to survive, adapt, and grow in the face of turbulent change. Fiksel,
Sustainability and Resilience: Toward a Systems Approach, 2006. See also Grafton et, al., Realizing resilience for decision-making, 2019;
Marsh & McLennan, How Climate Resilient is Your Company?, 2017; CDP, Reporting Climate Resilience: The Challenges Ahead, 2018; andBhamra, Dani and Burnard, Resilience: the concept, a literature review and future directions, 2011.

46

The Task Force on Climate-related Financial Disclosures

2.2 Disclosure Around Scenarios
Investors want to understand how a company
assessed its potential future(s) and theinsights it gleaned from scenario analysis.
Companies should consider disclosing: 97• a brief description of each scenario narrative,
time horizon, and endpoints used by thecompany with a discussion of why the company
believes the range of scenarios used covers its
plausible risks and uncertainties;• whether a company’s scenarios weredeveloped internally or externally andthe methodology used;
Executive Summary
Table of Contents• the key forces and drivers taken into
consideration in each scenario and why they
are important/relevant to the company;• key inputs and constraints of the scenarios;A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion• a description of the various pathways in eachscenario and the key assumptions underlying
pathway development over time in responseto the forces and drivers; and• implications of scenarios for the company’s
strategy, if at all (e.g., how the scenariotranslates to changes in the company’s markets,
such as demand shifts), and operationalchanges that may be required in that scenario(e.g., changes to energy sources, technology
deployment, feedstocks or raw materials,
recycling, waste handling).
A company may also wish to describe thegovernance process it used to oversee andmanage the scenario process, including therole of the board and senior management,
engagement of internal and external
stakeholders, and use of external experts.

Efforts at comparability should aim toincreasingly harmonize the transparency
around companies’ scenario processes
and the disclosure of results. Some investors
are asking for greater comparability indisclosures about scenarios. Unfortunately,scenario analysis at some level inherently
must take account of companies’ different
circumstances, geographic locations, businessmodels, and value chains. Companies needto tailor scenarios to their particular risks andcircumstances. At this time, a company’s focus
on comparability should be on improving
disclosures in order to provide investors andother stakeholders with sufficient information
to understand a company’s scenario process,assumptions, and outcomes.
2.3 Disclosure of Financial Implications
The TCFD Strategy recommendation calls for“disclosure of the actual and potential impactsof climate-related risks and opportunities
on the organization’s business, strategy, andfinancial planning where such information ismaterial [emphasis added].” 98 Better disclosureof the financial impacts of climate-related risks
and opportunities is a key goal of the TCFD.99
Disclosure of financial implications should
be approached from two perspectives — thepotential financial implications of the various
scenarios and the financial implications of thecompany’s strategy and related plans.
2.3.1 Sources of Climate-Related Financial
Implications
Climate-related risks and opportunities oftentranslate into financial risk or impacts, both ata macro- and microeconomic level. Figure E1(p. 48) illustrates climate-risk-to-financial-risk
transmission channels.

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments97

 ee also Figure 3 in the TCFD, Technical Supplement – The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities,
S
2017.

98

TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017.

99

 inancial implications arising from climate change stem from (1) financial effects on the company from climate-related physical orFtransition impacts (either direct or indirect impacts) and (2) financial effects due to decisions by the company in response to climaterelated risks and opportunities.

47

The Task Force on Climate-related Financial Disclosures

Figure E1

Climate-Related Financial Risk Transmission Channels
ECONOMIC TRANSMISSION CHANNELS

Transition Risks

Micro• Policy andregulation

Executive Summary
Physical Risks

Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

Businesses• Chronic (e.g.,temperature,
precipitation,
agricultural
productivity,
sea levels)• Acute (e.g.,
heatwaves,
floods, cyclones,
and wildfires)• Defaults bybusinesses andhouseholds

Households• Loss of income (from• Property damage andweather disruption andbusiness disruption fromhealth impacts, labor
severe weather
market frictions)• Stranded assets and newcapital expenditure due • Property damage(from severe weather)to transition
or restrictions (from• Changing demand
low-carbon policies)and costs
increasing costs and• Legal liability (from failure
affecting valuations
to mitigate or adapt)• Collateral
depreciationMarket Risk
• Repricingof equitites,
fixed income,commodities, etc.
Underwriting Risk

Macro
Aggregate impacts on the macro-economy• Capital depreciation and increased investment• Increased insured
losses• Increased
insurance gap• Shifts in prices (from structural changes, supply shocks)• Productivity changes (from severe heat, diversion of
investment to mitigation and adaptation, higher risk
aversion)• Labor market frictions (from physical and transition
risks)• Socioeconomic changes (from changing consumption
patterns, migration, conflict)• Other impacts on international trade, government
revenues, fiscal space, output, interest rates, andexchange rates

Operational Risk
• Supply chain
disruption• Forced facility
closureLiquidity Risk
• Increased demand
for liquidity• Refinancing risk

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

Credit Risk

Affecting individual businesses and households• Technology
development• Consumer
preferences

FINANCIAL RISKS

Financial System Contagion

CLIMATE RISKS

Climate & Economy Feedback Effects

Economy & Financial System Feedback Effects

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Source: Network for Greening the Financial System (NGFS)

48

The Task Force on Climate-related Financial Disclosures

Executive Summary
Table of Contents
A.
Introduction

Scenarios can help inform a company about
these financial implications directionally, but only
after formulating its strategy will a company bein a position to disclose more precise financial
implications. Figure E2 shows how a company
might think about disclosure of various financial
implications and Table E2 (p. 50) provides someconsiderations around financial reporting
concerning climate risks. For example, thefinancial effects of a company’s strategy in alonger time horizon might be characterized interms of broad financial pathways or broad
directional shifts in capital expenditures; as
the strategy is implemented over time, capitalbudgets, project plans, and operational plansprovide progressively more concrete estimatesof financial effects.

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

For disclosures about the possible financial
implications of scenarios, a company might
consider disclosing qualitatively, and quantitatively
where feasible, how a particular scenario
might affect the potential orders of magnitude,
ranges, or relative directional shifts in termsof the company’s assets; capital investments;
earnings before interest, taxes, depreciation,
and amortization; and revenue potential.

2.3.2 Financial Implications of Scenarios

Reverse stress test scenarios may be usefulfor assessing the outer limits of financial
impacts. Reverse stress tests are scenariosthat a firm uses to assess and identify potential
circumstances that would make its businessmodel unviable.

Translating forward-looking scenarios intomeaningful financial implications is difficult, but
not impossible.100 One difficulty is that scenarios
do not develop precise financial implications;they are hypothetical futures that only provide

Sensitivity analysis around variations in carbon
prices (internal or external), or variations in input
prices (e.g., commodities, water, etc.), is anothermethod for companies to explore the financial
implications of various scenarios.

B.
Getting OrganizedC.
The Scenario Process

relative and directional indications (good/bad,up/down) and orders of magnitude (a lot/a little).

Figure E2

Determining Financial Implications by Time Horizon
Financial Implications
Broad conceptualizationof possible financial
pathways>10 Years

Strategic Thinking
Informed by Scenarios

Financial Implications
Broad estimates of relative
shifts in capital expendituresdue to climate change

5–10 Years

Strategic Planning Informed by
Scenarios Capital Planning

Financial Implications
Projections/estimates of potential
returns on specific planned responses
to climate-related risks and opportunities

2–5 Years

Financial Implications
Estimates/actual climate change impacts
on current revenues and costs, budgets& value of assets and liabilities

Project Planning, Financial Analysesof Strategic Projects & Initiatives
Formulating Financial Strategy

0–2 Years
Formulating Operating Plans & Budgets

Present

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
100

Rogelj, McCollum and Reisinger, Probabilistic cost estimates for climate change mitigation, 2013.

49

The Task Force on Climate-related Financial Disclosures

Table E2

Financial Reporting Considerationsof Climate-Related Risks
101

Executive Summary
Table of Contents

Impact on Financial Reporting

Thinking It ThroughAsset Impairment

Climate-related risks could be an indicator of impairment for an entity’s
asset/group of assets. Entities must consider the impact of these risks on
impairment calculations, for example, on forecasts of future cash flows, andany relevant disclosure requirements, where this impact is significant.

Changes in the Useful Lifeof Assets

Climate-related risks could reduce the expected useful lives of an entity’s
assets or create stranded assets. This would affect the depreciation/amortization expense recognized every year.

Changes in the Fair Valuationof Assets

The measurement of fair values of assets could be impacted by climaterelated risks and this should be factored into the fair value calculations.
This could, for example, impact the discount rate used or the forecast of
future cash flows. Entities impacted by these risks should disclose theassumptions around including these in the fair value calculations.

Recognition of Provisions
and Contingent Liabilities

Climate-related risks could lead to recognition of additional provisions
and contingent liabilities, as outlined below:

A.
Introduction
B.
Getting Organized•	provision for onerous contracts driven by potential loss of revenues/
increased costs;

C.
The Scenario Process•	provision for decommissioning a plant or rehabilitating environmental
damage in extractive industries as a result of shortened project lives
or regulatory changes; andD.
Strategic Management
Using Scenarios•	contingent liabilities related to potential litigation and fines/penalties due
to stricter regulations.

E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion

Changes in Expected Credit
Losses for Loans and Other
Financial Assets

Use of forward-looking information to recognize expected credit losses.
The impact of climate-related risks on the borrower must be consideredwhen determining whether credit risk of the financial assets has increased
significantly since initial recognition.

Disclosure of ClimateRelated Risks

Information related to climate-related risks will be relevant to theunderstanding of the financial statements, if investors could reasonably
expect that these risks have a significant impact on the entity and this would
influence their decisions. Relevant disclosure requirements may require
disclosure of such information in the notes to the financial statements.

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

2.3.3 Financial Implications of a Company’s
Strategy and Related Plans102
For a formulated strategy and supporting plans, acompany should be able to provide a better senseof its financial pathway and direction in terms ofcapital investments, asset impairment, operating
costs, change in revenue mix, and other major

financial factors. While this type of information isless precise at a longer-term strategy level thana shorter-term financial plan, it can neverthelesshave significant value if it provides insight into
where the company’s strategy might end up ona scale from “minimal financial impact” to “major
financial impact” and why.

101

 lso see KPMG, Climate Disclosures within the Annual Report: An Australian Focus, 2020, pp. 24–33 for examples of financial statement
A
considerations for climate-related risks.

102

Ibid.

50

The Task Force on Climate-related Financial Disclosures

Disclosure does not end at the strategy level.
As climate-related investments, projects, andinitiatives in the strategy are implemented
via concrete capital, project, operations, andfinancial plans, a company should disclose more
concrete quantitative financial implications, suchas those in Table E2 (p. 50).103

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion

For any given reporting cycle, therefore,
a company should consider disclosing thefinancial implications of climate-relatedrisks and opportunities across the complete
planning horizon from near-term project,
operating, and financial plans to longerterm strategy and scenarios. In other words,
it should consider providing investors withinformation, as of the reporting date, on thefinancial implications of climate-related risks andopportunities in the current year and at various
forward-looking intervals out to the scenario
time horizon.
Finally, the information around financial
implications desired by investors will likely
vary. Companies should engage their investors
to understand investors’ expectations to help
improve their disclosure. Further, industry
consultation focusing on the financial implicationsof climate-related risks and opportunities andsupporting methodologies also will help infacilitating disclosure improvements.

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Companies need to approach the disclosureof forward-looking information with the rightmindset. Instead of adopting a compliance-based
approach and asking “What are we required
to report?” companies should ask themselves“What should we withhold?” 104 This is particularly
true in the case of climate-related disclosures.
3.2 Consideration 2: Where to Disclose
In the case of disclosures around strategy andforward-looking scenarios, companies should
disclose material information in those portionsof their annual report or integrated reportdealing with strategy, management discussion
and analysis of the company, and risks.105
Material financial implications related tocompany’s strategy should be disclosed in theappropriate financial statements or notes tothe financial statements.106, 107
To the extent that additional detail anddiscussion of scenarios and strategy iswarranted, which may not rise to the level ofthe annual report, companies should consider
disclosing additional detail in other public
reports, such as sustainability and non-financial
reports, with appropriate cross-references intheir annual reports and financial filings to alert
investors to such information.

3. OTHER DISCLOSURE CONSIDERATIONS

3.3 Consideration 3: Materiality

Other considerations around strategy-andscenario-related disclosure include: whereto disclose, quality of disclosures, confidential
business information, and liability around forwardlooking information. Many of these concerns are
not unique to climate-related disclosures.

The cornerstone of most disclosure standards
is a determination of materiality. In its 2017
report, the TCFD did not define materiality
but rather deferred to existing reporting
standards and legal requirements, stating that“organizations should determine materiality forclimate-related issues consistent with how they
determine the materiality of other information
included in their annual financial filings.” 108

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

3.1 Consideration 1: The Right Mindset

103

 ustralian Accounting Standards Board/International Accounting Standards Board, Climate-related and other emerging risks disclosures:A
Assessing financial statement materiality using AASB/IASB Practice Statement 2, 2019; True Price, The Business Case for True Pricing: why you
will benefit from measuring, monetizing and improving your impact, 2014.

104

PricewaterhouseCoopers (PwC), Guide to Forward-Looking Information, 2007.

105

 ee KPMG, Climate Disclosures within the Annual Report: An Australian Focus, 2020, p. 15 for disclosures of climate-related risks in annual
S
reports and financial statements.

106

 he TCFD recommendations call for companies to disclose the material implications of climate change, including material strategy
Tand financial implications, in annual financial filings. The TCFD also recognized that the structure and content of financial filings differs
across jurisdictions and, therefore, believes companies are in the best position to determine where and how the TCFD disclosures
should be incorporated in financial filings.

107

If investors could reasonably expect that climate-related risks will have a significant impact on an entity, would influence their decisions,and would be relevant to their understanding of the entity’s financial statements, relevant information may require disclosure in thenotes to the financial statements. Deloitte, Clarity in financial reporting: Disclosure of climate-related risks, 2020.

108

 ertain organizations — those in the four non-financial groups listed in the TCFD recommendation — that have more than one billion
C
U.S. dollar equivalent in annual revenue — should consider disclosing such information even when the information is not deemedmaterial and not included in financial filings. TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017, p. 17,
footnote 37.

51

The Task Force on Climate-related Financial Disclosures

To help investors understand the context inwhich materiality determinations are made,companies could consider whether the following
disclosure is helpful:• Reporting the basis of their materiality
assessment of climate-related risks,
including the materiality threshold appliedand over what period of time, to allow investors
and other stakeholders to understand acompany’s approach in determining materiality
and non-materiality.109

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience• Disclosing whether climate-related risks
could be material in the future.110 In suchcases, a company might disclose climaterelated information outside financial filings tofacilitate the incorporation of such information
into financial filings once climate-related issues
are determined to be material.
• Companies should be cognizant thatmateriality is not a static concept. It isevolving over time in terms of what primaryusers view as material to their decisions; whobeyond primary users might be an audience
for the disclosure; and what type of information
is desired.111“Increasingly consistent evidence
is amassing to conclude thatinvestors and asset managers
deem climate risk information
as substantially significant in thedecision to buy or sell securities.”– Griffin & Jaffe, 2018.

Conclusion

3.4 Consideration 4: Business Confidentiality
In a 2019 TCFD survey, 46% of 180 preparers said
that disclosing scenario analysis assumptions
is difficult because they include confidential
business information.112
In considering whether particular aspectsof a company’s intended disclosurearound strategy and scenarios constitutes
confidential business information,
a company should ask and challenge itself
with the following: 113• Does the information bring any economic
benefit to my business that translates into
competitive advantage because it is kept
confidential?
• Would making such information public cause
the company to incur an economic loss? If
not protected, could competitors use thisinformation without having to bear thecosts or risks? Would the company lose its
competitiveness built on this information?
A company should not default to business
confidentiality as a reason for avoiding
disclosure. In determining where to draw
the line, companies, as a matter of principle,
should err on the side of disclosure.114
Unlike information that a company may use todifferentiate itself in the marketplace, climaterelated risks affect the economy and companies
systemically. How a particular company
anticipates managing its climate-related risks
may not be a source of material competitive
advantage, especially in light of the cooperativeand interdependent efforts needed to address
such risks (climate-related opportunities may be
another matter).

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments109

 ccles and Krzus, Implementing the Task Force on Climate-related Financial Disclosures Recommendations: An Assessment of Corporate
E
Readiness, 2019.

110

TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017, p. 17, footnote 36.

111

 ee KPMG, Climate Disclosures within the Annual Report: An Australian Focus, 2020, p. 13, and International Financial Reporting Standards,
S
Climate-related and other emerging risks disclosures: Assessing financial statement materiality, 2018, for considerations of materiality ofclimate-related risks; see Wilcox, Corporate Reporting, 2019, and Wasim, Corporate (Non) Disclosure of Climate Change Information, 2019,
for some of the factors that are shaping and will continue to shape corporate reporting.

112

TCFD, 2019 Status Report, 2019.

113

 U IPR Helpdesk, Confidentiality, European Intellectual Property Rights Helpdesk, 2015. Confidential business information has threeEcharacteristics — it has commercial value, it is not in the public domain, and it is reasonably protected and communicated to othersin confidence.

114

 or example, pharmaceutical companies disclose details of their products — in terms of pipeline, stage of development, plannedFlaunch, and potential market size — without prejudicing their competitive position. Specific information on the underlying patent
formulations is withheld. PwC, Guide to Forward-Looking Information, 2007.

52

The Task Force on Climate-related Financial Disclosures

3.5 Consideration 5: Liability
and Other Legal Concerns Around
Forward-Looking Statements
Scenario analysis and resulting strategy are by
nature forward-looking information. Companies
have expressed concern that disclosures could
be misinterpreted or relied upon by investors,
resulting in either legal liability or financial rating
implications. Most laws, however, provide for “safeharbor” provisions for forward-looking information
when “accompanied by meaningful cautionary
statements identifying important factors that could
cause actual results to differ materially from thosein the forward-looking statement.” 115
Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models• Companies that take necessary precautions
to ensure that their disclosures are notmaterially misleading or inaccurate,
including cautionary statements, areunlikely to face significant legal risk. “Whilelegal risk is often cited in voluntary reporting,in fact there is little to no evidence that itexists if the disclosures are accurate and not
misleading.” 116 Similarly, “companies that makeaccurate disclosures and take advantage of theprotections available under existing statutory
and common law safe harbors are unlikely toface significant litigation risks from scenario
analysis disclosures.” 117

3.6 Consideration 6:
Quality of Disclosed Information
A company should assess whether its strategy
and scenario disclosures comply with soundcorporate reporting principles and are subject
to appropriate controls and quality checks,
including oversight and review by boards,
audit committees, and management. Principle
6 of the TCFD’s Fundamental Principles for
Effective Disclosure states that disclosures should
be reliable, verifiable, and objective. Disclosures
should be subject to internal governanceprocesses that are the same or substantiallysimilar to those used for financial reporting.119

Further Reading
Climate Change Risks: An Update on Current Litigation
Trends (2019), Alert Memorandum, Cleary Gottlieb.
Identifying Natural Capital Risk and Materiality (2013),
Association of Chartered Certified Accountants,
Flora & Fauna International, and KPMG LLP.
Corporate (Non) Disclosure of Climate Change Information(2019), Wasim, Col. Law Rev, 119: 1311–1354.
Climate-related and other emerging risks disclosures:
Assessing financial statement materiality (2019)
International Financial Reporting Standards (IFRS).

• Companies also can reduce their legalrisks from disclosure of forward-looking
information by a number of other actions.
For example, by actively complying withfiduciary requirements; keeping the board andmanagement informed about climate-relatedrisks and response options; consistently
applying asset valuation policies; subjecting
climate change and sustainability reports to arigorous verification process to avoid material
misstatements or omissions; making clear
cautionary statements; and understanding
the perspective of investors and otherstakeholders.118

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

115

Wasim, Corporate (Non) Disclosure of Climate Change Information, 2019. In the United States, for example, the Private Securities Litigation
Reform Act of 1995 shields companies from liability for certain written and oral forward-looking statements. See also BP’s cautionary
statement as an example.

116

 ccles and Krzus, Implementing the Task Force on Climate-related Financial Disclosures Recommendations: An Assessment of Corporate
E
Readiness, 2019.

117

A nders, Silk and Lipton, ESG Disclosures and Litigation Concerns, 2020.

118

 leary Gottlieb, Climate Change Risks: An Update on Current Litigation Trends, 2019; Lydenberg, On materiality and sustainability: The valueCof disclosure in the capital markets, 2012.

119

TCFD, Recommendations of the Task Force on Climate-related Financial Disclosures, 2017.

53

Conclusion

The Task Force on Climate-related Financial Disclosures

Conclusion
Climate change generates risks andopportunities. Many of these will be material
for a wide variety of companies across many
sectors, either today or in the near future.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

Companies need to develop resilient
strategies to address these climate-relatedrisks and opportunities. This requires
companies to embrace forward-looking planning
tools, undertake adaptive strategic postures,and set aggressive targets. Climate-resilient
strategies also demonstrate a company’s ability
to integrate governance, risk management,
and strategy processes in a meaningful way
to address climate change.
Scenario analysis is an effective tool fordeveloping more resilient strategies. By
identifying the key uncertainties, drivers, andpotential consequences of a range of plausible
climate futures, scenario analysis helps acompany to improve its resilience to, anddisclose more useful information about, thepotential impacts of its climate-related risks
and opportunities. In particular, scenarios
help executives look at a number of plausible
possibilities, prepare for contingencies, develop
flexible strategies, and implement more speedy
responses to emerging risks and opportunities.

Conducting scenario analysis and applying
it to strategic and financial planning ischallenging, but is readily doable. A company’scommitment to scenario analysis brings withit a number of benefits —­­ enhancing internal
strategic thinking and planning capabilities,
acquiring new perspectives and insights,
increasing understanding of the predictable anduncertain elements in different futures, andchanging the mental models of decision-makers
in a manner that avoids both groupthink andfragmentation. A more climate-resilient andvalue-added company strategy is the result.
Companies should not delay getting started.
Scenario analysis is a key tool in building
climate-resilient strategies, but it requires effort
and an iterative learning process. At the outset,
neither perfection nor “big bang” results are
expected, but rapid progress toward a matureprocess should occur and be achievable in a few
planning cycles. However, it will not occur unless
a company starts.

This guidance provides a framework forgetting started. It guides companies throughthe elements, considerations, challenges,
limitations, pitfalls, and questions they may facein undertaking climate-related scenario analysis.
It should be applied with judgment andadaptation to a company’s specific circumstances.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
55

Appendix 1:
An Overview of Public
Scenarios and Models

The Task Force on Climate-related Financial Disclosures

Appendix 1: An Overview of
Public Scenarios and Models
This appendix provides information about the types of scenarios and models that are used by
the climate policy and research community. It provides a deeper understanding of these climate
scenarios and models to help companies make better, more informed decisions on using thesescenarios. For companies seeking to use these scenarios, it is important to understand whether— and, if so how — the scenarios and models can be adapted to a company’s needs.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

As an initial step to implement scenario analysis,
many companies choose to use publicly
available scenarios (also referred to as publicscenarios) such as those developed by theIntergovernmental Panel on Climate Change(IPCC) and the International Energy Agency (IEA).
Publicly available scenarios are typically designed
for research and policy purposes and may not
immediately be “fit for purpose” for a company’s
scenario analysis. This appendix discusses (1) thetypes of publicly available scenarios and models
available, (2) how companies are using them, and(3) key considerations for using such scenariosand models.

• Emissions scenarios describe future plausible
pathways of greenhouse gases, aerosols, andother pollutants. These pathways are basedon assumptions about driving forces such as
patterns of economic and population growth,energy use, land use, and technology.

1. TYPES OF PUBLIC SCENARIOS AND
MODELS• Environmental scenarios focus on changes
in environmental conditions that may occur
because or regardless of climate change.
Such factors include water availability andquality, sea level rise, land cover and use, andconditions affecting air quality.

1.1 Types of Scenarios120
The climate research community has formulated
a number of different scenarios to investigate
climate change and its attendant risks, including
the following:• Climate scenarios are plausible
representations of future climate conditions(temperature, precipitation, and other aspects
of climate) based on assumptions about
radiative forcing driven by greenhouse gas
concentrations as well as other atmosphericconditions and emissions.121• Vulnerability scenarios describe potential
vulnerabilities and impacts from climatechange. Vulnerability scenarios depend on
a wide variety of demographic, economic,
policy, cultural, and institutional characteristics
to evaluate the potential impact of climatechanges, as well as examining how future
patterns of economic growth and social change
affect vulnerability and the capacity to adapt.

• Socioeconomic scenarios focus on
the plausible development pathwaysof society and the economy under
different assumptions about population,
demographics, technology, policies,
economic growth, and other such factors.

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

120

IPCC, Scenario Background, 2019.

121

 adiative forcing is the difference between sunlight absorbed by the Earth and energy radiated back to space (expressed in watts perRsquare meter). Positive radiative forcing means Earth receives more incoming energy from sunlight than it radiates to space. This net
gain of energy will cause warming. Conversely, negative radiative forcing means that Earth loses more energy to space than it receives
from the sun, which produces cooling. A system in thermal equilibrium has zero radiative forcing. All Representative Concentration
Pathway (RCP) scenarios are based on positive radiative forcings from 2.6 to 8.5 watts per square meter.

57

The Task Force on Climate-related Financial Disclosures

1.2 Types of Models
In the area of climate change, models are typicallyformal constructs — represented in mathematics
and diagrams — that are used to understandmore complex, real-world systems, such as thephysical climate system. Climate models range incomplexity and in their ability to explain climaterelated phenomena and interactions.122 Some of
the major categories of models are listed below
and in Figure A1-1 and representative model
inputs and outputs are shown in Table A1-2 (p. 65)
at the end of this appendix.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process• Physical climate models help to understandchanges in the physical climate based on
different driving forces (“forcings”) such as
greenhouse gas concentrations. These models
project physical climate changes such as themean and distribution of temperatures, orwhere, when, and how much precipitation
occurs (see Box A1-1, p. 59).

• Integrated Assessment Models (IAMs)
consider a number of economic, social, andtechnological factors. The term “integrated”
refers to the fact that these models combine
multiple specific sectoral models (energy, landuse, etc.) to understand the socioeconomic
drivers of emissions, feedbacks between
economic growth and climate change, rate anddirection of change toward a low-carbon future,and the role of different technologies, policies,
and societal preferences.123

Figure A1-1

Relationship of Climate Models, IAMs, and IAV Models

D.
Strategic Management
Using Scenarios

Integrated Assessment Models

E.
Disclosure: Demonstrating
Strategy Resilience

EnergyHealthAppendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

The Economy

Agriculture andForestry

Human
Settlement andInfrastructure

Water

Terrestrial
CarbonCycle

Atmospheric
Processess

Ecosystems
Sea Level Rise

OceansClimate Models

Impacts, Adaptation, andVulnerability Models

Conclusion

Appendix 3:
Summary of Selected
Scenario Tools andInformation• Impact, Adaptation, and Vulnerability(IAV) models analyze the outputs of physicalclimate models to assess the potential impacts,
vulnerabilities, and adaptation options forsociety. These models help decision-makers
to understand or quantify exposures to either
physical or transition climate risks.

Cryosphere

Source: Moss, Edmonds, Hibbard, et al., 2010

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

122

IPCC, Special Report – A Global Warming of 1.5°C – Glossary, 2018.

123

Hamilton, ElSawah and Guillaume, Integrated Assessment and modeling: Overview and synthesis of salient dimensions, 2015.

58

The Task Force on Climate-related Financial Disclosures• Climate-Economic IAMs are specialized IAMs
focused on climate-economic interactions suchas the following: 124- Optimal growth (or welfare optimization)models represent the economy as a single
all-encompassing sector. They are designed
to determine the climate policy andinvestment levels that maximize welfare(future against present consumption) overtime, by identifying the emission abatementlevels for each time step.
- General equilibrium models have a moredetailed representation of the economy withmultiple sectors and often include higher
resolution of energy technologies and regional
detail. Rather than seeking optimal policies,
they consider the impacts of specific policies
on economic, social, and environmental
parameters. The richer representation of theeconomy comes at a cost of more complexity
and modeling difficulties.

Executive Summary
Table of Contents
A.
Introduction- Partial equilibrium models provide a
detailed analysis of the interaction between
environmental impacts and a particularsector of the economy. These are usuallyused to assess potential climate-induced
damages to a specific sector.

B.
Getting OrganizedC.
The Scenario Process- Energy system models can be considered asa sub-category of partial equilibrium models
that provide a detailed account of the energy
sector. These are used, among other reasons,to determine the least-cost ways of attaining
greenhouse gas (GHG) emission reductions or
the costs of alternative climate policies. They
are often linked with general equilibrium or
macro-econometric models in order to add
insight to top-down approaches.

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion- Macro-econometric models, like generalequilibrium models, are used to evaluate
alternative climate policies, but they differ inthat they do not assume that consumers andproducers behave optimally or that markets
clear and reach equilibrium in the shortterm. Instead, they use historical data andeconometrically estimated parameters andrelations to dynamically and more realisticallysimulate the behavior of the economy.

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

Box A1-1
Things to Know About Physical
Climate Models• Climate models represent the physical processes
in the atmosphere, ocean, land surface, andcryosphere.
• Climate models divide the globe into a threedimensional grid of cells representing specificgeographic locations and elevations and calculate
the conditions (e.g., temperature, wind speed,
humidity, pressure) of each gridded cell.
• Finer model resolution implies a larger numberof grid cells and requires significant computing
power.
• Climate models are generally available to the publicthrough academic institutes or government bodies.
• Climate models vary in capability and complexity,
and there is no single source of truth. Models
differ regarding spatial resolutions (i.e., thesize of the gridded cells); the representation ofphysical, chemical, or biological processes; thegeographical focus of the model; and the model
assumptions.
• Individually, climate models have strengths andweaknesses, so climate scientists use elements or
combinations (ensembles) of models.
• Evolution in climate models is trending toward
more complex models with interaction between
physical, chemical, or biological factors.
Sources: IPCC, “Special Report – Global Warming of 1.5°C,” 2018;
Carbon Brief, Climate Models, 2018; Climate Change in Australia,
Climate Models, 2016.

Models are typically used to quantify andproject the various pathways resulting fromscenarios. They use the drivers, constraints,
and conceptual relationships described in a
scenario to mathematically simulate the system
in question and quantify the pathway(s) andoutcomes of the scenario future. Models forphysical risks, for instance, rely on climate
science to project the physical climate changes
being driven by emissions. Models of transition
risks require a deeper understanding of socioeconomic systems, their feedbacks, and potential
responses to climate change, including potentialchanges in energy systems, policy changes, andtechnological changes.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments124

 ikas, Doukas and Papandreou, A Detailed Overview and Consistent Classification of Climate-Economy Models in Understanding Risks andN
Uncertainties in Energy and Climate Policy, 2019.

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The Task Force on Climate-related Financial Disclosures

1.3 Some Models Need to Be Downscaled
for Company-Level Use
Models produce outputs at different spatial
scales. Typically, physical climate models operate
at a global or regional scale.125 In contrast, IAV
models typically focus on regional and local
scales. IAMs can work at both global and regional
scales. See Box A1-2 on downscaling.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios

For companies using IPCC, IEA, or other model
outputs, the scale is important. Often global
scales do not produce the level of granularity
or focus needed by companies with specificgeographical footprints. To use IPCC or IEA
outputs, companies typically need to translate
the scenarios and model outputs to theappropriate regional or local scale.
Two initiatives to make regional climate model
downscaling available are the World Climate
Research Programme’s Coordinated Regional
Climate Downscaling Experiment (CORDEX)
and the UK Met Office’s PRECIS system. It is
important to note that more granular resolutions
do not necessarily mean better or more accurate
outputs. Companies should consider whether
the downscaling method used adds value to theiranalysis or provides a bias to their results.

2. IPCC, IEA, AND OTHER PUBLICSCENARIOS126

Box A1-2
Downscaling
One of the challenges companies face in using theoutput of greenhouse gas (GHG) global climate
models (GCMs) is scale or spatial resolution. GCMs
typically produce gridded resolutions of between
75 and 300km in size, with the average around200km. By way of comparison, the direct distancefrom London to Paris is 344km. This means using
a 200km scale to infer uniform changes in climate
may not be adequate to address a particularcompany’s risk at smaller scales.
The process to translate climate data from theglobal resolution climate model outputs to amore regional or local resolution is known as
downscaling. There are different ways to do this,with the two most common approaches known
as statistical and dynamical downscaling.
Typical resolution for downscaling will depend on
both the host model and regional climate modelused. The standard downscaling protocol for
Europe is 12km. Some agencies have provided
regional downscaling to 2km, others between
12 and 50km.
Companies should be aware that results may
be increasingly uncertain the finer the resolutionof the model is as more factors and interactions
are taken into consideration.
Sources: U.S. AID, A review of downscaling methods for climate change
projections, U.S. Agency for International Development, Washington
DC, 2014; UK Met Office, Regional Climate Modeling, 2019; CORDEX,“General Instructions for CORDEX integrations,” 2009.

2.1 IPCC Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

International climate researchers contributing to
the IPCC assessments have developed hundredsof different emissions and socioeconomic
scenarios at global, national, and other scales.127
In recent years, researchers have developed a
new basis for the construction of comparable
scenarios across research and modeling groups— Representative Concentration Pathways (RCPs)
and Shared Socioeconomic Pathways (SSPs).128
RCPs are “emissions scenarios” that include timeseries of emissions and concentrations of thefull suite of greenhouse gases, aerosols, andchemically active gases, as well as land use/landcover. The word “representative” signifies thateach RCP provides only one of many possible
scenarios that would lead to the specific radiative
forcing characteristics. The term “pathway”
emphasizes the fact that not only the long-term
concentration levels but also the trajectory takenover time to reach that outcome is of interest.
RCPs are used to develop climate projections by
informing physical climate system models; thesemodels, in turn, project how the physical climate
may change under different levels of radiative
forcing driven by greenhouse gas concentrations.

125

 regional climate model is a smaller-scale version of a global model that simulates the climate at a local scale using more detailedA
regional topography and land-use characteristics (UK Met Office, Regional Climate Modeling, 2019).

126

 dditional information on these scenarios can be found in Box A-1, Box A-2, and Figure A4 in TCFD, Technical Supplement – The UseAof Scenario Analysis in Disclosure of Climate-related Risks and Opportunities, 2017. Also see Table A1-3 (p. 66) of this appendix for benefits
and limitations of these scenarios.

127

IPCC, IPCC Special Report on Emissions Scenarios, 2000; Girod, Wieka and Mieg, The evolution of the IPCC’s emissions scenarios, 2009.

128

 oss, Edmonds and Hibbard, The next generation of scenarios for climate change research and assessment, 2010; Wayne, The Beginner’s
M
Guide to Representative Concentration Pathways, 2013; van Vuuren, Edmonds and Kainuma, The representative concentration pathways:
an overview, 2011; O’Neill, Krieger, et al., The roads ahead: Narratives for shared socioeconomic pathways describing world futures in the
21st century, 2017.

60

The Task Force on Climate-related Financial Disclosures

Table A1-1 shows the basic characteristics of thefour RCP scenarios.129
In addition to the RCPs, researchers also use acommon set of scenarios to explore diverging
directions of socioeconomic development, known
as Shared Socioeconomic Pathways. SSPs weredeveloped to complement the RCPs with varying
socioeconomic challenges to adaptation andmitigation.130 The combination of SSP-based“socioeconomic scenarios” and RCP-based climate
projections provides an integrative framework
for climate impact and policy analysis.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting Organized

The SSPs describe five alternative socioeconomic futures over the course of the 21st
century assuming no explicit policies to mitigate
or adapt to climate change, as follows: 131• sustainable development (SSP1);

E.
Disclosure: Demonstrating
Strategy Resilience• regional rivalry (SSP3);• inequality (SSP4); and• fossil–fueled development (SSP5).

Mean Temperature and Full Range
Associated with Each RCP
Scenario

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

In contrast to the IPCC approach, the IEA focuseson energy and emission scenarios. The IEA’s
World Energy Model runs three main scenarios
describing the future energy mix: 133

Table A1-1

Conclusion

Appendix 3:
Summary of Selected
Scenario Tools andInformation

2.2 IEA Scenarios• Current Policies Scenario (CPS). The CPS
would be considered by companies to reflect
the “business as usual” (BAU) scenario,or reference scenario, in which the worldcontinues on its current trajectory. The
scenario takes into account policies that are inplace at the preceding year of publication(i.e., mid-2019 for the 2019 World Energy
Outlook), without any additional government
policy intervention.

• middle-of-the-road development (SSP2);C.
The Scenario Process
D.
Strategic Management
Using Scenarios

The research community uses RCPs and SSPs as
a common baseline to develop various climate,emission, environmental, and vulnerability
scenarios and modeling for research and policy
purposes. The qualitative and quantitative input
characteristics of the SSPs (i.e., population,
urbanization, and gross domestic product (GDP)serve as inputs to different IAMs developedby modeling groups to project plausible socioeconomic development pathways on suchoutcomes as land use, energy use and mix, andthe associated emissions trajectories.132

Atmospheric carbon dioxide
concentrations in 2100

Temperature increase
to 2081–2100 relative
to a 1850–1900 baseline

Global mean sea level
rise for 2081–2100 relative
to a 1986–2005 baseline

Average

Likely range

Average

Likely range

RCP2.6421ppm

1.6°C

0.9–2.3°C

0.40m

0.26–0.55m

RCP4.5538ppm

2.4°C

1.7–3.2°C

0.47m

0.32–0.63m

RCP6.0670ppm2.8°C

2.0–3.7°C

0.48m

0.33–0.63m

RCP8.5936ppm

4.3°C

3.2–5.4°C

0.63m

0.45–0.82m

Source: (IPCC, 2014)129

In 2018, the IPCC issued a fifth RCP scenario, RCP 1.9, that limits global warming to 1.5°C.

130

O ’Neill, Kriegler and Riahi, A new scenario framework for climate change research: the concept of shared socioeconomic pathways, 2014.

131

 ’Neill, Krieger, et al., The roads ahead: Narratives for shared socioeconomic pathways describing world futures in the 21st century, 2017;
O
O’Neill, Kriegler and Riahi, A new scenario framework for climate change research: the concept of shared socioeconomic pathways, 2014; Riahi,
van Vuuren and Kriegler, The Shared Socioeconomic Pathways and Their Energy, Land Use, and Greenhouse Gas Emissions Implications: An
Overview, 2017.

132

A useful nontechnical primer can be found at the Senses website at www.climatescenarios.org.

133

IEA, World Energy Outlook, 2019; IEA, World Energy Model Documentation, 2019.

61

The Task Force on Climate-related Financial Disclosures• Stated Policies Scenario (SPS). This scenario,
formerly known as “New Policies Scenario,”is effectively the mid-case scenario of the
IEA scenarios. This scenario is designed to
explore all policies enacted in the preceding
year, plus the policies that have been firmly
communicated or committed to by national
authorities. The SPS scenario assumes that
there is a slow implementation of thesepolicies, based on the IEA’s assessment of
the many political, institutional, and societal
barriers that exist to a rapid transition.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios• Sustainable Development Scenario (SDS).
The SDS is the most ambitious of the three
toward a low-carbon future. This scenario
is based around a sustainable development
narrative, assuming the world is successful inachieving Sustainable Development Goals by2030. The SDS holds the temperature rise to
below 1.8°C with a 66% probability without
reliance on global net-negative CO2 emissions.134
In addition, the IEA’s Energy Technology
Perspectives studies describe other scenarios.
IEA uses scenarios to explore, and models to lookat changes in, emissions from energy sources.
While these scenarios and models provide usefultrajectories of future emissions, they do notdirectly model the resulting climate changes fromthose emission trajectories (e.g., temperaturechanges or other climate changes). Instead thescenarios look at the following: 135

E.
Disclosure: Demonstrating
Strategy Resilience•	explore the pathways in energy supply,
demand, and mix by primary production
and final energy consumption, acrossdifferent sectors and geographies;

Conclusion•	explore the GHG emission pathways fromthese different energy futures;

Appendix 1:
An Overview of Public
Scenarios and Models•	explore the effect of different policies that may
expedite or limit energy demand, supply, trade,investments, and emissions; andAppendix 2:
Scenario Construction•	explore investments needed for modeled
future energy supply and demand; this includes
infrastructure to support new energies andelectric vehicles, for example.

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

2.3 Other Public Scenarios
While IPCC and IEA scenarios are the mostprominent and widely used scenarios in the
public domain, other organizations, such as
the International Renewable Energy Agency,
Greenpeace, the Deep Decarbonization
Pathways Project (DDPP), and the Energy Watch
Group, among others have published their own
scenarios, which provide a different narrativeand outlook to those listed above. Some of thesegroups have taken a specific focus, such as using
100% renewable energy, or built a regionalspecific model that takes a deeper look into theenergy mix for specific countries in the case of
the DDPP.
Financial regulators have also been developing
scenarios for macro-prudential purposes in thefinancial sector. Examples include the scenarios
developed by the Network for Greening the
Financial System (NGFS) and its member central
banks.136 NGFS scenarios are derived from IPCC
pathways and scenarios from the Potsdam
Institute for Climate Impact Research and theInternational Institute for Applied System Analysis.
As mentioned in Section C, The Scenario Process,the UN Principles for Responsible Investment has
produced an Inevitable Policy Response scenario
focused on policy and technology outcomes
rather than temperature outcomes.137
Most countries also have promulgated Nationally
Determined Contributions (NDCs) under the Paris
Agreement that outline their intended pathway
to achieve the Paris Agreement goals. While
not scenarios per se, they provide indications oftemperature and emissions targets and related
policy that countries are pursuing. NDCs arerefreshed every five years in accordance with theParis Agreement. Current NDCs, however, fail toachieve a 2°C temperature goal, so companies
using NDCs as another basis of scenarios should
understand both NDC pathways and limitations.138
Finally, other scenarios exist based on a variety
of modeling and analytical approaches including“cost-benefit analysis, global regional andnational modeling, nearer-term modeling, andnonintegrated assessment modeling, such as
economic general and partial equilibrium global
and sectoral modeling.” 139134

Under an extended version of the SDS scenario, the IEA gives a 50% chance of meeting the 1.5°C goal by using negative emissions
technologies after 2070 to absorb around 300Gt of CO2 — making up for overshooting the emissions limits that would keep temperatures
below 1.5°C.

135

IEA, World Energy Model Documentation, 2019.

136

 GFS, A call for action: Climate change as a source of financial risk, 2019; NGFS, Guide to climate scenario analysis for central banks andNsupervisors, 2020; Vermeulen, Schets and Lohuis, An energy transition risk stress test for the financial system of the Netherlands, 2018.

137

Principles for Responsible Investment, What is the Inevitable Policy Response?, 2019.

138

 uropean Capacity Building Initiative, Pocket Guide to the NDCs under the UNFCCC, 2018; United Nations Framework Convention on Climate
E
Change, NDC Registry, 2020.

139

 ose and Scott, Grounding Decisions: A Scientific Foundation for Companies Considering Global Climate Scenarios and Greenhouse Gas
R
Goals, 2018.

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The Task Force on Climate-related Financial Disclosures

3. THINGS TO CONSIDER WHEN USING
IPCC AND IEA OR OTHER PUBLICSCENARIOS
In using IPCC or IEA scenarios (or other publicly
available research scenarios), it is importantto understand their uses, limitations, andconstraints and whether the outputs will be
useful to a company (see Table A1-3, p. 66, fora summary of these scenario benefits andlimitations and Table A1-4, p. 67, for common
mistakes in using public scenarios).

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

The following are some key considerations forevaluating IPCC, IEA, or other scenarios andmodels. Many scenarios and models are complex
and include several assumptions. A company,
therefore, may need to seek external experts
to assist with scenario and model evaluation,
selection, and interpretation.
•	Not all scenarios are created equal. Scenariosand models use a variety of methodologies
and assumptions. It is important to determine
whether the scenarios you have chosen are
reputable, robust, and follow a validated
scientific process.140 While the models
and scenarios identified in this paper werebuilt upon decades of scientific testing andrefinement, it is important to obtain anunderstanding of how chosen scenarios
or models have been validated.
•	Downscaling does not always add value.
More granular resolution does not necessarilymean better or more accurate outputs. Thereis important context set at the global level,
and companies should consider whether
the downscaling method adds value to theiranalysis or provides a bias to their results bychanneling a broad range of global output
down through a single model or statisticalanalysis. Downscaling may simply add detail tothe scenario exercise that does not necessarily
help a company to navigate strategic decisions.
•	Beware of the limitations and key
assumptions. The user should be awareof the limitations and assumptions in eachscenario or model. Assumptions matter for
properly using scenario and model results;

policy and technology assumptions, inparticular, are important for companies
to understand.141 In addition, using global
emissions and socioeconomic scenarios
may be challenging for companies becausesuch scenarios represent aggregate markets— not companies. They may also miss key
uncertainties, have greater uncertainty themore disaggregated the results, and suggest
uniform actions across all companies that may
be economically inefficient.142 Some additional
limitations are highlighted in this appendix,
under Table A1-3 – Benefits and Limitationsof Selected Scenarios (p. 66). For example,
the IEA has consistently underestimatedglobal solar capacity in its scenarios from 2006
to 2019.143 The use of a commercial service
provider’s proprietary scenarios and models
also may be problematic if this information
is not transparent and documented.
•	Understand the scenario likelihood.
Some scenarios are known as “improbablefutures” within the science community basedon the level of action already underway
and emissions already committed.144 The
plausibility of these scenarios should beassessed if they are to be used.
•	Understand the pathways. In a worldof uncertainty, there are many pathways,
both to different futures and to the same
future outcome. Multiple pathways reflect
uncertainties “about climate system dynamics,
economic conditions, energy use, available
technologies, and the timing of policy action”
resulting in different “ranges of global
emissions pathways, carbon budgets…andannual global GHG reduction levels…consistent
with a global temperature outcome.” 145•	Understand the uncertainties in the models.
The results of any modeling exercise are subject
to uncertainty. In climate models, there arethree main sources of uncertainty, as follows: 146- Scenario uncertainty: We do not know how
we will live in the future, and so we do notknow which of the greenhouse gas scenarios
may emerge as reasonable representations of
the future. Policy design, for example,

140

Huppmann, Rogelj and Kriegler, A new scenario resource for integrated 1.5°C research, 2018.

141

 ose and Scott, Grounding Decisions: A Scientific Foundation for Companies Considering Global Climate Scenarios and Greenhouse Gas Goals,
R
2018; Rose and Scott, Review of 1.5°C and Other Newer Global Emissions Scenarios, 2020.

142

Ibid.

143

Carbon Brief, Profound Shifts Underway in Energy Systems, 2019.

144

Hausfather and Peters, Emissions – the ‘business as usual’ story is misleading, 2020.

145

 ose and Scott, Grounding Decisions: A Scientific Foundation for Companies Considering Global Climate Scenarios and Greenhouse Gas
R
Goals, 2018.

146

CoastAdapt, How to understand climate change scenarios, 2017.

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The Task Force on Climate-related Financial Disclosures

is a key uncertainty for companies. Different
assumptions about policy designs andinstruments will result in different scenario
impacts on a company.147- Model uncertainty: We have an incomplete
understanding of the Earth system andsocioeconomic processes and, therefore,
may not characterize them properlyor completely in models.
- Natural variability: Global warming is driven
by increasing concentrations of greenhousegases over time from manmade and natural
sources of emissions. In addition, the level ofwarming will be affected by natural variability
in the climate system, including large-scale
multiyear processes such as El Niño events.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process

Uncertainty in modeling relates to many aspectsof the interaction of climate systems and socioeconomic systems (e.g., uncertainty about
the level of emissions, climate response, andeconomic and financial impacts). This results in
scenario uncertainty, model uncertainty, and(missing) parameter uncertainty (e.g., solar costs
in 20 years, which depend on techno-economic
factors and not just policy factors).
• Understand the use of models.148- Do not rely on a single model run. Modelruns are only one of many plausible futures.
For this reason, the output from multiple modelruns (either from the same model or fromdifferent models) is needed to evaluate futures.

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience- Use model output appropriately. Always
keep in mind that models only provide
a plausible future — and not a prediction.
Reality may be better, worse, or just different.
Use model output accordingly — as abasis to explore system sensitivities andvulnerabilities and to identify appropriate
options and their timing.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models- Models have limitations. Keep in mind thethings the climate models do not address;for example, sudden shocks or the impactof events occurring simultaneously.

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations

For hypothetical examples of companies using
public scenarios, see Box A1-3.
Box A1-3
Hypothetical Company Examplesof Using Public Scenarios
Company A understands that it is vulnerable torising sea levels in a specific region and looks
to global scenarios to evaluate the extent of its
vulnerability. To undertake this work, Company
A looks at the RCP emissions pathways (picking
both a low- and high-emission scenario), modeled
through global climate models to land on global
ocean changes, and obtains region-specificdownscaling of these models, from either CORDEX
or its local meteorological or climate science
institute. It then employs the use of impact,
adaptation, and vulnerability models to ascertain
the exposure of certain assets to coastal climate
hazards, using the downscaled sea level rise fromeach scenario as an input.
Company B wants to understand how vulnerable
it is to changes in a global carbon price. To do this,Company B looks to the SSP scenarios, picking areference scenario (i.e., SSP2 - baseline), a fasttransition scenario (i.e., SSP1-1.9), and a disorderlytransition scenario (i.e., SSP4-2.6). From there, it
is able to obtain projections across a number ofmodels (IAMs), showing carbon pricing ranges
among each of these scenarios.
Company C is more concerned about the futureenergy mix and the timing of thermal coal plantclosures. It operates in specific regions and is
predominantly concerned about the future ofthermal coal in China, rather than at a global level.
Company C has chosen the IEA World Energy Outlook
to assist with its initial scenario exercise, using the
CPS, SDS, and SPS scenarios. Company C
obtains the future annual electricity generation
demand and generation capacity, comparing coal toother technologies such as nuclear, solar, and wind.
Company C understands it has only looked at one
model — the IEA World Energy Model — and has notstudied a more aggressive scenario (e.g., 1.5°C) so
the company discloses this. It will include additionalmodels in future periods to compare results.

Further Reading
Senses Climate Primer Website – https://www.climatescenarios.org/primer/.
Demystifying Climate Models, Andrew Gettelman and Richard B. Rood, 2016.
Modeling Earth’s Future: Integrated assessments of linked human-natural systems, The Royal Society and the
National Academy of Sciences, 2013.
How do climate models work? Carbon Brief. https://www.carbonbrief.org/qa-how-do-climate-models-work.

Glossary, Abbreviations,
References, andAcknowledgments

147

Rose and Scott, Review of 1.5°C and Other Newer Global Emissions Scenarios, 2020.

148

CoastAdapt, How to understand climate change scenarios, 2017.

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The Task Force on Climate-related Financial Disclosures

Table A1-2

Representative Model Inputs and Outputs
Model Type

Examples ofModel Inputs

Examples ofModel Outputs149

Geographic andTime Scale/Intervals

PhysicalClimateModels• Projections of emissions
and other radiative forcing
drivers (e.g., RCPs)• Temperature changes150• Typically, 1850–2100 withsome to 2300

• Incoming and outgoing solar
radiation• Solar radiation reflection
and absorbed

Executive Summary• Precipitation changes• Others such as wind speed,
humidity, evapotranspiration,snow cover, snow melt, sea
ice cover, and sea ice melt

• Observed historical climate

Table of Contents
A.
Introduction

IEA World
EnergyModel

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios• Projected price and demand
curves for current andemerging energy sources;
assumed carbon prices
Integrated
Assessment
ModelsAppendix 1:
An Overview of Public
Scenarios and Models• Socioeconomic development
assumptions (e.g., SSPs)• Population• GDP• Assumptions around policy,
climate, land use, existing andemerging technologies, etc.

E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion• Assumptions around GDP
and population growth,
as well as related regional
consumption and demand

Impact,Adaptation,
Vulnerability
ModelsAppendix 2:
Scenario Construction• Inputs will depend on the
topic studied. If related toagriculture, most inputs
would focus on biologicalproperties and physicalclimate conditions• Total primary energy
demand• Power generation and total
final consumption by source(IEA, 2019)• Investment ($bn per annum)• Retirements, additions• Time intervals typically varyfrom hourly to seasonal or
average annual• Geographic range typically
200 to 500km grids, withdownscaling projects able
to provide down to 1km
grids (typically between 5 to
25km grids)• Time range is typically
Present > 2040–2050 withfive yearly intervals• Information provided atregional level and for majorenergy consumption/
production countries151• Various. The Integrated
Assessment Modeling
Consortium (IAMC) gives adetailed list of 598 possible
output variables from thesemodels (IAMC, 2019)• Time range is typically
Present > 2100 with five or
ten yearly intervals• Various. Examples include:• Various• Most information provided
at regional level, e.g.,
Asia, Middle East andAfrica, Organisation for
Economic Co-operation andDevelopment-	A griculture – a crop
yield model can assess
how changes in climate
variables (such as available
water, temperatures, andCO2 concentration) interact
to produce changes in thecrop production quantityand quality-	Financial services –insurance companies
often use catastrophe(Cat) models to assess
the economic impactof a natural disaster

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments149

T hese include indices, which can be calculated from the raw model output.

150

 full list of standard output GCM variables for CMIP5 can be found at https://pcmdi.llnl.gov/mips/cmip5/docs/standard_output.
A
pdf?id=41.

151

Information is available at a country level for certain countries (U.S., Brazil, China, Japan, India, Russia), and more granular subregions(Asia-Pacific, North America, EU, Middle East, etc.).

65

The Task Force on Climate-related Financial Disclosures

Table A1-3

Benefits and Limitations of Selected Scenarios
RCPs

Benefits• Developed in parallel with the IPCC, the climate modeling community,
the International Institute for Applied Systems Analysis (IIASA), and IAMC.
• Defined emissions pathways, which can be input into global climate models
to derive the physical climate futures.
• Commonly known and used around the world by both research institutions
and businesses.

Limitations& Uncertainty• There are uncertainties in the translation of emissions profiles
to concentrations and radiative forcing.

Executive Summary
Table of Contents

SSPs

Benefits• Developed in parallel with the IPCC, the climate modeling community,
IIASA, and IAMC.
• Contain a narrative about what the world looks like from a socioeconomic
perspective, including qualitative assumptions on important elements suchas technology transfer, global cooperation, societal preferences, and theparadigm underpinning global development. See (IIASA, 2012) for details
on storylines.

A.
Introduction
B.
Getting Organized• Designed to interact with the RCPs, as a complementary set of scenarios.
Limitations& Uncertainty

C.
The Scenario Process• Do not explore conditions about the types and success of global andnational climate policy. This requires further analysis using Shared
Policy Assumptions.
• Contain only qualitative information about the conditions described above,
and as such may not help to quantify certain outcomes.

D.
Strategic Management
Using Scenarios• Designed to think about the rate of technology development and transfer
broadly, and therefore do not explicitly explore all low-emission or carbondioxide removal technologies.

E.
Disclosure: Demonstrating
Strategy Resilience• Allow for country-level data on GDP, population, and urbanization
for certain countries; other is at a global or five regions.152• Each SSP provides a narrative and accompanying development
assumptions, all of which relate to future uncertainty. To reduce uncertainty,
it is advisable to consider the range of scenarios and the output of one SSP
across multiple IAMs.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models• Do not contain information regarding the socioeconomic conditions(GDP, population, etc.), technology, and regulatory landscape.

IEA

Benefits• Available information is fairly granular in relation to the production
and demand for fossil fuels.
• Scenarios are widely used and accepted.

Appendix 2:
Scenario Construction• Regular (usually annual) updates are made to the scenarios to reflectchanges in external environment.
Limitations& Uncertainty

Appendix 3:
Summary of Selected
Scenario Tools andInformation• IEA uses proprietary information, in particular in relation to the technoeconomic assumptions underpinning the World Energy Model. This makes
it harder for users to analyze and compare model assumptions.
• Non-energy emissions are not included.
• A limited range of climate outcomes is explored, without view as to the
avoided climate impacts.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
152

IIASA, SSP Database.

• One model — World Energy Model — is relied upon heavily for all outputs
for the IEA suite of scenarios. While this model interacts with a reputableclimate model — Model for the Assessment of Greenhouse Gas Induced
Climate Change — and gaps are filled by IPCC scenarios, this heavy relianceon one model will increase the risk that a wider range of outcomes are
not considered.
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The Task Force on Climate-related Financial Disclosures

Table A1-4

Common Mistakes in Using Public Scenarios and Models
Pitfall

Description

How to Avoid

Incomplete
range ofscenarios

With the inherent uncertainty associatedwith climate science, it is prudent not to limit
your view to one single scenario.153• Consider a full range of scenarios(for both physical or transition studies)and determine the most suitable diversityof scenarios to inform decision-making.
Document decision-making process
as this will help inform disclosures andreporting.154

Physical& Transition• When selecting scenarios, consider
scenarios representative of the rangeof plausible outcomes.

Executive Summary
Table of Contents
A.
Introduction

Implausibilityof scenarios
Physical& Transition

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

Failure toevaluateselectedmodelsPhysical& Transition

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

It is important for a company to consider
scientific views on how a scenario future
might be. Scenarios at the lower or upper
temperature bounds (for example, a
RCP1.9 (1.5°C) or RCP8.5 (4°C+) face more
uncertainties). Similarly, the SSP narratives
contain some qualitative assumptions that
may be considered unlikely. The SSPs (apartfrom SSP2) were intended to represent
extreme futures.155 IEA scenarios areintended to represent new policies enacted
and committed each year, but some havenoted these scenarios have underestimatedthe uptake rates of renewables such as
solar.156• It is important for companies to betransparent around the rationale forselecting scenarios. While scenario analysis
is meant to stress test the resilience andvulnerability of companies under diverse
futures, the scenarios need to be plausible.

“Models are stylized, imperfectrepresentations of the world.” 157 Models
used by the research community are subject
to peer review and evaluation techniques.158
While these model evaluation techniques
tend to be highly scientific and difficult for
non-climate scientists to understand, theyhold important information about whether
a specific model should be used to inform
decisions about specific climate factors(physical or transition).

• Companies should approach model
selection with appropriate due
diligence; model choice should be
subject to critical evaluation.

• Scientific opinions on the likelihood,
limitations, and core assumptions ofscenarios should be understood.
• The choice of scenarios can have a large
impact on the analysis, and should be
subject to critical evaluation.

• Documenting the rationale of model
selection is important to inform future
decision-making processes.
• Companies may wish to consult withexperts who can provide informationon the performance of models and assist
them in understanding models’ limitations
or flaws.

Appendix 2:
Scenario Construction

Continued on next page

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

153

Commonwealth Scientific and Industrial Research Organisation (CSIRO), Common Mistakes When Using Climate Change Data, 2016.

154

Huppmann, Rogelj and Kriegler, A new scenario resource for integrated 1.5°C research, 2018.

155

Carbon Brief, How SSPs Explore Future Climate Change, 2018.

156

Carbon Brief, Profound Shifts Underway in Energy Systems, 2019.

157

Rogelj, Popp and Calvin, Scenarios towards limiting global mean temperature increase below 1.5°C, 2018.

158

IPCC, Evaluation of Climate Models, 2013.

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The Task Force on Climate-related Financial Disclosures

Table A1-4: Common Mistakes in Using Public Scenarios and Models(Continued)

Pitfall

Description

How to Avoid

Cherry-picking
scenariosor blending
results

Cherry-picking scenarios or blending results
to obtain a desired outcome is a misuse of
scenario analysis and analytically flawed.159
In other words, it is not correct to join the
results of different models together. Doing
this breaks the internal consistency rule.
For example, if a company looks at rainfall
in one model and then looks at heat in
another model, the company would not beable to join the results from the different
models and make assumptions about these
conditions occurring together or theirinteractions.160• If a particular scenario or model is ofinterest based on the narrative or variables
it contains, be careful on the conclusions
that are drawn. Do not extend yourconclusions to make generalizations across,for example, all 2°C futures.

Companies should not assume that
increased granularity from downscaling
also means improved accuracy. Both thedownscaling technique and the inputs used
to downscale can impact results.161• Model evaluation and comparing theresults to other lines of evidence, suchas observations and global scale model
outputs, can provide companies with
useful information to assess the resultsof downscaling.

Physical& Transition

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedNot
understanding
when and how
to downscale
Physical& Transition• Where you intend to investigate different
variables across a number of models, do
not draw conclusions on the ability of thesevariables to occur at once. For example, it
might not be possible for a 2°C increase intemperature and a 20% increase in rainfall
to coincide in a given region.

• The evaluation described above should
be undertaken before deciding to seek
downscaled information.

C.
The Scenario Process• Companies may want to consult experts
on whether the questions they are trying
to explore through scenarios will require
the use of downscaling. Experts may
also help with the interpretation ofdownscaling outputs.

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

159

Huppmann, Rogelj and Kriegler, A new scenario resource for integrated 1.5°C research, 2018.

160

CSIRO, Common Mistakes When Using Climate Change Data, 2016.

161

Ibid.

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Appendix 2:
Scenario Construction

The Task Force on Climate-related Financial Disclosures

Appendix 2: Scenario Construction

162

Appendix 2 provides an overview of scenario construction, rather than an exhaustive
treatment of the topic. Companies seeking further details should consult the References
section of this guidance.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

Scenarios are a method to explore a rangeof alternative futures that may significantly
alter the basis for “business as usual”
assumptions.163 Scenarios may compare
pathways resulting in a range of temperature
outcomes (e.g., scenarios of 1.5°C and 4°C
futures), different emissions pathways, or otherclimate-related outcomes. Scenarios defineplausible pathways toward different potential
futures; are built based on internally consistent,
logical, and credible assumptions; and can bemodeled to quantify outcomes.
Developing climate-related scenarios in-houseallows tailoring of scenarios to the specificclimate-related risks and opportunities acompany faces. The process may also reap manyother benefits including organizational learning,
greater strategic dialogue, more innovative
strategic thinking, and more resilient outcomes.
The process can also be leveraged for otherstrategic issues — not related to climate change.

1. OVERVIEW
The three major steps in scenario analysis areproblem definition, scenario development, andscenario application to strategy development(Figure A2-1).
Underlying these steps are several “soft”
aspects important to effective scenario analysis,
including the following: 164• Engagement and Dialogue: The sharingof ideas, experience, knowledge, beliefs,
assumptions, and tendencies about both facts
and data as well as ideas and perceptions
regarding a company’s strategy (i.e., strategic
conversation).
• Learning: A core goal of scenario analysis
is to re-perceive the company and how it fitswith its environment. It involves the processof gaining knowledge about internal andexternal environments and their interactions.

Figure A2-1

High-Level Overview of the Scenario Analysis Process

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Problem Definition

Scenario Development

Strategy Development• Define problem• Derive themes• Identify focal issue• Outline scenario logics• Evaluate implications
for strategy• Identify key uncertainties
and driving forces• Use systemic logic to build
scenario narratives• Derive robust, future-proof
strategies• Rank most important anduncertain factors• Publicize scenarios andimplement strategies• Revise scenarios andnarratives as future unfolds

162

 hile there are a number of excellent reference materials on scenario construction, Ralston and Wilson, The Scenario PlanningW
Handbook, 2006, and Haigh, Scenario Planning for Climate Change, 2019, provide useful step-by-step “how-to” approaches.

163

CDP, CDP Technical Note on Scenario Analysis, 2017.

164Chermack, Scenario Planning in Organizations: How to Create, Use, and Assess Scenarios, 2011; Lindgren and Bandhold, Scenario Planning:
The Link Between Future and Strategy, 2009; Van Der Heijden, Bradfield and Burt, The Sixth Sense: Accelerating Organizational Learning with
Scenarios, 2002.

70

The Task Force on Climate-related Financial Disclosures• Mental Models: A core goal of scenario
analysis is to reveal the implicit assumptions,biases, and mental models of how leadersinterpret the company and the world around
it. Changing mental models is often a precondition for successful scenario analysis.
• Decision-Making: Another goal of scenario
analysis is improving the information andmental models around key strategic decisions,considering broader strategic options, andexplicitly thinking about critical driving forces
and uncertainties.

Executive Summary

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation•	What are some other potential touchpoints, both
physical and transition, where climate-related
issues affect the company and its environment(e.g., supply chains, customers, operations)?
2.1.2 Physical Risk166• What are the most material domestic physicalhazards from extreme (acute) events (e.g.,
flooding, extreme temperature changes,
windstorms) and from gradual (chronic)
changes in climate (e.g., changes in agricultural
yields or water availability, sea level rise,
heating and cooling requirements)?

2. SCENARIO CONSTRUCTION• What effects could there be on real estate,
infrastructure, business continuity, people,
and food systems?

There are a number of approaches to developing
scenarios.165 This sub-section lays out six general
steps for constructing scenarios (Figure A2-2, p. 72)
and is meant as an introduction. Companies
seeking additional guidance on constructing
climate-related scenarios should consult theReferences section.

• Are there any significant internationaltransmission channels (e.g., trade or
supply chains)?
• What kind of adaptation measures are being
implemented (e.g., shift in crop types, water
regulations, coastal protection measures)?

2.1 Step 1: Assess the External Environment

2.1.3 Transition Risk

• Identify past trends.

• What type of government policies are being
considered or implemented (e.g., carbon tax,
direct regulation, subsidies)?

• Describe current climate state.
E.
Disclosure: Demonstrating
Strategy Resilience•	What past climate-related patterns, trends,
events, or variables have significantly affected
the company? How and why did these factors
exert influence on the company?

• Leadership Support: Executive-level
sponsorship and support is critical to successful
scenario analysis given the degree to which
it touches on broad aspects of a company’s
decision-making.

Table of Contents
A.
Introduction

2.1.1 General• Identify company’s current climate risks.
Before the process of scenario construction
can begin, a company should develop a basic
understanding of the climate context in which
it operates and past climate-related trends andcurrent circumstances surrounding its operations.
A company may undertake this assessment
drawing on available company studies and data,
external sources, and key internal experts. The
focus of information gathering should be on
the past and current climate-related conditions
affecting the company, including the basic climaterelated physical and transition trends and theforces behind those past trends. Some questions
to consider include the following:• Which technological trends could play a key rolein the coming decades (e.g., renewable energy,
carbon capture and storage, electrificationof motor vehicles)?
• Are there any significant changes in consumer
preference (e.g., transport demand, diets,
energy-efficient housing, energy-efficient
appliances)?
• Which sectors of the economy are particularly
at risk of policy or technological disruption(e.g., energy sector, agriculture, construction,industry, mobility, and freight transport)?

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments165 mer, Daim and Jetter, A review of scenario planning, 2013; Varho and Tapio, Combining the qualitative and quantitative with the Q2
A
scenario technique – The case of transport and climate, 2013; Varum and Melo, Directions in scenario planning literature – A review ofthe past decades, 2010.

166

 lso see Tables A1 and A2 in TCFD, Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures,A
2017, pp. 72–73.

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The Task Force on Climate-related Financial Disclosures

Figure A2-2

SECTION C

Assess the External Environment
Past and current trends, company’s current climate risks

STEP 2

Establish Organizational Requirements for Scenario Analysis
Structure, Governance, Processes, Stakeholders

STEP 1

Detailed Overview of Scenario Process

Table of Contents

STEP 3

Executive SummaryA.
Introduction

Identify Driving Forces
Categories• External to company
S – Social• Relevant to focal question
T – Technological• Directly affect company
E – Economic
or one of its key stakeholders
E – Environmental• May bring positive or negative impacts
P – Political/Policy/Legal

Rate and Rank Driving Forces
Identify and rank uncertainties
Identify and rank impacts

STEP 4

Draft Narrative for Each Scenario• Draft initial scenarios using high-impact/high-uncertainty drivers• Describe how each driving force develops and its impact over the scenario time horizon• Describe how the driving forces could interact• Translate to a 2x2 matrix to determine scenario themes

D.
Strategic Management
Using Scenarios• Develop scenario narratives describing assumed cause-effect relationships among drivers,
how drivers play out into the future (pathways), and anticipated outcomes
Quantify Aspects of Scenarios Where Necessary and Possible• Key (social, demographic, economic) trends and drivers

E.
Disclosure: Demonstrating
Strategy Resilience• Company and industry key performance indicators• Plausible impacts on markets, suppliers, and customers
STEP 5Conclusion

Define Time Horizon(s)(short, medium, long term)

Formulate Baseline for Scenarios Using High-Impact/Low-Uncertainty Drivers(i.e., those drivers and trends likely to occur under any/most future states)

B.
Getting OrganizedC.
The Scenario Process

Formulate Focal Question
How could climate-related physical and transition risks plausibly
affect our company? What should we do? When?

Appendix 1:
An Overview of Public
Scenarios and Models• Impacts on asset value, productivity, revenue, costs, etc.
Check Scenario Quality
Plausible; Internally consistent; Logical line of reasoning; Makes sense to the intended audience;
Surprising/Challenges current assumptions
Scenarios presented for feedback and revised as needed
Finalize Scenarios

Appendix 2:
Scenario Construction
SECTION E

Appendix 3:
Summary of Selected
Scenario Tools andInformation

Draw Conclusions and Develop Strategy Options• How would the scenarios affect the company (risks and opportunities)?

• What new strategy options should be considered now and in the future?
• What signposts/warning signals would trigger implementation of future options?
Feedback on Strategy Options
Use Selected Options to Inform Strategic Planning; Produce Strategic and Other Supporting Plans

STEP 6

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments• How do the company’s current strategies, policies, and capabilities prepare the company
for the scenarios?

Identify Signpost Metrics to Monitor Future Developments• Identify thresholds for material changes in drivers• Identify metrics to warn of shifts in key uncertainties
Iterate Scenario Analysis Periodically

Evaluate Scenario Analysis Process
72

The Task Force on Climate-related Financial Disclosures

From this information, a company should identify
its current risks and opportunities from climatechange (Figure A2-3) and understand the range
of issues, knowledge gaps, and implications of
those risks and opportunities.

Executive Summary
Table of Contents
A.
Introduction

In assessing climate-related risks, companies
should take a broad view. Climate change has
the potential to generate significant changes
across multiple social, economic, and ecologicaldimensions. For example, chronic and acutephysical events can affect business facilities,
operations, and supply chains either directly
or indirectly.167 Climate change also drives changes
in the ecosystem, which supplies raw materials
and other inputs to businesses. Finally, climatechange can affect the social and economic
systems in which businesses operate — markets,
societies, policies, legal frameworks, andtechnological innovations. Companies should besensitive not just to individual risks, but also tocompound risks, risk dynamics, feedbacks, tipping
points, and irreversible results.168

Even if a company believes it is not directly
affected by climate change, climate-relatedrisks may spread through (1) the outputs of
one sector into the inputs of other sectors;(2) products that compete for the consumers’
budgets; and (3) sectors that compete for the
primary factors of production (labor, capital,
land, water).169
More broadly, companies can be affectedby the possible macroeconomic impacts ofclimate change in changes to investment,
consumption, and prices. Many sectors
could see impacts through indirect channels
on production schedules, supply chains,
distribution networks, and employee andcustomer mobility.170 These climate-related
effects can translate into impacts for businesses
along multiple dimensions (strategic, operation,
reputation, and financial), along the entire value
chain, in multiple geographies, and at different
temporal scales.

B.
Getting OrganizedC.
The Scenario Process

Figure A2-3

Framework for Risk and Opportunity Assessment

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

HazardExposure

Potential occurrence ofa climate-related eventor physical impact

The presence of people,
ecosystems, resources,
infrastructure, or
economic/social assets
in places and settings
that could be affectedby the hazard

Vulnerability/
Sensitivity
The propensity or
predisposition to
be affected, suchas sensitivity orsusceptibility to harm,and lack of capacity tocope and adapt; nonclimate stressors may
contribute to climaterelated vulnerabilities

Appendix 2:
Scenario Construction

Impact

The residual outcomesor consequences,after adaptation &mitigation measures,of climate-related
vulnerabilities onorganizations,
including broader,indirect impacts on
the social, economic,
and ecologicalsystems in which theorganization operates

Risk

Appendix 3:
Summary of Selected
Scenario Tools andInformation

Adapted from Intergovernmental Panel on Climate Change (IPCC) 2014, Chapter 19 definitions

Appendix 4:Interviewed Organizations

167

 or example, physical climate risk generates feedbacks to transition risk, which in turn affects the impacts from physical risks throughFsocioeconomic assumptions around adaptation, migration, investment, and growth.

168 scheischler, Westra and van den Hurk, Future climate risk from compound events, 2018; Lemoine and Traeger, Economics of tippingZ
the climate dominos, 2016; Jurgilevich, Rasanen and Groundstroem, A systematic review of dynamics in climate risk and vulnerability
assessments, 2017; Lenton and Ciscar, Integrating tipping points into climate impact assessments, 2013.

Glossary, Abbreviations,
References, andAcknowledgments

169

IPCC, Fifth Assessment Report Climate Change 2014: Impacts, Adaptation, and Vulnerability, 2014, Chapter 10.

170

Center for Climate and Energy Solutions, Business risks, opportunities, and leadership, 2019.

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The Task Force on Climate-related Financial Disclosures

2.2 Step 2: Problem Definition• Define the focal question(s).
• Define the scope of coverage.
• Define the scenario time horizon.
The next step is to identify the focal question(s)to which scenario analysis is to be applied. This
step is important because focal questions are a
key anchor point for many of the decisions madeduring scenario development and analysis.171

Executive Summary
Table of Contents

In thinking about focal questions, a company
is seeking to flesh out the focus of scenario
analysis around the broad question of “howcould climate change plausibly affect our[company, business unit, product, commodity
input, customer segment], what should we do,
and when?” Some questions a company should
consider are as follows:•	What possible future developments need
to be probed?
•	What variables are needed to support
decision-making?
•	What forces and developments have thegreatest ability to shape future performance?
Companies may be able to leverage publicly
available global and regional scenarios, suchas IPCC and International Energy Agency (IEA)
scenarios, to help provide broader context,
and better frame a company’s focal question(s).
In articulating the focal question(s), a company
should also define the scope of its analysis. Will
scenario analysis encompass the company as awhole, a particular business unit or product line,
or a critical input(s) such as a specific commodity?
For companies just beginning to use scenarios,A.
Introduction
B.
Getting Organized

Figure A2-4

Scenario Ranges

C.
The Scenario Process

A. Scenarios too homogeneous

B. Too few scenarios

C. Too many scenarios

D. Appropriate number & diversity of scenarios

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

The vertical axis is “Driver Group A” and the horizontal axis is “Driver Group B.” For an explanation of the twoaxes approach for scenario development and the landscape of uncertainties, see Step 4 (p. 76) of this appendix.

171

Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019.

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The Task Force on Climate-related Financial Disclosures

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion

it may be useful to start with a more focusedboundary such as a critical business unit or
specific commodity inputs and, as experienceis gained, expand scenario analysis to thefull company.

2.3 Step 3: Identify Driving Forces
and Critical Uncertainties

Next, a company should determine the time
horizon over which the focal question(s) will
be considered. For instance, will the scenarios
address the focal question out to 2040, 2050,
or some other time horizon? In determining theappropriate time horizon, companies may wantto consider such factors as corporate capitalplanning and investment horizons, and theuseful life of major company assets.

•	Identify critical uncertainties around theimpacts of identified driving forces.

In addition, a company may want to alignscenario time horizons with those used in the
scenarios of the climate research community.
For example, a company might consider
time horizons that align with the cycles for
major refreshes of Nationally Determined
Contributions under the Paris Agreement.
“Using a time frame that extends only a few years
into the future fails to take into account importantquestions whose answers might dependon climate change effects that will become
perceptible several years or decades down theline, but which nonetheless might be deemedmaterial to the value of a company today.” 172
Finally, determining the number of scenarios isimportant. Homogeneous assumptions about
driver development or too few scenarios may
impair the analysis. Too many scenarios canbe overwhelming for decision-makers andcomplicate the use of scenarios. It is a judgment
call as to the number of scenarios that will
adequately cover the landscape of relevant
impacts and uncertainties.

•	Identify the driving forces of key patterns,
trends, and variables relevant to thecompany’s focal question(s).

Scenarios are built around a focal question(s)by examining and describing the external
factors that may affect the outcomes to such aquestion.173 The goal is to construct a conceptual
understanding of the business environment andits various climate-related relationships.
2.3.1 Identifying Driving Forces
A typical method for identifying driving
forces is a facilitated brainstorming session
in a workshop setting. The workshop might
be among scenario team members, internal
stakeholders, or both. There are also other waysof identifying driving forces.174
A good starting point in identifying relevant
driving forces is the assessment done in Step 1(p. 71). A company may then extend that analysis
into the future by brainstorming the climaterelated physical and transition forces that arelikely to continue playing out and that are criticalto decisions related to the company’s focal
question(s). Some points to consider include
the following: 175•	the possible future outcomes causedby the force or driver;• what the force or driver will influence; and• what the force or driver is influenced by.

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

172

Wasim, Corporate (Non) Disclosure of Climate Change Information, 2019.

173

Chermack, Scenario Planning in Organizations: How to Create, Use, and Assess Scenarios, 2011; Haigh, Scenario Planning for Climate Change:
A Guide for Strategists, 2019. Such factors are typically called drivers, forces, or driving forces in the scenario literature, but also may bedescribed as trends, conditions, events, and the like.

174

 aigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019; Ralston and Wilson, The Scenario Planning Handbook: Developing
H
Strategies in Uncertain Times, 2006; Van Der Heijden, Bradfield and Burt, The Sixth Sense: Accelerating Organizational Learning with
Scenarios, 2002.

175

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

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The Task Force on Climate-related Financial Disclosures

A company should systematically identify as
many forces affecting decisions around the focal
question(s) as feasible. One method is to use
the STEEP framework (Figure A2-5, p. 77).176
The identified driving forces can be groupedalong three lines, as follows: 177•	macro-forces: the broad social, economic,
political, and technological context (frequently
at the national or global level) in which the focal
issue will evolve;178•	micro-forces: the more specific industry, market,
and competitive conditions in whicha climate-related strategy is developed; andExecutive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios•	decision-forces: the most important external
factors that should be considered in developinga strategy to address company-level impacts.
2.3.2 Identifying Uncertainties
After identifying the relevant driving forces,
the uncertainties around the impacts of thosedriving forces must be identified. This process
helps a company to understand the key areas of
uncertainty about how driving forces might playout in different plausible futures. Uncertainty
in this regard refers to the uncertainties around
impacts of the driving forces, not the uncertaintyof the driving forces themselves or the resulting
Box A2-1
Questions to Ask in Determining
Uncertainty

events from those driving forces. For example,
the growth in the use and speed of technology
is a predictable driving force/event — andtherefore has low uncertainty as to its being adriving force — but the impact of this force ona particular company or industry may be highly
uncertain.179 To help identify uncertainties, it canbe useful to separate driving forces into thosethat have a predetermined or predictable impact
from those with an uncertain impact.
2.3.3 Ranking Forces with High Impactand High Uncertainties
Once the relevant driving forces and related
uncertainties are identified, the next step is torank the driving forces on the basis of their degreeof potential impact on the company (low to high)and the degree of uncertainty regarding those
impacts (low to high). One method for carryingout such a ranking is an impact-uncertainty matrix
as shown in Figure A2-5 (p. 77). The following
definitions help to frame the ranking space: 180• Definition of impact/importance: Strengthof the force’s influence on future outcomesrelevant to the key decision factors related
to the focal question(s).
• Definition of uncertainty: The degree towhich future developments and outcomes(of a force) are unpredictable within the time
horizon of a scenario. One test of uncertainty
is when experts within the company cannot
agree on the outcome.

What do we know and not know about
the following:

2.4 Step 4: Draft the Scenario Narrative• The factors that determine the historical, current,
and future states of the driving force?

•	Determine range of scenarios.

Conclusion• The internal workings of a driving force — cyclical,
permanent change, combination?

•	Draft and refine scenario narratives.

Appendix 1:
An Overview of Public
Scenarios and Models• The outcomes of historical trends, key events,
disruptions in trend, and extremes?

E.
Disclosure: Demonstrating
Strategy Resilience

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments• The current state of a driving force?
• The plausible states and outcomes at the chosen
time horizon of a driving force?
• The most critical uncertainties of the driving force
in a company’s time horizon?

•	Determine scenario logic.
•	Check scenarios.
The next step is to draft the scenario narrativeor storyline. The goal of storylines is to“stimulate, provoke, and communicate visionsof what the future could hold…they aim forcreativity, rigor, internal coherence, andplausibility.” 181 This step involves developing
themes and logic.

Source: (Haigh, 2019, p. 62)

176

 or further elaboration on possible climate drivers by STEEP category, see Haigh, Scenario Planning for Climate Change: A Guide forF
Strategists, 2019, pp. 110–146.

177

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

178

 his is one place where consulting IPCC and IEA scenarios may be useful and help a company’s scenarios remain broadly aligned withT
current climate research.

179

Van Der Heijden, Bradfield and Burt, The Sixth Sense: Accelerating Organizational Learning with Scenarios, 2002, pp. 206–208.

180

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006, p. 108.

181

Rounsevell and Metzer, Developing qualitative scenario storylines for environmental change assessment, 2010.

76

The Task Force on Climate-related Financial Disclosures

Figure A2-5

STEEP Model of Driving Forces
SocialTechnology

Economic

Social/Lifestyle Factors

Basic Research Trends

Macroeconomic Trends

Demographic Patterns

Emerging Technologies

Microeconomic Trends

Health & Education Trends

Technology Diffusion

Regional/National Variations

Civil Stability & Tensions

Financial Capital Trends
Trade Rules/Protectionism

Executive Summary

Environment

Table of Contents
A.
Introduction
B.
Getting Organized

Political

Ecosystem Trends

EnergyPolicies

Climate/Weather Trends

Waste Disposal

Laws/Regulations

Pollution

Land Use

Court Decisions
Political Attitudes

RecyclingC.
The Scenario Process

E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

2.4.1 Scenario Themes
Scenario themes should be developed using
the high-impact/high-uncertainty forces in theupper right cell of the impact-uncertainty matrix(Figure A2-7, p. 78). To do so, a company takes
the two highest-ranked forces from that cell orgroups the forces in the cell together into two
clusters of similar forces. The two highest-ranked
forces or the two clusters can then be used todetermine two alternative hypotheses for how
forces will play out in the future time horizon of
the scenario. These two hypotheses form twoaxes that are plausible but extreme.182
The two axes form a 2x2 matrix focusing on thegroup of forces most relevant to a company’s focal
question(s). Each of the four cells of the matrix canbe used to develop a scenario narrative aroundthe drivers for that cell, resulting in four scenariosthat cover the range of key uncertainties anddrivers relevant to a company’s focal question(s).
Figure A2-6 provides an example of this approach.
These are scenarios developed using a 2x2
scenario matrix differentiated along axes oforderly/disorderly policy responses and meeting/
182

Figure A2-6

Scenario 2x2 Matrix
High-Impact/High-Uncertainty
Scenarios

Scenario
1

Scenario
2

Scenario
3

Scenario4

Driver Group A

D.
Strategic Management
Using Scenarios

Driver Group B ee Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006, pp. 111–117 for a step-by-stepS
overview of this approach.

77

The Task Force on Climate-related Financial Disclosures

Figure A2-7

Table of Contents

High-Impact/High-Uncertainty
Scenarios

Low

MediumHigh

Forces& Drivers

Forces& Drivers

Forces& Drivers

MediumForces& Drivers

Forces& Drivers

Forces& Drivers

Low

Forces& Drivers

Forces& Drivers

Forces& DriversHigh

A.
Introduction



Scenario
1

Scenario
2

Scenario
3

Scenario
4

Degree of Uncertainty
Driver Group B

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

Note to Figure A2-7: Only a limited number of forces and drivers should be ranked in the high-impact/highuncertainty category. One method to help with this ranking process is to set a percentage threshold(e.g., <25%) of drivers in the high-impact/high-uncertainty category. Such a target helps focus on the decisionline between which forces should go into each cell of the matrix.
Source: Adapted from Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006

Figure A2-8

Scenario Matrix Based on Policy Responses

Orderly

Transition Risks

Appendix 3:
Summary of Selected
Scenario Tools andInformation

Transition Pathway

Appendix 1:
An Overview of Public
Scenarios and Models

Disorderly

Conclusion

Appendix 2:
Scenario Construction

Driver Group A

Executive Summary

Level of Impact/Importance

Impact-Uncertainty Matrix (left)
and Alternative Scenarios Matrix (right)

Met

Not Met

Disorderly

Too Little, Too Late

Sudden and unanticipated
response is disruptive
but sufficient to meetclimate goals.

We don’t do enoughto meet climate goals,
the presence ofphysical risks spurs
a disorderly transition.

Orderly

Hot House World

We start reducing
emissions now in ameasured way to meetclimate goals.

We continue to increase
emissions, doing very little,
if anything, to avert thephysical risks.

Strength of Response
Based on whether
climate targets are met

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Physical Risks
Source: Network for Greening the Financial System, A Call for Action: Climate Change as a Source of Financial Risk, 201978

The Task Force on Climate-related Financial Disclosures

not meeting climate targets. These particulardrivers were set out by the central banks andsupervisors in the Network for Greening the
Financial System as the two most importantdimensions when assessing the impact of climate
risks on the macroeconomy and the financial
system (their focal question).
2.4.2 Developing the Scenario Logic

Executive Summary
Table of Contents

Another key aspect of a scenario narrative is
its internal logic. Scenario logic describes therelationship between various drivers and resulting
change, including the causal assumptions
underlying the described relationship. In otherwords, it seeks to explain the hypotheticalcause-effect relationship among drivers and theresulting development trajectory or pathway thatthose drivers may take to arrive at an outcome.
As such, scenario logic establishes the internalconsistency and plausibility of a scenario storyline.

A.
Introduction
B.
Getting OrganizedC.
The Scenario Process

Multiple Emissions Pathways Consistent
with 2°C Scenario

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

60

40
Billion metric tons CO2 (GtCO2) / year

Conclusion

Glossary, Abbreviations,
References, andAcknowledgments

20

0

-20

-40

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations

An important aspect of the scenario logic is
describing the scenario pathway from thepresent to the future scenario outcome. Different
combinations of driving forces and assumptions
will result in a range of plausible development
pathways, even leading to the same outcome.
Multiple pathways can exist for any scenario,
reflecting uncertainties “about climate system
dynamics, economic conditions, energy use,
available technologies, and the timing of policy
action” resulting in different “ranges of global
emissions, carbon budgets (cumulative emissions
over time), and annual global GHG reductionlevels…consistent with a global temperature
outcome.” 184 Figure A2-9 illustrates some of themultiple pathways consistent with a 2°C outcome.

Figure A2-9

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

The 2x2 matrix (Figure A2-6, p. 77) forms astarting point for developing the scenario logic.
The scenario logic should describe scenariosthat are broadly “representative” of each of thefour quadrants of the matrix and best covers the“envelope of uncertainty” that a company faces.183

-60
2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

The range of 2°C pathways (white space) and selected emissions pathways (dashed lines) are based on 408 different scenarios.
Source: Rose & Scott, 2018183

 ee Carlsen, Erikson and Dreborg, Systematic exploration of scenario spaces, 2016, and Lord, Helfgott and Vervoort, Choosing diverse setsSof plausible scenarios in multidimensional exploratory future techniques, 2016, for technical approaches to generating sets of scenarios thatare maximally diverse.

184 ose and Scott, Grounding Decisions: A Scientific Foundation for Companies Considering Global Climate Scenarios and Greenhouse Gas
R
Goals, 2018.

79

The Task Force on Climate-related Financial Disclosures

In order to understand the underlying
assumptions of different pathways, it is criticalto set out potential company-level risks, impacts,
and uncertainties. Differences in assumptions(and hence different pathways) can make big
differences to company-level impacts. Somepathway characteristics that a company should
consider include the following:climate system tipping points. This is the notionthat small changes at critical thresholds canhave large, long-term consequences, possibly
irreversible, for the climate system (i.e., regime
shifts).185 These climate tipping points have
implications for physical impacts, ecosystemservices, and biodiversity, and consequently
implications for businesses too.

•	the slope of a pathway (e.g., the speedof development);

Finally, both physical and transition uncertainties
may trigger larger climate-related impacts
or more stringent socioeconomic responses,
which in turn may affect the costs of various
sectors, individual companies, and specificinvestments.186•	the shape of the pathway (e.g., when it reaches
peak emissions and net-zero emissions);

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction•	assumptions about technology deployment andtiming, such as carbon capture and storage;•	assumptions about policy timing, type of policy
instruments employed, sector coverage;•	assumptions about energy system transitions
and their timing (e.g., energy mix, demand,
efficiency); and•	assumptions about sector and geographicalapplication.
Scenarios can have “orderly” or “disorderly”
pathways. An orderly pathway typically assumes
that globally coordinated climate policy actions
are applied to the economy as a whole andwith immediate effect. A disorderly pathway
involves transition actions that may be delayed,lack sufficient coordination or coherence, or
conditions that shift suddenly from a technology
or social standpoint — such a pathway will likely
entail higher risks and costs to particular sectors
and industries or overall.
On the transition risk side, a “disorderly”
pathway is likely to be characterized by variationin the speed and magnitude of changes
along the pathway over time, driven by policy
delays, uncoordinated or disjointed policy
implementation, unanticipated technology
transformations/disruptions, or abrupt market,
social, or legal shifts.
On the physical risk side, disorderly pathways
may be driven by the existence of so-called

In developing their scenarios, companies
should consider incorporating assumptions
about a “disorderly” pathway into one
or more scenarios. Incorporating suchassumptions could help them to highlightdifferent risks posed by those scenarios basedon idealized, orderly transitions.
2.4.3 Drafting and Refining Scenario Narratives
The scenario narrative should be written using
the scenario themes and logic. The storylines ofeach scenario should link historical and present
events with hypothetical futures by presenting aseamless and integrated narrative describing thecausal train of events (pathways) and underlying
drivers, assumptions, and affected systems.
The objective is to create stories that capture
the historical trends and forces and how theymight unfold or evolve in the future. Each of the
scenarios should focus on a different combinationof key driving forces in order to be distinct andchallenging; they should not be derivations ofa single “base” case.
There are a number of ways to carry out a draft ofa scenario storyline. Haigh187 suggests starting by
creating a baseline set of conditions that occurs
in all four scenarios using the high-impact/low-tomedium-uncertainty forces in the upper left andcenter cells of the matrix (Figure A2-10, p. 81).
These forces are deemed certain to have an
impact on the company no matter what scenario
ensues. Forces in the low-to-medium-impact
categories can be left out at this stage.

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments185

 uch tipping points may trigger cascading impacts beyond the climate system. See Arctic Council, Arctic Resilience Report, 2016, sectionsS
3.2 and 3.3, particularly Figure 3.4b, and Kinzig, Ryan and Etienne, Resilience and Regime Shifts: Assessing Cascading Effects, 2006. See also
Gladwell, The Tipping Point, 2000; Lenton, et al., Tipping elements in the Earth’s climate system, 2008; Lenton and Ciscar, Integrating tipping
points into climate impact assessments, 2013; Lemoine and Traeger, “Economics of tipping the climate dominos,” 2016; and Van Ness, etal., What do you mean, ‘Tipping Point’?, 2016.

186

Rose and Scott, Review of 1.5°C and Other Newer Global Emissions Scenarios, 2020.

187

Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019.

80

The Task Force on Climate-related Financial Disclosures

Figure A2-10

Baseline and Distinguishing Scenario Forces
Degree of Uncertainty

Executive Summary
Table of Contents

Level of Impact/Importance

Low

High

MediumHigh

Forces & Drivers Forming the Baseline

Forces & Drivers
Distinguishing
Each Scenario

MediumForces & Drivers Left Out
Low

A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Ralston and Wilson suggest startingby writing a brief one-paragraph descriptionof each scenario and its resultant dynamics,
major forces, and different outcomes. Using
this description, a one- to two-page narrativefor each scenario is drafted.188

Other principles to keep in mind when writing
scenario narratives include the following: 190•	Think in dramas:- the players (who);- the events (what);

Some guidelines for developing scenario
storylines include the following: 189- the timeframe (when);•	Develop a beginning, middle, and end —showing the forces at work, how they evolveand interact, new forces that emerge, andchanges in the strategic picture at the endof the story.

- the props (how); and•	Not everything changes, as some elements
remain reasonably consistent across the
scenarios (the baseline elements).
•	Include characters, dramas, or conflicts
to convey how the world is changing andwho the actors are at play.

- the scene (where);- the motives (why).
• Think in futures, uncertainty, and systems.
Drafting scenario narratives is an imaginativeand creative exercise that entails thinking about
how the future may unfold. How might thedistinctive forces in each scenario affect thecompany and its key stakeholders? How do theforces interact? The goal is to be both plausible
and surprising.

•	Make each story unique and imaginative.

188

 fter the scenarios are drafted, it may be helpful to develop a table that compares the key elements of each scenario future and howA
it plays out. The table helps to compare and examine the differences in which forces play out in each scenario and provides a checkthat scenario differences are reasonable, plausible, and cover the full range of possibilities (Ralston and Wilson, The Scenario Planning
Handbook: Developing Strategies in Uncertain Times, 2006, pp. 127–130).

189

Ralston and Wilson, The Scenario Planning Handbook: Developing Strategies in Uncertain Times, 2006.

190

Lindgren and Bandhold, Scenario Planning: The Link Between Future and Strategy, 2009.

81

The Task Force on Climate-related Financial Disclosures

Scenario narratives should be checked forwhether the trends are compatible with thechosen timeframe, outcomes are combinedin such a way that fits logically and scientifically,and scenarios are perceived as plausible(albeit challenging and possibly extreme).

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Three criteria are particularly important inevaluating the quality of scenario narratives,
which are relevance, credibility, and legitimacy.
To ensure high relevance, scenarios should
focus on a specific decision or issue (i.e.,
the focal question). High credibility involves
applying a well-documented and applied
scenario methodology combined with data
and relationships that are valid and backed
by scientific research. Legitimacy can bestrengthened through broad and inclusive
stakeholder consultation, transparency, andwidely accepted and understandable outputs.
The final scenario narrative should be checked
to ensure that it covers the key factors shown
in Box A2-2.

2.5 Step 5: Scenario Quantification•	A gree on purpose of quantification•	Considerations in using models•	Other quantification tools
Qualitative narratives may benefit fromquantitative information.191 Describing future
conditions that a company might face innumerical terms through graphs and trend
data, for example, may help communicate moredetailed representations of future conditions.
2.5.1 Why Quantify?
There are a number of benefits from quantifying
scenarios. First, quantification may help toillustrate key trends or forces in a more concreteand explicit manner. Second, certain audiences
may be accustomed to the presentation of
numbers and the use of them could therefore
improve overall communication. Third,
quantification may create greater rigor andsophistication in the scenario analysis.

Box A2-2
Basic Components and Characteristics of Scenarios• Horizon Year – The chosen future scenario limit(e.g., 2050, 2100).
• Focal Question(s) – The critical questions or
potential decisions that the company seeks toaddress.
• Driving Forces or Drivers – The underlying externalcauses of change in relation to the focal question,
which derive from a number of broad processes
within STEEP categories — social, technological,
economic, environmental, and policy. For a process
to be considered as a driver it needs to (1) becontinuous over a period of time and (2) influence
the outcomes of the focal question durably andconsistently. A time-bound, episodic process may not
be a driver but rather a crisis or shock.
• Scenario Logic – A description of the relationshipbetween various drivers and change, including
the causal assumptions underlying the described
relationship. Scenario logic seeks to establish internalconsistency between various statements andassumptions that underpin the scenario.
• Development Pathways – The trajectory between
the present and future states resulting from thedrivers and related cause-effect relationships laidout by the scenario logic.

• Storyline – A narrative that links historical andpresent events with hypothetical futures bypresenting a seamless and integrated narrativedescribing the causal train of events (pathways)
and the underlying drivers, assumptions, andaffected systems.
• Plausible – The events in the scenario should
be possible and the narrative credible.
• Distinctive – Each scenario should focus on adifferent combination of the key driving forces.
• Consistent – Each scenario should have strong
internal logic. The aim of scenario analysis is to
explore the way that factors interact, and eachaction should have a reaction.
• Relevant – Each scenario, and the set of scenarios
taken as a whole, should contribute insight into the
futures that relate to the strategic and/or financial
decisions facing a company in light of its climaterelated risks and opportunities.
• Challenging – Scenarios should challenge
conventional wisdom and simplistic assumptions
about the future. They should try to explore
alternatives that will significantly alter the basis forbusiness as usual assumptions.

• Key Uncertainties – The uncertainties surrounding
how drivers, assumptions, and scenario logic may
play out and, wherever possible, the sourceof these uncertainties.

191

A lcamo, The SAS Approach: Combining Qualitative and Quantitative Knowledge in Environmental Scenarios, 2008.

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The Task Force on Climate-related Financial Disclosures

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

2.5.2 How to Approach Quantification

2.6 Step 6: Scenario Updating

Information should be quantified where it
is possible and where it makes sense to do so.
Any numerical descriptions should be clear
and readily understandable to scenario users
and serve a clear purpose in the scenario.

•	How frequently

Quantification focuses on the two aspectsof scenarios — descriptive aspects of the
scenario narrative and driving forces including
their development pathways and outcomes.
At one end of the spectrum, quantification,for example, may involve the use of simple
number descriptors of trends, events, and otheraspects of the scenario narrative (such as grossdomestic product growth, population growth,emissions increase). Quantification could also
involve more sophisticated representationsof scenario pathways and outcomes andoften this use of quantitative information is
generated by mathematical models. Companies
should undertake quantification in line with
their evolving and maturing experience using
scenarios. Not all companies necessarily needto elaborate on quantitative scenarios or use
sophisticated quantitative models in order toachieve quantification at the outset.
2.5.3 Use of Models and Other Tools to Quantify
Formal models may be developed and appliedat this stage to quantify the consequences ofeach scenario, flesh out possible secondary
effects, and further check plausibility. A
company also might use in-house models forforecasting product demand or commodity
prices to inform its scenarios. Appendix 3 lists
some commercially available and open source
tools and datasets that may help companies
quantify their scenarios.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models•	Amend current scenarios or zero-based
Scenarios are not static and scenario analysis is
not a one-time process. Just as a company’s plans
should be updated as circumstances change,
so too should its scenarios — as inputs to thoseplans. Scenarios should be updated periodically.
Some companies refresh their scenarios prior toeach full strategic planning cycle, while companies
in a turbulent environment may wish to updatethem more frequently. It is important to keep
in mind that clear signals from climate-related
developments in a company’s environment may
take some time to play out before being factored
into a scenario analysis update. Refreshing
scenarios may involve reviewing the previous
scenarios and updating them where necessary,or it may involve a more extensive zero-based
recreation of scenarios. Haigh192 argues for azero-based approach, saying that “developing
new scenarios will help to counter any tendency
to cling to existing scenarios.”

Further Reading
Scenario Planning Handbook: Developing Strategies
in Uncertain Times, Bill Ralston and Ian Wilson, 2006.
Scenario Planning for Climate Change: A Guide forStrategists, Nardia Haigh, 2019.
Scenarios: The Art of Strategic Conversation, Kees Van
Der Heijden, 2005.
Scenario Planning in Organizations: How to Create, Use,and Assess Scenarios, Thomas J. Chermack, 2011.
Developing qualitative scenario storylines forenvironmental change assessment, Mark D.
Rounsevell and Marc J. Metzger, WIREs Climate
Change, 1: 606–619, 2010.
Methods of future and scenario analysis: overview,
assessment, and selection criteria, DIE Research
Project Development Policy, Bonn 2007 Deutsches
Institut für Entwicklungspolitik ISBN 978-3-88985375-2 (Kosow & Gabner, 2008).

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
192

Haigh, Scenario Planning for Climate Change: A Guide for Strategists, 2019, p. 103.

83

Appendix 3:
Summary of Selected Scenario
Tools and Information

The Task Force on Climate-related Financial Disclosures

Appendix 3: Summary of Selected Scenario
Tools and Information
193

In using scenario analysis, companies should
tailor their methodology, data, and scenarios totheir particular business risks and opportunities.
They should select an approach that is credible
and applicable to their business and able toprovide the desired outputs.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

As part of their implementation efforts,
companies are increasingly demanding tools,
data, and information to support and facilitate
their scenario analysis of climate-related risks.
In response, there is a nascent and growing
market of open source and commercial providers
offering data, tools, and research to both support
and conduct scenario analyses for physicaland transition risks and opportunities. Further,methodological guidance is being developed toassist organizations in selecting and applying
these resources.
The market is rapidly evolving in response
to increasing stakeholder demands and theongoing development of climate science.
Individual providers are constantly evolving theirofferings by developing new tools and resources,and expanding their coverage of geographic
locations, sectors, emissions scenarios,
time horizons, and risks and opportunities.
Consolidation among providers is also occurring,
providing for a larger scale and scope of services.
To assist companies in understanding andnavigating the market of available scenario
tools and data, the following tables summarize
a selection of open source and commercial
service providers. While exploring the various
approaches outlined in the tables, readers
should consider their company-specificcircumstances, such as sector, geography, andrelevant risks, in order to determine whichapproach best fits their needs. In addition,companies should carefully consider the
methodologies employed by service providers.
Of particular note should be the methods used
to project emissions and temperature pathways
and development paths of other companyimportant factors (e.g., assumptions, methods,
logic), and methods used to downscale data toregional and local scales.
193

1. OVERVIEW OF THE CURRENT MARKETFOR SCENARIO SERVICES AND DATA
1.1 Providers offer a variety of approaches,ranging from climate data to analysis tools,for generating scenario analyses and climate
risk assessments.
The solutions broadly fall under two categories:
those that are designed to conduct a scenario
analysis (Table A3-1, pp. 88–94) and those thatprovide data or information that can support
a scenario analysis (Table A3-2, pp. 95–106). The
former consists of analysis tools that assess thelevel of exposure or impact of climate-relatedrisks and opportunities, based on a scenario
analysis or climate risk assessment conducted
on behalf of a client. The latter consists ofproviders that offer data, including research
and analysis tools, which allows users to explore
relevant climate-related risks and opportunities
and prepare for a scenario analysis.
1.2 Most data and tools provide
global coverage.
Most data and tools provide global coverage,
albeit with varying levels of granularity (such ascity level versus country level). Some data andtools focus on, or exclude, specific regions, but the
majority cover more than 200 countries globally.
1.3 Most analysis tools are used within
the financial sector, but can be adapted
for other sectors.
Most analysis tools are primarily intended
for use by the financial sector (e.g., banks,
investors, asset managers), as outputs allow
users to determine the climate-related riskof their investment portfolio, in addition toopportunity exposure and impacts. These tools
use a bottom-up approach, whereby risks areassessed at the asset level and aggregated to thecompany or portfolio level. When selecting anapproach, companies should assess how various
methodologies correspond to their specific isclaimer: Due to the rapidly evolving nature of the market, there may be new providers not represented in Tables A3-1 (pp. 88–94)
Dand A3-2 (pp. 95–106), as well as acquisitions or partnerships that have occurred after initial research was conducted, and therefore
may not be reflected. The tables are based solely on publicly available information retrieved from providers’ websites and other relevant
websites or publications. The information is not based on any additional consultation with the providers, and it is recommended thatreaders contact the providers directly for more information as needed. The listing of any provider in the following tables does not
represent, explicitly or implicitly, any endorsement, validation, or promotion of the provider, its approach, or its data by the
TCFD or its members. Rather, inclusion in the tables is solely a recognition that these providers advertise/offer relevant resources tosupport a scenario analysis. Companies should perform their own due diligence on providers’ methodologies before engaging any third
party to assist in conducting a scenario analysis.

85

The Task Force on Climate-related Financial Disclosuresneeds. For example, financial companies may
prefer a tool that is able to aggregate risks at theportfolio level, while a non-financial company
may prefer one instead that is able to performa detailed assessment of select assets.
1.4 The market for data and analysis tools
on transition risks and opportunities is
growing. However, some capabilities arelimited and provider methodologies areoften not disclosed.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

Transition risks are more difficult to assess andquantify, yet there is an increasing number ofproviders that can support or conduct scenario
analyses for transition risks and opportunities.
However, companies will need to carefully
evaluate the approaches used by service
providers to know whether they are generating
useful information regarding their specificclimate-related risks. Further, service providers
that conduct scenario analyses face limitations intheir coverage and capabilities, such as shortertime horizons (e.g., some only extend 5–15
years into the future as opposed to 2050), lessgranularity of data (i.e., country or continentlevel), and a focus on specific sectors (i.e., theenergy sector and energy-intensive industries).
There is also much less transparency in themethodology used to assess transition risks andopportunities. Descriptions of the methodologies
for physical risk scenario analysis tools are quitedetailed for some providers, as some provide theequations and data sources used; but this levelof detail on methodology is often not disclosed
for transition risks. This is likely due to thebespoke nature of the assumptions andscenarios used to conduct transition risk andopportunity assessments, as well as efforts
to protect proprietary solutions.
1.5 Solutions are delivered through a rangeof platforms, although most are softwarebased analysis tools that are either
proprietary or open source.
Some providers offer research and datasets, butmany have developed software-based analysis
tools that can either supplement or fully conduct
a scenario analysis for climate-related risks andopportunities. Scenario analysis tools are typically
proprietary and commercially available, resulting
in limited publicly available information on data
sources and methodology. For these tools, theanalysis is typically conducted by the provider andoutputs are made available for a fee.
Data and analysis tools that are web-based
and open source (i.e., freely available) typicallyallow users to explore relevant trends related
to climate-related risks and opportunities,
which can be used as inputs to a scenario
analysis. These tools can also be used to identify
relevant risks and opportunities, which can help
determine the scope of a scenario analysis.
1.6 Outputs range from exposure ratingsto quantified financial impacts.
For tools that support a scenario analysis,
outputs typically include trends related toclimate, energy demand, or other socioeconomic factors. Tools that conduct scenario
analyses typically provide quantified financial
impacts at both the asset and portfolio level,such as Value-at-Risk (VaR). Some tools also
provide ratings, scores, or indicators (e.g., high,medium, and low risk) that are sometimes
compared to benchmarks. Outputs are typicallypresented in time series plots or heat maps.
Many platforms are interactive and some
proprietary tools auto-generate reports forclient use.
The value created by various outputs will
depend on each company’s needs. Some may
seek quantified financial impacts of risks, whileothers may prefer qualitative or exposurebased outputs. When selecting an approach,companies should consider how they will use theinformation from their climate risk assessmentin their risk management activities, strategicplanning, and/or target setting, together withwhat types of outputs would be most desirable
and meaningful. Finally, companies should
evaluate any scoring or rating approaches
to ensure that they are well supported on ascientific level, as well as whether benchmarking
approaches are meaningful in a particular sector
or industry.

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
86

The Task Force on Climate-related Financial Disclosures

2. EVALUATING TOOLSAND METHODOLOGIES

2.	Are global scenario results used and how
are problematic issues addressed?

New research is emerging that is developing
a technical foundation for climate-related
risk assessment that informs methodologicaldevelopment and application. For instance,
when selecting open source or commercial
scenario tools or methodologies, or developing
in-house capability for climate transition risk,
companies should consider the following
questions (Rose & Scott, 2020):

3.	How is the company-specific context
considered?

1.	Are the following uncertainties considered
and how?
Executive Summary
Table of Contents
A.
Introduction

a. Temperature-emissions relationship?
b. Global emissions pathway attainability?
c. Policy design features?
d.	Non-climate-related reference conditions(e.g., markets, technology)?

4.	Is a uniform goal explicitly or implicitly
imposed across companies, or are goals
allowed to vary from one company tothe next?
5.	Given uncertainties, does the approachprovide flexibility?
6.	Is quantitative comparison of alternative
strategies possible?
7.	What is the approach for evaluating
strategy robustness?
8.	Is the full (system) value of company assets
and investments considered?

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
87

The Task Force on Climate-related Financial Disclosures

Table A3-1

Selected Providers That Can Conduct a Scenario
Analysis on Behalf of an Organization
Summary of Providers as of December 31, 2019
Note: The TCFD does not endorse or recommend any of these providers. Companies should performtheir own due diligence before using any provider.
Legend:Commercially available tools and data
Nameof Provider

Executive Summary
Table of Contents

2° Investing
Initiative(2dii)A.
Introduction
B.
Getting OrganizedD.
Strategic Management
Using Scenarios

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

What services do they provide?
Analysis Tool
Paris Agreement Capital Transition
Assessment: A free, web-based tool thatanalyzes exposure to climate-relatedtransition risks in equity and fixed-income
portfolios over multiple scenarios.
(updated version pending for 2020)

What climate-related risks andopportunities are covered?
Transition

E.
Disclosure: Demonstrating
Strategy Resilience•	Technology risks: Exposure to low-carbon
and high-carbon activities across the fossil
fuel, power, and automotive sectors
Acclimatise

Web
Link

Details

What are the outputs?
Breakdown of portfolio exposure to
low-carbon technology (benchmarked tomarket exposure) and graphs that show thealignment of technologies in the portfolio todifferent emissions scenarios; summarized
in a customized, confidential report.

C.
The Scenario Process

Conclusion

Open source tools and data*

What services do they provide?
Analysis Tool
Aware for ProjectsTM: Offers an online toolthat allows users to screen investments
for climate risks by identifying hotspotsof climate-related vulnerabilities.
What are the outputs?
•	Indices that indicate vulnerabilityof organizations, populations,or infrastructure.
•	Provides a detailed report and graphicaloutputs including maps with hotspotsof climate vulnerability.
What climate-related risks andopportunities are covered?
Both physical and transition•	Physical risks: Multiple, including water
stress, flooding, temperature change,and precipitation

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): 2°C only

Link

Time horizon: 5 years (limited to time
horizon of capital expenditures(CapEx) planning)
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Financial institutions
Sectors covered: Focus on fossil fuel, power,
and automotive (carbon-intensive) sectors
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global coverage
Resolution: Can show regional exposure
to high-carbon activities (e.g., coal mining)at country or continental level

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Not disclosed

LinkTime horizon: Not disclosed
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Investors and corporations(details not disclosed)
Sectors covered: Case studies are limited
to oil and gas, mining, and international
development banks.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global coverage(referred to as “onshore and offshore”)
Resolution: Specific details not disclosed•	Transition risks: Not disclosed*It is important to note that some open source tools and data may have licensing restrictions. Users should review any relevant
restrictions before selecting an approach.

88

The Task Force on Climate-related Financial Disclosures

Table A3-1: Selected Providers That Can Conduct a Scenario Analysis on Behalf of an Organization(Continued)
Nameof Provider
Bloomberg
Scenario
Analysis Tool

Included withaccess to
Bloomberg
Terminal

Executive Summary

What services do they provide?
Analysis Tool
Physical Risk Assessment: Maps assets
against physical risks to highlight areasof exposure.
 cenario Analysis Tool: Evaluates potential
S
future CapEx at risk in the oil and gas
industry under a 2°C scenario.
What are the outputs?
•	Physical Risk Assessment: A map thathighlights assets with greater exposure
to specified physical risks.

Table of Contents•	Scenario Analysis Tool: Impact on CapEx
and net present value.

A.
Introduction

What climate-related risks andopportunities are covered?
Both physical and transition

B.
Getting Organized•	Physical Risk Assessment: Cyclones,
floods, extreme heat, water stress, flood,storm surge, and wildfires

C.
The Scenario Process•	Scenario Analysis Tool: Changes to energy
generation mix, changes to energy demand

D.
Strategic Management
Using Scenarios

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s):• Physical Risk Assessment: 2°C and 4°C

Link 1
Link 2• Scenario Analysis Tool: 2°C scenario
Time horizon:•	Physical Risk Assessment: Up to 2040
(based on TD Bank case study)• Scenario Analysis Tool: Up to 2025
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Financial institutions
Sectors covered:• Physical Risk Assessment: Any sector(case studies focus on energy andfinancial sectors)• Scenario Analysis Tool: Energy sector(focus on oil and gas)
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global
Resolution: Not disclosed

Carbon Delta(an MSCI
Company)

E.
Disclosure: Demonstrating
Strategy Resilience

What services do they provide?
Analysis Tool limate VaR: Provides investors with toolsC
to measure the climate-related risks of
their portfolio.
What are the outputs?
VaR (including impacts on cost, profit, andsecurity valuation) aggregatedat the sector, country, or portfolio level.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

What climate-related risks andopportunities are covered?
Both physical and transition

Appendix 2:
Scenario Construction•	Physical risks: Multiple, including heat,cold, wind, precipitation, snowfall,
wildfires, hurricanes

Appendix 3:
Summary of Selected
Scenario Tools andInformation•	Transition risks: Multiple, including
carbon pricing,194 green revenues fromlow-carbon technologies

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Multiple, including
3°C, 2°C, and 1.5°C

Link

Time horizon: 15 years into the future
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Financial institutions(investment managers, banks, asset
owners, insurance companies).
Sectors covered: All business sectors(22,000 companies and over 300,000
securities covered). Case studies include
agriculture, services, manufacturing,mining and petroleum refining, construction,transportation, and utility service.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global
Resolution: Localized, downscaled data isavailable at the city level for most locations

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Web
Link

Details194

 price on carbon emissions (typically expressed as a monetary value per ton of carbon dioxide equivalent) used as a policy mechanismA
to regulate emissions, usually in the form of an emissions trading system or carbon tax.

89

The Task Force on Climate-related Financial Disclosures

Table A3-1: Selected Providers That Can Conduct a Scenario Analysis on Behalf of an Organization(Continued)
Nameof Provider
Carbone 4

What services do they provide?
Analysis Tool
Mycris: A high-level analysis of a company’s
exposure and vulnerability; used as afirst step to identify relevant risks (freetrial available).
Climate Risk Impact Screening (CRIS):
A more detailed assessment of climate risks
at the company and portfolio level.

Executive Summary
Table of Contents

What are the outputs?
•	A risk rating for securities and portfolios(ranging from 0 to 99), which can becompared to benchmark portfolios.

A.
Introduction•	No evidence of financial outputs.
What climate-related risks andopportunities are covered?
PhysicalB.
Getting Organized•	Temperature rise, heat waves, drought,
heavy rainfall events, sea level rise,
extreme storm eventsC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

The Climate
ServiceWeb
Link

Details

What services do they provide?
Analysis Tool
Climanomics: A web-based software
program that analyzes physical andtransition risks in financial terms acrossmultiple scenarios.
What are the outputs?
VaR (both revenue/expense and balance
sheet impacts) aggregated from the asset
level to the company level.
What climate-related risks andopportunities are covered?
Both physical and transition

What emissions scenario(s) and time
horizon(s) are covered?
Emission scenario(s): Covers three(low, medium, and high emissions)Intergovernmental Panel on Climate Change(IPCC) scenarios

LinkTime horizon: 2050 and 2100
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Mycris focuses on thecompany level (sector not specified);
CRIS designed for financial institutions.
Sectors covered: All business sectors
captured within 60 different “sectoral
vulnerability profiles.” Covers corporate,
infrastructure, and sovereign assets.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global (210 countries)
Resolution: Not disclosed
What emissions scenario(s) and time
horizon(s) are covered?
Emission scenario(s): Multiple
Representative Concentration Pathway(RCP) scenarios (full range not disclosed)

LinkTime horizon: 2010–2100
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Provides specific tools forreal estate, asset owners and managers,
corporate sustainability and insurance.
Sectors covered: Not disclosed•	Physical risks: Multiple, including extreme
temperatures, coastal flooding, storms,
drought, wildfire

What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global•	Transition risks: Multiple, including carbon
pricing, energy efficiency, materials cost,litigation risk, new technology

Resolution: Localized, downscaled data
(resolution not disclosed)

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
90

The Task Force on Climate-related Financial Disclosures

Table A3-1: Selected Providers That Can Conduct a Scenario Analysis on Behalf of an Organization(Continued)
Nameof Provider

Details

Four Twenty
Seven (427)What services do they provide?
Analysis Tool

(with majority
investment
from Moody’s
Corporation)

On-demand climate risk scoring: Provides
real-time screening of large portfolios
through an online dashboard and full
data downloads.
Company risk scores: Evaluates listedcompany exposure to climate change
hazards at the facility level, based on a
database of over one million facilities linked
to corporate parent entity. Also available
for sovereigns and sub-sovereigns.

Executive Summary
Table of Contents

What are the outputs?
A climate risk score for each hazard
compared to a country benchmark. If above
the benchmark, the asset is given a “redflag” classification.

A.
Introduction
B.
Getting OrganizedCompany risk scores: For each company,
percent facility at low/medium/high riskfor each hazard by country, as well as risk
scores (1–100) for each hazard based on
aggregate exposure of the company acrossits portfolio of facilities.

C.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Web
Link
What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): RCP 8.5

LinkTime horizon: Up to 2040
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Financial institutions
and corporations
Sectors covered: All sectors covered,including energy, materials, consumer
staples, information technology, utilities,
real estate, and industrials.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global (196 countries)
Resolution: 25x25km for heat,
precipitation, and cyclone risk, 90x90m
resolution for flood risk and sea level rise,water basin for water stress

What climate-related risks andopportunities are covered?
Physical•	Multiple, including flooding, hurricaneforce winds, sea level rise, water stress,and heat stressISS –Governance

What services do they provide?
Data, Analysis Tool
Carbon Risk Rating: Categorizes company’s
exposure to carbon risk as a result of
business activities, at industry and subindustry level.
Carbon and Climate Data: Scope 1, 2, and 3
emissions for organizations.
Portfolio Climate Impact Report: Provides
detailed analyses of physical and transition
risk exposure at the portfolio level.
What are the outputs?
Carbon Risk Rating: Score from 0 to 100(ranging from ”Laggard” to “Climate Leader”)
Portfolio Climate Impact Report: A
summary report (details not disclosed)

What emissions scenario(s) and time
horizon(s) are covered?
Emission(s) scenarios: 2°C, others
not disclosed

LinkTime horizon: Not disclosed
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Financial institutions
Sectors covered: All asset classes(details not disclosed)
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Not disclosed
Resolution: Not disclosed

What climate-related risks andopportunities are covered?
Both physical and transition•	Details not disclosed

91

The Task Force on Climate-related Financial Disclosures

Table A3-1: Selected Providers That Can Conduct a Scenario Analysis on Behalf of an Organization(Continued)
Nameof Provider
Jupiter Intel

What services do they provide?
Analysis Tool
ClimateScore™ Intelligence Platform:
Predicts the probability and climate impact
of extreme weather events. Users canselect parameters (probability threshold,type of hazard, scenario, etc.).
What are the outputs?
Hazard-specific outputs: For each asset.
Financial outputs not disclosed.

Executive Summary

What climate-related risks andopportunities are covered?
PhysicalTable of Contents
A.
Introduction•	Multiple, including flood, fire, heat,drought, cold, wind, and hail events,
supply chain disruptions

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

Web
Link

Details
What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Not disclosed

LinkTime horizon: Up to 50 years in the future
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Financial and public sector
Sectors covered: Multiple asset types
included (e.g., loading docks, hotel).
Details not disclosed.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: New York City,
South Florida, Houston, and Europe(global expansion is underway)
Resolution: Hyper-local resolution(<1m for FloodScore™)

Oasis HUB

What services do they provide?
Analysis Tool
 ASIS Loss Modelling Framework: An
O
open source, web-based tool that provides
a platform for developing, deploying, andexecuting catastrophe models. Users input
hazard, exposure, and vulnerability data
and the tool calculates risk and financial
cost of events.
What are the outputs?
Damage risk and potential financial costof events (e.g., average annual losses), loss
tables, and loss exceedance curves
What climate-related risks andopportunities are covered?
Physical

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Not disclosed

Link 1
Link 2Time horizon: Not disclosed
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Primarily insurance andreinsurance, but seeks to provide tools
and utility to all sectors
Sectors covered: Not disclosed
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global
Resolution: Not disclosed•	Fire, flood (additional hazards notdisclosed)

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
92

The Task Force on Climate-related Financial Disclosures

Table A3-1: Selected Providers That Can Conduct a Scenario Analysis on Behalf of an Organization(Continued)
Nameof Provider

Details

Ortec
Finance

What services do they provide?
Analysis Tool, Data
Systemic Climate Risk Scenario Solution:
Proprietary, country-level scenarios toanalyze portfolios at the sub-asset classlevel through a top-down approach.
Data: Users can purchase the scenario
datasets to perform their own analysis.

Executive Summary

What are the outputs?
Impacts on average return and VaRunder each scenario. Outputs arealso plotted graphically.

Table of Contents
A.
Introduction

What climate-related risks andopportunities are covered?
Both physical and transition

B.
Getting Organized•	Physical risks: Multiple, including
wildfires, coastal flooding, and effects
on agricultural productivity

C.
The Scenario Process•	Transition risks: Multiple, including carbon
pricing, energy efficiency programs, andphaseout of old technologies

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

Vivid
Economics

What services do they provide?
Analysis Tool

(Net Zero
Toolkit)Net Zero Toolkit: Uses in-house models toestimate financial impacts of future climate
policy under various scenarios. Scenarios
are tailored for clients and results are
estimated at the asset class, subclass,and asset level.
What are the outputs?
Quantified impacts on financial assets(details not disclosed)
What climate-related risks andopportunities are covered?
Transition•	New technology, asset stranding, carbon
pricing (full list not disclosed)

Web
Link
What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): 1.5°C, 2°C, and 4°C

LinkTime horizon(s): Up to 2100 with yearly
granularity
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Financial institutions
Sectors covered: Multiple (e.g., utilities).
Details not disclosed.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global
Resolution: Not disclosed

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Multiple(details not disclosed)

LinkTime horizon: Not disclosed
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Financial institutions
Sectors covered: Energy, heavy industry,transport, agriculture, and construction
What geography is covered?
At what resolution (if disclosed)?
Geography covered: UK (other regions
not disclosed)
Resolution: Not disclosed

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
93

The Task Force on Climate-related Financial Disclosures

Table A3-1: Selected Providers That Can Conduct a Scenario Analysis on Behalf of an Organization(Continued)
Nameof Provider
XDI

Easy XDI only

All other tools

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios

Web
Link

Details
What services do they provide?
Analysis Tool
Easy XDI: An open source tool for users
to self-investigate climate risks at theasset level (not for commercial use,free version available).
XDI Globe: Users access an online
interactive platform to identify
risk hotspots.
Adapt Infrastucture: Assesses the effectof different adaptation measures on
overall risk impact of particular hazards.
What are the outputs?
VaR and risk rankings. Outputs canbe formatted into auto-generated
report templates specified by the user(e.g., heat maps, graphs, etc.)
What climate-related risks andopportunities are covered?
Physical•	Multiple, including forest fire, riverine/
fluvial flooding, overland/pluvial flooding,coastal inundation, heat extremes,
subsidence (soil movement due todrought), extreme wind, freeze-thaw

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): RCP 8.5 (highemissions scenario) is used for stresstesting. Additional scenarios not disclosed.

LinkTime horizon: Up to 2100, available insingle-year time steps
What sectors can use this tool/data? Whatsectors are covered by the dataor analysis?
Intended users: Designed for decisionmakers, financial managers, and investors.
Sectors covered: 94 different asset types
available. Can also develop custom asset
types for clients (for a fee). Existing asset
archetypes include water, power, andcommunication networks; transportation;
housing; commercial and industrial
buildings; and health infrastructure.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: North and SouthAmerica, Europe, Africa, East Asia,
Australia, New Zealand
Resolution: 10x10km, and 5x5m for flooding

E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
94

The Task Force on Climate-related Financial Disclosures

Table A3-2

Selected Scenario Tool and Data Providers
Note: The TCFD does not endorse or recommend any of these providers. Companies should perform their own
due diligence before using any provider.
Legend:Commercially available tools and data
Nameof Provider
Bloomberg(New Energy
Outlook,
CarbonFootprint Tool)

Executive Summary
Table of Contents
A.
Introduction

Included withaccess to
Bloomberg
Terminal

B.
Getting OrganizedC.
The Scenario Process

What services do they provide?
Data
New Energy Outlook: Provides annual
forecasts (production generation, trends,etc.) on energy and transportation.
Carbon Footprint Tool: Provides dataon company’s emissions and compares
to benchmarks.
What are the outputs?
New Energy Outlook: Energy trends(e.g., projections of power generation
mix to 2050)

What climate-related risks andopportunities are covered?
Transition•	New Energy Outlook: Changes to energy
generation mix, changes to energy demand.

E.
Disclosure: Demonstrating
Strategy Resilience•	Carbon Footprint Tool: Can be used tosupport analysis of transition risks suchas carbon pricing.

Conclusion

CarbonTracker
Initiative

Appendix 1:
An Overview of Public
Scenarios and Models

What services do they provide?
Analysis Tool, Data (research)
2°C Scenario Analysis Tool: See Bloomberg
in Table A3-1 (p. 89) for details.
Data: Publishes reports on the energy
sector’s transition to a low-carbon
economy195 in various scenarios.

Appendix 2:
Scenario Construction

What are the outputs?
Research reports, including
recommendations, frameworks, andmarket insights, that can be used tosupport or guide a scenario analysis.

Appendix 3:
Summary of Selected
Scenario Tools andInformation

What climate-related risks andopportunities are covered?
PhysicalAppendix 4:Interviewed Organizations•	Multiple datasets available, including
sea level rise, heat waves, and cold spells

195

Web
Link

Details

Carbon Footprint Tool: Scope 1, 2, and 3
greenhouse gas emissions

D.
Strategic Management
Using Scenarios

Glossary, Abbreviations,
References, andAcknowledgments

Open source tools and data*

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s):•	New Energy Outlook: Not disclosed•	Carbon Footprint Tool: N/A

Link 1
Link 2Time horizon:•	New Energy Outlook: Up to 2050
•	Carbon Footprint Tool: N/A
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users:•	New Energy Outlook: Financial
institutions, energy sector, energyintensive sectors•	Carbon Footprint Tool: Any sector
Sectors covered: Same as above
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global coverage at thecountry level for the New Energy Outlook.
Resolution: Not disclosed

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Multiple
International Energy Agency (IEA) and
IPCC scenarios (depends on report)196

Link

Time horizon: Depends on report197
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Any (most relevant for
financial institutions, energy sector, andenergy-intensive sectors)
Sectors covered: Focus on coal, oil, and gas
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global
Resolution: Not disclosed

Noteworthy reports include Breaking the Habit and The Speed of the Energy Transition.

196

Breaking the Habit report explores 1.5–2.7°C emissions scenarios.

197

Breaking the Habit report explores scenarios up to 2040.

95

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Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

Details

ClimateImpact Lab

What services do they provide?
Analysis Tool
The Climate Impact Lab: (underdevelopment) Platform will provide
projections of future climate impacts
on various social indicators (health,labor, productivity, energy, conflict, etc.).
Data
The Climate Impact Map: An open source,
web-based platform that allows users toaccess climate projections under various
emissions scenarios.

Executive Summary
Table of Contents

What are the outputs?
Climate Impact Lab: Financial loss
(e.g., loss of market value), relative
exposure to climate risks (by sector andgeography), change in energy demandA.
Introduction
B.
Getting Organized

Climate Impact Map: Climate projections(e.g., temperature) displayed on a heat map

C.
The Scenario Process

What climate-related risks andopportunities are covered?
Both physical and transition

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations

Web
Link
What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s):•	Climate Impact Lab: Not disclosed•	Climate Impact Map: RCP 2.6, 4.5, 6.0, 8.5

Link 1
Link 2Time horizon:•	Climate Impact Lab: Not disclosed•	Climate Impact Map: Up to 2100
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A
Sectors covered:•	Climate Impact Lab Tool: Not disclosed•	Climate Impact Map: Not customized
for any sector(s)What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global
Resolution: Not disclosed•	Climate Impact Lab: Not defined(depends on user’s interpretation
and use of information)•	Climate Impact Map: Sea level rise,temperature, precipitation, humidity

Copernicus

What services do they provide?
Data
Climate Data Store: Provides freely
available climate data through their Climate
Data Store, which can be tailored to public
or commercial needs.
Also provides training to users of their data.

Link
What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Depends on dataset(some cover RCP 2.6–RCP 8.5)
Time horizon: Depends on dataset.
Most datasets are historical rather thanforward-looking.

What are the outputs?
Time series plots, and maps showing
historical or projected climate impacts.

What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A

What climate-related risks andopportunities are covered?
Transition

Sectors covered: Not defined(depends on user’s interpretation
and use of information)•	Risks related to the energy transition(shifting to low-carbon sourcesof energy).

What geography is covered?
At what resolution (if disclosed)?
Geography covered: Depends onthe dataset. Most focus on Europe.
Resolution: Not disclosed

Glossary, Abbreviations,
References, andAcknowledgments
96

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Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

En-ROADs(Developedby Climate
Interactive,
Ventana
Systems, andMIT Sloan)

Executive Summary
Table of Contents
A.
Introduction

Web
Link

Details
What services do they provide?
Analysis Tool
Policy Simulation Model: A freely available
policy simulation model that allows users
to explore the consequences of climaterelated policies and uncertainties. The user
can toggle variables (e.g., carbon price,energy supply breakdown, population,
global temperature, etc.) to determine therelationship between all variables.
What are the outputs?
Interactive time series plots for eachselected variable.
What climate-related risks andopportunities are covered?
Transition

B.
Getting Organized•	Can be applicable to multiple
transition risks, dependingon the variables being analyzed.

C.
The Scenario Process•	Includes carbon price, technology,energy costs, and demand.

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): User creates own
scenarios between 1.5°C and 4.5°C.

LinkTime horizon: Up to 2100
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A
Sectors covered: Not defined(depends on user’s interpretation
and use of information)
What geography is covered?
At what resolution (if disclosed)?
Geography covered: (not disaggregatedby region)
Resolution: Not disclosed

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
97

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Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

ERM

What services do they provide?
Analysis Tool
Climate Financial Driver Analysis (CFDA):
Screening of transition and physical risks
and opportunities using a proprietary tool;
financial impact analysis of transition andphysical risks and opportunities. CFDA
customized for each client according to key
geographies, operations, and value chains.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion

Web
Link

Details

Climate Data Tool (CDT): Climate physicaldata for any global location, providing data
across all climate event types. Data includes
global sources, as well as local datasets.
What are the outputs?
CFDA: For identification of material
climate-related risks and opportunities,
customizable across scenarios. Estimationand sensitivity analysis of financial impact
under different scenarios.
CDT: Tool that enables technicallyappraised data from quality open source
providers showing climate change baseline
and trends over any timeframe out to 2030,
2050, and 2100.

What emissions scenario(s) and time
horizon(s) are covered?
Transition•	Approach is customizable and can use
any scenario, including all IEA scenarios
and IPCC 1.5°C scenarios.

Link

Physical•	IPCC RCP 2.6, 4.5, and 8.5, as well as
downscaled data where required.
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A
Sectors covered: All sectors
What geography is covered?
At what resolution (if disclosed)?
Transition•	Global, regional, and national, dependingon the scenario selected.
Physical•	Global and local. Resolution varies,
including data at a few meters forflood data.

What climate-related risks andopportunities are covered?
Both transition and physical•	Transition risks: Policy and legal,
market/technology.
•	Physical risks: Acute and chronic,
including cyclones and storms, floods,
extreme heat and cold, water stress,
landslides, and wildfires.

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
98

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Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

IEA

What services do they provide?
Data
World Energy Outlook: Published annuallyand projects global energy supply anddemand, and provides detailed scenariosthat map out the consequences of different
energy policy and investment choices.
What are the outputs?
Scenarios and trends that can be used
as inputs for a transition risk/opportunity
scenario analysis.

Executive Summary
Table of Contents

What climate-related risks andopportunities are covered?
TransitionA.
Introduction•	Depends on user application; mostapplicable to carbon pricing and demandfor various types of energy.

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations

Web
Link

Details
What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Scenarios that alignwith various temperature outcomes.

LinkTime horizon: Projections in 2019 report
extend to 2040. Energy sector CO2
emissions only.
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Not defined (depends
on user’s interpretation and use of
information). Directly applicable to energy
sector or energy-intensive sectors.
Sectors covered: Energy sector
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global(trends are also divided by country)
Resolution: Not disclosed

Integrated
Assessment
Modeling
Consortium(IAMC)

What services do they provide?
Data
IAMC 1.5°C Scenario Explorer: Aninteractive dashboard that presents
quantified socioeconomic factors (e.g., landuse, energy demand, carbon price) undermultiple scenarios, based on models usedby the IPCC.
Scenario database developed for the
IPCC’s Fifth Assessment Report: Additional
scenarios literature and resources(Database for the IPCC’s Sixth Assessment
Report is currently under development).
What are the outputs?
Time series plots for select factors(e.g., carbon price, per capita meat
consumption, land use, etc.) in selectscenarios and regions.
What climate-related risks andopportunities are covered?
Transition

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): 1.5°C, 2°C,
and higher (e.g., 3˚C, 4˚C)

Link 1
Link 2Time horizon: Up to 2100
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A
Sectors covered: Not defined(depends on user’s interpretation
and use of information)
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global
Resolution: Data can be disaggregatedinto: Organisation for Economic
Co-operation and Development + EU,
Asia, Latin America and Caribbean,
Middle East and Africa.

•	Not defined. Can be used as an input
to support a transition risk analysis
for a variety of transition risks (basedon user context and interpretation).

Glossary, Abbreviations,
References, andAcknowledgments
99

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Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

Inevitable
PolicyResponse

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

Moody's
Investor
ServiceWeb
Link

Details
What services do they provide?
Analysis Tool
Free-to-use tool and analysis on the abrupt
transition scenario.

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Transition risksTime horizon: Up to 2100

What are the outputs?
Policy, energy system, and financial
analysis of a policy shock to financial
markets. Data tables and an Excel tool
are also provided.

What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A

What climate-related risks andopportunities are covered?
Analysis of market risks and opportunities
in equities, fixed income, private equity,and infrastructure.

What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global

What services do they provide?
Analysis Tool, Data

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Not disclosed.

Carbon Transition Assessment (CTA):
Provides sector-specific forward-looking
scoring of corporate issuers based on
exposure to and mitigation of transition
risks (under development).
Data: Country ratings based on sovereign
credits’ vulnerability to physical climate risk.

Sectors covered: All sectors

Resolution: Not disclosed

Time horizon:•	Sovereign ratings: Not disclosed.

What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Generally applicable.
Specific sectors or limitations not disclosed.

What climate-related risks andopportunities are covered?
Physical (transition pending)

Sectors covered: For CTA, carbonintensive sectors are covered: Power,
Oil and Gas, Autos, Airlines, Shipping,
Cement, and Steel.

•	Transition risks and opportunities
under CTA.

Link 1
Link 2
Link 3•	C TA: Up to 15 years for longer-term
resilience against IEA Sustainable
Development Scenario.

What are the outputs?
Sector ratings and scorecards: Corporate
CTA scores indicating materiality of carbon
transition for the issuer.

•	Physical risks: Warming, snow cover,sea level rise, drought, wildfire, floods,
storms, and cyclones.

Link

What geography is covered?
At what resolution (if disclosed)?
•	Sovereign ratings: Certain regionsin South America, Africa, Middle East,
and Asia as well as Greenland are
not considered.
•	C TA: Applied globally to Moody’s rated
universe of issuers in the sectors.

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
100

The Task Force on Climate-related Financial Disclosures

Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

Moody’sAnalytics

What services do they provide?
Data and analytic tools that leverage
Moody’s credit risk models and quantifies
climate impacts in financial terms.
What are the outputs?
Climate-adjusted probability of default(Expected Default Frequency), VaR, Cross
Industry/Sector, and Geolocation Overlay
metrics to adjust internal rating, stresstesting models, and scorecards.

Executive Summary

What climate-related risks andopportunities are covered?
Both physical and transition risks

Table of Contents
A.
Introduction•	Includes risks and opportunities acrossall asset classes from sovereign,
corporate, private firms, CRE, etc.

B.
Getting Organized

What services do they provide?
Data
Open source models, datasets, softwaretools, and user guides; analysis andvisualization software for climate risk.

E.
Disclosure: Demonstrating
Strategy Resilience

What are the outputs?
Datasets for physical risk(e.g., climate projections)

Conclusion

What climate-related risks andopportunities are covered?
PhysicalAppendix 2:
Scenario Construction

Link

What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A
Sectors covered: All

Resolution: Not disclosed

NCAR

Appendix 1:
An Overview of Public
Scenarios and Models

What emissions scenario(s) and time
horizon(s) are covered?
Aligned with the Network for Greening
the Financial System (orderly transition
scenario, late/disorderly transition
scenario, and a “hot house” scenario),time horizons up to 30 years. Beyond,proceed to simulate macroeconomic andfinancial series (a combination of “reallife” (deterministic) paths and “stochastic”(simulated) projections) and offer flexibility
to select any scenarios.

What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global

C.
The Scenario Process
D.
Strategic Management
Using Scenarios

Web
Link

Details•	Includes temperature, sea ice thickness,precipitation (full list not disclosed).

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Not disclosed

Link 1
Link 2Time horizon: Depends on dataset(some go to 2099)
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A
Sectors covered: Not defined(depends on user’s interpretation
and use of information)
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global
Resolution: Not disclosed

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
101

The Task Force on Climate-related Financial Disclosures

Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

Schroders(Carbon VaR
only)

Executive Summary

ClimateProgress
Dashboard

Table of Contents
A.
Introduction

Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

Climate Progress Dashboard: Open
source projections of various politicaland market trends in line with different
emissions scenarios.
What are the outputs?
Carbon VaR: Impacts on profitability
and demand, overall Value-at-Risk(from carbon pricing only).

•	Carbon VaR: Carbon pricing•	Climate Progress Dashboard: New
technology (e.g., renewable energy
capacity, electric vehicle adoption, market
shifts, consumer preferences/concerns)

D.
Strategic Management
Using Scenarios

Conclusion

Carbon VaR: A tool that provides ananalysis of the impact of carbon pricing
on cost structures and profits.

What climate-related risks andopportunities are covered?
TransitionC.
The Scenario Process

E.
Disclosure: Demonstrating
Strategy Resilience

What services do they provide?
Analysis Tool

Climate Progress Dashboard: Graphs that
correlate various external factors (e.g., fossil
fuel production, renewable energy capacity)
to multiple emissions scenarios.

B.
Getting Organized

Science
Based
Targets
Initiative(SBTi)

Web
Link

Details

What services do they provide?
Analysis Tool
Provide methodologies to support
CO2 target setting in alignment with
<2° scenarios.
What are the outputs?
Defined pathways specifying how muchand how quickly a company needs
to reduce its greenhouse gas emissions.
What climate-related risks andopportunities are covered?
Transition

Link 1
What emissions scenario(s) and time
horizon(s) are covered?
Link 2Emissions scenario(s):•	Carbon VaR: Not disclosed•	Climate Progress Dashboard: 2°C, 4°C, 6°C
Time horizon:•	Carbon VaR: Not disclosed•	Climate Progress Dashboard: Up to 2025
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users:•	Carbon VaR: Multiple. Not specified•	Climate Progress Dashboard: Canbe applied to any relevant sectors
Sectors covered: Same as above
What geography is covered?
At what resolution (if disclosed)?
Carbon VaR: Has been applied to a global
universe of public companies
Climate Progress Dashboard:Not disclosed (based on datafrom international organizations)

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): 1.5° Aligned
Pathways

Link

Time horizon: Not disclosed
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A
Sectors covered: Apparel, Chemicals andPetrochemicals, Financial Institutions, Oiland Gas, Transport, Power Sector, Forest,
Land and Agriculture, and Information
and Communication Technology
What geography is covered?
At what resolution (if disclosed)?
Geography covered: N/A
Resolution: N/A

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
102

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Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

Details

SENSES
Toolkit

What services do they provide?
Analysis Tool

PotsdamInstitutefor Climate
ImpactResearch

The SENSES Toolkit: Modules to help
companies understand and communicate
climate change scenarios. The modules
utilize visualizations in an explanatory
or exploratory way.
What are the outputs?
Scenario Finder: Allows you to quickly
filter all available scenarios from the
IAMC 1.5 database.

Executive Summary
Table of Contents

Scenario Explorer: Presents an ensembleof quantitative, model-based climatechange mitigation pathways.

A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

Transition
Pathway
Initiative
(TPI)

Web
Link
What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Scenarios
from the IAMC 1.5 database

What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A
Sectors covered: N/A
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global and regional
Resolution: Not disclosed

What services do they provide?
Analysis Tool

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): N/A

What are the outputs?
Company ratings (from 0–4) of managementof climate-related risks aggregated at thesector level.
Time series plots of emissions intensity
by company.
What climate-related risks andopportunities are covered?
Transition•	Not specified, but relevant to carbon
pricing and the energy transition

Link 2Time horizon: Aligned with the
IAMC scenarios

What climate-related risks andopportunities are covered?
Both transition and physicalAn open source tool that assesses trends
in emissions and rates the managementof emissions and climate-related risks
at the company and sector level.

Link 1

Link

Time horizon: Current state
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Not defined (depends
on user’s interpretation and use of
information).
Sectors covered: Multiple, including
energy, manufacturing, industrial,
transportation, etc.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Companies span
multiple regions, (e.g., North America,
Europe, Asia).
Resolution: Company level

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
103

The Task Force on Climate-related Financial Disclosures

Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

Trucost,part of S&P
GlobalExecutive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

Web
Link

Details
What services do they provide?
Data
Carbon Earnings at Risk: Dataset that canbe used to stress test a company’s current
ability to absorb future carbon prices andunderstand potential earnings at risk fromcarbon pricing on a portfolio level.
Trucost’s Physical Risk: Dataset that canbe used to assess company exposure tophysical risk at the asset level, based ona database of over 500,000 assets linked
to 15,000+ listed companies. The dataset
covers seven climate hazards under threedifferent climate change scenarios.
TCFD-aligned company and portfolio
reporting services are also available
covering both datasets.
What are the outputs?
Carbon Earnings at Risk: Unpriced carbon
cost (expressed in impact on earnings
before interest, taxes, depreciation, andamortization and/or profit margin) at thecompany and portfolio level.
Physical Risk: Asset-level physical risk
scores from 1 (lowest risk) to 100(highest risk) across different climate
hazards aggregated at the company
and portfolio level.
What climate-related risks andopportunities are covered?
Both transition and physicalWhat emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s):•	Carbon Earnings at Risk: Low (businessas usual), Moderate (delayed action butaligned with Paris Agreement), High (fullyaligned with Paris Agreement)•	Physical Risk: Low (RCP 2.6), Moderate(RCP 4.5), High (RCP 8.5)

LinkTime horizon:•	Carbon Earnings at Risk: 2020 to 2050
•	Physical Risk: 2020, 2030, and 2050
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Companies and Financial
Institutions.
Sectors covered:•	Carbon Earnings at Risk: All sectors(coverage on 15,000+ companies).
•	Physical Risk: All sectors (coverageon 15,000+ companies and 500,000
underlying assets).
What geography is covered?
At what resolution (if disclosed)?
Geography covered:•	Carbon Earnings at Risk: Global (carbon
price data for 44 jurisdictions)• Physical Risk: Global
Resolution: Company level•	Transition risk: Carbon pricing risk.
•	Physical Risk: Physical risks including heatwaves, cold waves, flooding, hurricanes,
sea level rise, water stress, and wildfire.

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
104

The Task Force on Climate-related Financial Disclosures

Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

UK CIPWeb
Link

Details
What services do they provide?
Analysis Tool
Climate Adaptation Wizard: Provides
a framework and resources to help
companies generate information to informtheir own adaptation strategy.

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): A set of four
national level socioeconomic scenarios
developed for use in UK-wide climate
impacts and adaptation assessments.

Link

Time horizon: Depends on scenario
What are the outputs?
Five-step process to help assess anorganization’s vulnerability to current
and future climate change, identify
options to address risks, and help
develop and implement a climatechange adaptation strategy.

Executive Summary
Table of Contents
A.
Introduction

What climate-related risks andopportunities are covered?
Physical risk

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios

Vigeo Eiris(Moody’s)

What services do they provide?
Analysis Tool
Energy Transition Rating: Provides a ratingof the quality of strategic management toaddress risks and opportunities associatedwith the transition to a low-carbon economy.
Brown Share Assessment: An assessmentof corporate exposure to fossil fuels andpotential emissions.

Conclusion

Green Share Assessment: Share ofrevenues derived from the sale of green
products and services.

Appendix 1:
An Overview of Public
Scenarios and Models

Physical Risk Management: Company
assessment of its ability to anticipate,prevent, and manage the physical risksof climate change.

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Sectors covered: Agriculture and forestry;Business, industries, and services; Healthand well-being; Natural environment;
Buildings and infrastructure.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: United Kingdom, but
methods and tools useful generally
Resolution: Company level

E.
Disclosure: Demonstrating
Strategy Resilience

Appendix 2:
Scenario Construction

What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: N/A

TCFD Climate Strategy Assessment:
An assessment of the degree to whichclimate change has been incorporated into
corporate strategy.

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Carbon Footprint
Assessment; Scope 1, Scope 2, andScope 3 emissions data for companies
and sovereigns.

Link

Time horizon: Multiple
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended user: All
Sectors covered: All
What geography is covered?
At what resolution (if disclosed)?
Geography covered: N/A
Resolution: N/A

Climate Controversies Assessment:
Real-time information on climate-related
allegations against companies, and an
opinion on companies’ mitigation efforts
regarding climate controversies.
What are the outputs?
See above.
What climate-related risks andopportunities are covered?
Both transition and physical
105

The Task Force on Climate-related Financial Disclosures

Table A3-2: Selected Scenario Tool and Data Providers(Continued)
Nameof Provider

Vivid
Economics(ViEW)

What services do they provide?
Analysis Tool
ViEW: A dynamic model of economic
activity, energy production, CO2 emissions,and trade flows that can represent
different countries.

Table of Contents

What are the outputs?
Costs and benefits of different carbon
policy options at the country or sector
level (can be integrated with bottom-up
models to provide a detailed analysis
of individual sectors).

A.
Introduction

What climate-related risks andopportunities are covered?
Transition

Executive Summary•	Not specified, but relevant to carbon
pricing and energy demand.

B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

Web
Link

Details
What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): Not disclosed

LinkTime horizon: Not disclosed
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Not defined(depends on user’s interpretation
and use of information).
Sectors covered: Energy sectors(renewable and non-renewable). Nonenergy includes up to 12 agricultural
sectors and 25 manufacturing sectors.
What geography is covered?
At what resolution (if disclosed)?
Geography covered: Not disclosed
Resolution: Not disclosed

World Bank
GlobalFacility for
Disaster
Reduction
andRecoveryWhat services do they provide?
Analysis Tool
ThinkHazard!: A free, web-based toolthat assesses the level of physical climate
hazards for a user-specified location andprovides guidance on how to reduce risks
associated with development projects.
What are the outputs?
A map with highlighted regions based on
hazard categories (very low, low, medium,high) and high-level recommendations
to reduce associated risks.

What emissions scenario(s) and time
horizon(s) are covered?
Emissions scenario(s): N/A – current state

Link

Time horizon: Not disclosed
What sectors can use this tool/data?
What sectors are covered by the dataor analysis?
Intended users: Investors or
stakeholders in development projects,
development sector
Sectors covered: Development projects
and related assets

What climate-related risks andopportunities are covered?
Physical

What geography is covered?
At what resolution (if disclosed)?
Geography covered: Global•	River flood, urban flood, coastal
flood, cyclone, water scarcity,
extreme heat, wildfire

Resolution: Not disclosed

Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
106Appendix 4:Interviewed Organizations

The Task Force on Climate-related Financial Disclosures

Appendix 4: Interviewed Organizations
CompanyCountry

SectorAurizonAustralia

Transportation

BASF

Germany

Materials

BHP

Australia

Materials

China Power & Light (CPL)

Hong Kong SAR

Utilities

ENEL

Italy

Utilities

Kirin

Japan

Consumer Staples

Lafarge-Holcim

Switzerland

Materials

Lendlease

Australia

Real Estate

Mondi

UK

Materials

Nestlé

Switzerland

Consumer Staples

A.
Introduction

Olam

SingaporeConsumer Staples

South32

Australia

Materials

B.
Getting Organized

Syngenta

Switzerland

Materials

UnileverUK

Consumer Staples

C.
The Scenario Process

Vopak

Netherlands

Energy & Industrial

Executive Summary
Table of Contents

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
108

Glossary and
Abbreviations

The Task Force on Climate-related Financial Disclosures

Glossary and Abbreviations

198

GLOSSARY
ADAPTATION in human systems is the processof adjustment to actual or expected climate andits effects, in order to moderate harm or exploit
opportunities. In natural systems, the processof adjustment to actual climate and its effects;
human intervention may facilitate adjustment
to expected climate and its effects.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting Organized•	Incremental adaptation – Adaptation thatmaintains the essence and integrity of a systemor process at a given scale. In some cases,
incremental adaptation can accrue to resultin transformational adaptation.
•	Transformational adaptation – Adaptationthat changes the fundamental attributesof a socioecological system in anticipationof climate change and its impacts.
•	Adaptation limit – The point at which objectives(or system needs) cannot be secured from
intolerable risks through adaptive actions.
- Hard adaptation limit: No adaptive actions
are possible that can avoid intolerable risks.

C.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments- Soft adaptation limit: Options are currently
not available to avoid intolerable risks throughadaptive action.
CLIMATE MODEL is a numerical representationof the climate system based on the physical,
chemical, and biological properties of its
components, their interactions and feedback
processes, and accounting for some of its
known properties. The climate system can be
represented by models of varying complexity;that is, for any one component or combinationof components, a spectrum or hierarchy ofmodels can be identified. They differ, in suchaspects as the number of spatial dimensions,the extent to which physical, chemical, or
biological processes are explicitly represented,
or the level at which empirical approximationsof complex or small-scale processes(parametrizations) are involved. There is anevolution toward more complex models withinteractive chemistry and biology. Climate
models are applied as a research tool to study
and simulate the climate and for operational
purposes, including the production of monthly,
seasonal, and interannual climate predictions.

DOWNSCALING is a method that derives localto-regional-scale (up to 100 km) informationfrom larger-scale models or data analyses. Twomain methods exist: dynamical downscaling andempirical/statistical downscaling. The dynamical
method uses the output of regional climate
models, global models with variable spatial
resolution, or high-resolution global models.
The empirical/statistical methods are based on
observations and develop statistical relationshipsthat link the large-scale atmospheric variables
with local/regional climate variables. In allcases, the quality of the driving model remains
an important limitation on quality of thedownscaled information. The two methods canbe combined (e.g., applying empirical/statistical
downscaling to the output of a regional climate
model, consisting of a dynamical downscalingof a global climate model).
DRIVING FORCE is a force driving the possible
outcome of a critical uncertainty and hasa relatively high level of explanatory power
in relation to the situation being looked at.199
EXPOSURE is the presence of people, livelihoods,
species or ecosystems, environmental functions,services, and resources, infrastructure, or
economic, social, or cultural assets in places
and settings that could be adversely affected.
EXTREME WEATHER EVENT is an event thatis “rare” at a particular place and time of year.
Definitions of rare vary, but an extreme weather
event would normally be as rare as, or rarer
than, the 10th or 90th percentile of a probability
density function estimated from observations.
By definition, the characteristics of what iscalled extreme weather may vary from place
to place in an absolute sense. When a patternof extreme weather persists for some time, suchas a season, it may be classified as an extreme
climate event, especially if it yields an averageor total that is itself extreme (e.g., drought or
heavy rainfall over a season).
FINANCIAL IMPACT is when financial items
such as physical assets, capital expenditures,operational expenditures, and revenues areaffected, whether positively or negatively.200

198 nless otherwise noted, all terms and definitions in the Glossary are from IPCC, “Special Report – A Global Warming of 1.5°C –U
Glossary,” 2018.

199

Van Der Heijden, Kees, Scenarios: The Art of Strategic Conversation, West Sussex, UK: Wiley, 2010.

200

Definition developed for this guidance.

110

The Task Force on Climate-related Financial Disclosures

HAZARD is the potential occurrence of anatural or human-induced physical event or
trend or physical impact that may cause lossof life, injury, or other health effects, as well as
damage and loss to property, infrastructure,
livelihoods, service provision, ecosystems, andenvironmental resources. In this report, the term
“hazard” usually refers to climate-related physicalevents or trends or their physical impacts.
HORIZON YEAR is the chosen cutoff time in the
future of the scenario stories.201

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

IMPACTS (Consequences, Outcomes) are theeffects on natural and human systems. In thisreport, the term “impact” is used primarily
to refer to the effects on natural and humansystems of extreme weather and climate eventsand of climate change. Impacts generally refer toeffects on lives, livelihoods, health, ecosystems,
economies, societies, cultures, services,
and infrastructure due to the interaction ofclimate changes or hazardous climate eventsoccurring within a specific time period, and thevulnerability of an exposed society or system.
Impacts are also referred to as consequences
and outcomes. The impacts of climate change on
geophysical systems, including floods, droughts,
and sea level rise, are a subset of impacts calledphysical impacts.
IMPACT ASSESSMENT is the practice ofidentifying and evaluating, in monetary and/or non-monetary terms, the effects of climatechange on natural and human systems.
INTEGRATED ASSESSMENT is a method ofanalysis that combines results and models
from the physical, biological, economic, andsocial sciences and the interactions among
these components. This is done in a consistentframework to evaluate the status and theconsequences of environmental change andthe policy responses to it. See also Integrated
Assessment Models (IAMs).
INTEGRATED ASSESSMENT MODELS (IAMS)
are models that integrate knowledge fromtwo or more domains into a single framework.
They are one of the main tools for undertaking
integrated assessments. One class of IAM usedin respect of climate change mitigation may
include representations of multiple sectors of theeconomy, such as energy, land use, and landuse change; interactions between sectors; theeconomy as a whole; associated GHG emissions
and sinks; and reduced representations of theclimate system. This class of model is used toassess linkages between economic, social, andtechnological development and the evolutionof the climate system. Another class of IAM
additionally includes representations of thecosts associated with climate change impacts,
but includes less-detailed representationsof economic systems. These can be used toassess impacts and mitigation in a cost–benefit
framework and have been used to estimate
the social cost of carbon.
NARRATIVES are qualitative descriptions ofplausible future world evolution, describing thecharacteristics, general logic, and developments
underlying a particular quantitative setof scenarios. Narratives are also referred
to in the literature as “storylines.” See also
Scenarios, Scenario Storyline.
PATHWAYS are the temporal evolutionof natural and/or human systems toward
a future state. Pathway concepts range
from sets of quantitative and qualitative
scenarios or narratives of potential futures,
to solution-oriented decision-making processes
to achieve desirable societal goals. Pathway
approaches typically focus on biophysical,
techno-economic, and/or socio-behavioral
trajectories and involve various dynamics,
goals, and actors across different scales. Typesof pathways include Adaptation pathways,
Development pathways, Emissions pathways,
Mitigation pathways, Overshoot pathways,
Non-overshoot pathways, Representative
Concentration Pathways, Shared Socioeconomic
Pathways, and Transformative pathways.
QUALITATIVE SCENARIO ANALYSIS is analysis
that focuses on the identification of trends andon the overarching narratives of the scenarios,
often providing insight into less quantifiable
company characteristics such as strategy,
agility, philosophy, vision, and culture. Thiskind of analysis can weave together multiple
trends of various scales and complexity intoa narrative to provide context relevant to
a company’s strategy.202
QUANTITATIVE SCENARIO ANALYSIS is analysis
that refers to the use of quantified information
within a scenario. It can take many forms, fromnumerical descriptions of trends and otherfactors, to the use of techniques such as trend
analysis, sensitivity analysis, and modelingof a company’s climate‑related risks.203

201

Definition developed for this guidance.

202 IT, Climate-related Financial Disclosures: Use of Scenarios, Office of the Vice President for Research, Cambridge, MA: Massachusetts
M
Institute of Technology, 2019.

203

Ibid.

111

The Task Force on Climate-related Financial Disclosures

RESILIENCE is the capacity of social, economic,
and environmental systems to cope with ahazardous event or trend or disturbance,
responding or reorganizing in ways that maintaintheir essential function, identity, and structure
while also maintaining the capacity for adaptation,
learning, and transformation.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

RISK is the potential for adverse consequencesfrom a climate-related hazard for humanand natural systems. These result from theinteractions between the hazard and thevulnerability and exposure of the affected
system. Risk integrates the likelihood of
exposure to a hazard and the magnitude of its
impact. Risk also can describe the potential foradverse consequences of adaptation or emission
mitigation responses to climate change.
RISK MANAGEMENT is the process of identifying
potential threats, assessing organizational
vulnerabilities, determining risks, andimplementing appropriate risk management
techniques to minimize the negative impact
they may have on an organization. The mostcommon types of risk management techniques
include avoidance, mitigation, transfer, andacceptance.204
SCENARIOS are a plausible description of how
the future may develop based on a coherent andinternally consistent set of assumptions about
key driving forces (e.g., rate of technologicalchange, prices) and relationships. Note that
scenarios are neither predictions nor forecasts,
but are used to provide a view of the implicationsof developments and actions.
•	BASELINE OR REFERENCE SCENARIO, inmuch of the literature, is synonymous withthe term business as usual scenario, although
the term “BAU” has fallen out of favor because
the idea of business as usual in century-longsocioeconomic projections is hard to fathom.
In the context of transformation pathways,
the term “baseline” refers to scenarios thatare based on the assumption that no emission
mitigation policies or measures will be
implemented beyond those that are alreadyin force and/or are legislated or planned to be
adopted. Baseline scenarios are not intended
to be predictions of the future, but rather
counterfactual constructions that can serve tohighlight the level of emissions that would occur
without further policy effort. Typically, baseline
scenarios are then compared to emission

mitigation scenarios that are constructed
to meet different goals for greenhouse gas
emissions, atmospheric concentration, or
temperature change. The term “baseline
scenario” is often used interchangeably with“reference scenario” and “no policy scenario.”•	EMISSION SCENARIO is a plausible
representation of the future development ofemissions of substances that are radiatively
active (e.g., greenhouse gases, aerosols). It isbased on a coherent and internally consistent
set of assumptions about driving forces (such as
demographic and socioeconomic development,
technological change, energy, and land use)
and their key relationships. Concentration
scenarios, derived from emission scenarios,
are often used as input to a climate model tocompute climate projections.
•	MITIGATION SCENARIO is a plausible
description of the future that describes
how the (studied) system responds
to the implementation of mitigation
policies and measures.
•	SOCIOECONOMIC SCENARIO is a scenariothat describes a possible future in termsof population, gross domestic product,and other socioeconomic factors relevant
to understanding the implications ofclimate change.
SCENARIO OUTCOME refers to the endpointof a scenario, usually a temperature target suchas limiting the level of temperature rise by 2100
to 2°C.205
SCENARIO PATHWAYS refer to the political,
technological, and economic developments andassociated risk drivers (e.g., which sectors andregions bear the most emissions reductions,or which energy technologies win out in different
economies) that lead to a particular scenario
outcome; there can be distinctively different
pathways leading to the same outcome. Also
see Pathways.206
SCENARIO STORYLINE is a narrative descriptionof a scenario (or family of scenarios), highlighting
the main scenario characteristics, relationships
between key driving forces, and the dynamics oftheir evolution. Also referred to as “narratives”
in the scenario literature.

204

Definition developed for this guidance.

205 IT, Climate-related Financial Disclosures: Use of Scenarios, Office of the Vice President for Research, Cambridge, MA: Massachusetts
M
Institute of Technology, 2019.

206

Ibid.

112

The Task Force on Climate-related Financial Disclosures

SOCIAL COSTS are the full costs of an actionin terms of social welfare losses, including
external costs associated with the impacts of thisaction on the environment, the economy (GDP,employment), and on the society as a whole.
SOCIAL-ECOLOGICAL SYSTEMS are integrated
systems that include human societies andecosystems, in which humans are part of nature.
Their functions arise from the interactions
and interdependence of the social andecological subsystems. The system’s structureis characterized by reciprocal feedbacks,emphasizing that humans are a part of, not apartfrom, nature.
Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

STRANDED ASSETS are assets exposed todevaluation or conversion to “liabilities” becauseof unanticipated changes in their initially expected
revenues. These may be due to innovations and/or evolution of the business context, includingchanges in public regulations at the domestic andinternational levels.
STRATEGY RESILIENCE is the characteristicof a company’s strategy that allows it to adapt
to climate‑related changes materially affecting
its business, while maintaining operations andprofitability and safeguarding people, assets,
and overall reputation. Strategy resilience has
two main pillars: vulnerability and preparedness.
Vulnerability incorporates the elements of
exposure, sensitivity, and adaptive capacity.
Preparedness incorporates the elements ofstrategic planning and adaptive capacity. Strategicplanning is primarily a forward‑looking exercise.
Assessment of adaptive capacity involves bothpresent and forward‑looking aspects.207
STRESSORS are events and trends, often not
climate-related, that have an important effecton the system exposed and can increase
vulnerability to climate-related risk.
SUPPLY CHAIN is the linear sequence ofprocesses, actors, and locations involvedin the production, distribution, and saleof a commodity from start to finish. 208
SUPPLY NETWORK is the complex network thatconnects multiple nodes directly and indirectlyin the production, distribution, and sale of acommodity. It differs from a supply chain in that it
expands a linear process to include all the factorsthat may impact it, extending it to external nodes
and multidirectional connections.209

TIPPING POINT is a level of change in systemproperties beyond which a system reorganizes,
often abruptly, and does not return to the initialstate even if the drivers of the change are abated.
For the climate system, it refers to a criticalthreshold when global or regional climate changes
from one stable state to another stable state.
UNCERTAINTY is a state of incomplete
knowledge that can result from a lack of
information or from disagreement about what
is known or even knowable. It may have many
types of sources, from imprecision in the data
to ambiguously defined concepts or terminology,
incomplete understanding of critical processes,
or uncertain projections of human behavior.
Uncertainty can therefore be represented byquantitative measures (e.g., a probability density
function) or by qualitative statements (e.g.,reflecting the judgment of a team of experts).
VULNERABILITY refers to the propensity
or predisposition to be adversely affected.
Vulnerability encompasses a variety ofconcepts and elements including sensitivity
or susceptibility to harm and lack of capacity
to cope and adapt.

ABBREVIATIONS
AR5 — Fifth Assessment Report of the IPCC
BAU — Business as Usual
BSR — Business for Social Responsibility
C2ES — Center for Climate and Energy Solutions
CAPEX — Capital Expenditures
CDT — Climate Data Tool
CEO — Chief Executive Officer
CFDA — Climate Financial Driver Analysis
CFO — Chief Financial Officer
CCIA — Climate Change in Australia
CORDEX — Coordinated Regional Climate
Downscaling Experiment
CPS — Current Policies Scenario (IEA)
CRIS — Climate Risk Impact Screening

Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

207

 IT, Climate-related Financial Disclosures: Use of Scenarios, Office of the Vice President for Research, Cambridge, MA: Massachusetts
M
Institute of Technology, 2019.

208

Definition developed for this guidance.

209

Definition developed for this guidance.

113

The Task Force on Climate-related Financial Disclosures

CRO — Chief Risk Officer

MIT — Massachusetts Institute of Technology

CSO — Chief Stategic Officer

NDC — Nationally Determined Contributions

C-SUITE — Executive officers of a company

NGFS — Network for Greening the Financial
SystemCTA — Carbon Transition Assessment
DDPP — Deep Decarbonization Pathways Project
EPRI — Electric Power Research Institute
ERM — Enterprise Risk Management
ESG — Environmental, Social, and Governance
GCM — Global Climate Model
Executive Summary
Table of Contents

GDP — Gross Domestic Product
GHG — Greenhouse Gas

PRI — Principles for Responsible Investment
PWC — PricewaterhouseCoopers
RCP — Representative Concentration Pathway
R&D — Research and Development
SDS — Sustainable Development Scenario (IEA)
SPS — Stated Policies Scenario (IEA)
SSP — Shared Socioeconomic Pathway

IAM — Integrated Assessment Model

STEEP — Social, Technology, Economic,
Environmental, and PolicyA.
Introduction

IAMC — Integrated Assessment Modeling
Consortium

TCFD — Task Force for Climate-related Financial
Disclosures

B.
Getting Organized

IAV — Impact, Adaptation, and Vulnerability

UK PRA — UK Prudential Regulation Authority

IEA — International Energy Agency

C.
The Scenario Process

IFRS — International Financial ReportingStandards

U.S. AID — U.S. Agency for International
Development

D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

IIASA — International Institute for Applied
Systems Analysis
IPCC — Intergovernmental Panel on Climate
Change

VAR — Value-at-Risk
WCRP — World Climate Research Programme
WEF — World Economic Forum

IPR — Inevitable Policy Response (PRI)

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
114

References

The Task Force on Climate-related Financial Disclosures

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Joint_Bulletin_Finished.pdf.
Association of Chartered Certified Accountants. “Tenets of Good Corporate Reporting.” 2018.
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Executive Summary
Table of Contents
A.
Introduction

Ackerman, Frank and Elizabeth A. Stanton. “Climate risks and carbon prices: revising the social
cost of carbon.” Economics: The Open-Access, Open-Assessment EJournal 6 (2012): 1–25.
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B.
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C.
The Scenario Process

Amer, M., T. U. Daim and A. Jetter. “A review of scenario planning.” Futures 46 (2013): 23–40.
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D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

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Australian Bureau of Meterology. Downscaling. 2016. https://www.climatechangeinaustralia.gov.au/en/
climate-campus/modelling-and-projections/climate-models/downscaling/.
Bank of England. 2021 Bienniel Exploratory Scenario on the Financial Risks from Climate Change.
Discussion Paper. London: Bank of England, 2019. https://www.bankofengland.co.uk/-/media/
boe/files/paper/2019/the-2021-biennial-exploratory-scenario-on-the-financial-risks-fromclimate-change.pdf.

Appendix 2:
Scenario Construction

Bank of England. A framework for assessing financial impacts of physical climate risks. London,
2019. https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/
publication/2019/a-framework-for-assessing-financial-impacts-of-physical-climate-change.
pdf?la=en&hash=7DE2A5E0442752ED910CF01F36BC15AA661AD1D9.

Appendix 3:
Summary of Selected
Scenario Tools andInformation

Berkhout, F. “Adaptation to climate change by organizations.” WIREs Climate Change 3 (2011): 91–106.
https://onlinelibrary.wiley.com/doi/abs/10.1002/wcc.154#:~:text=By%20organizations%20
I%20mean%20collectivities,to%20achieve%20certain%20common%20goals.&text=While%20
individuals%20(such%20as%20a,the%20context%20of%20an%20organization.

Appendix 4:Interviewed Organizations

Berkhout, F., et al. “Framing climate uncertainty: socio-economic and climate scenarios in vulnerability
and adaptation assessments.” Regulatory and Environment Change (2013): 15. https://link.springer.
com/article/10.1007/s10113-013-0519-2.

Glossary, Abbreviations,
References, andAcknowledgments
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Berkhout, F., J. Hertin and A. Jordan. “Socio-economic futures in climate change impact assessment.”
Tyndall Centre Working Paper No. 3. 2001. https://www.sciencedirect.com/science/article/abs/
pii/S0959378002000067#:~:text=Socio%2Deconomic%20futures%20scenarios%20and,%2C%20
national%2C%20or%20international%20levels.
Bhamra, R., S. Dani and K. Burnard. “Resilience: the concept, a literature review and future directions.”
International Journal of Production Research 49.18 (2011): 5375–5393. https://www.tandfonline.
com/doi/abs/10.1080/00207543.2011.563826#:~:text=In%20an%20ever%2Dmore%20
interconnected,disruptions%20as%20an%20independent%20entity.
Blackrock Investment Institute. “Getting Physical: Scenario Analysis for Assessing Climate-relatedrisks.” 2019. https://www.blackrock.com/ch/individual/en/literature/whitepaper/bii-physicalclimate-risks-april-2019.pdf.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Bonen, Anthony, Willi Semmler and Stephan Klasen. “Economic Damages from Climate Change:
A review of modeling approaches.” Schwartz Center for Economic Policy Analysis – Working Paper
Series WP-2014-03 (2014): 64. https://www.researchgate.net/publication/263695038_Economic_
Damages_from_Climate_Change_A_Review_of_Modeling_Approaches.
Brooksbank, Daniel. COVID-19 is leading to a re-think about corporate scenario disclosure. April 15, 2020.
https://www.responsible-investor.com/articles/covid-19-is-leading-to-a-re-think-about-corporatescenario-disclosure.
Business for Social Responsibility. Navigating the Materiality Muddle. 2013. https://www.bsr.org/en/ourinsights/blog-view/navigating-the-materiality-muddle.
Burke, M., S. M. Hsiang and E. Miguel. “Global non-linear effect of temperature on
economic production.” Nature 527 (2015): 235–239. https://www.nature.com/articles/
nature15725#:~:text=A%20global%20non%2Dlinear%20response,economic%20impact%20
of%20climate%20change.&text=In%202100%2C%20we%20estimate%20that,would%20be%20
without%20climate%20change.
Center for Climate and Energy Solutions (C2ES). “Business risks, opportunities, and leadership.”Briefing Note. 2019. https://www.c2es.org/site/assets/uploads/2019/04/business-risksopportunities-and-leadership.pdf.
C2ES. “Carbon Utilization – A Vital And Effective Pathway For Decarbonization: Summary Report.”
2019. https://www.c2es.org/site/assets/uploads/2019/09/carbon-utilization-a-vital-and-effectivepathway-for-decarbonization.pdf.
C2ES. “Weathering the Storm: Building Business Resilience to Climate Change.” 2013.
https://www.c2es.org/site/assets/uploads/2013/07/weathering-the-storm-full-report.pdf.
Camillus, John C. “Strategy as a Wicked Problem.” Harvard Business Review (May 2008): 9.
https://hbr.org/2008/05/strategy-as-a-wicked-problem.
Carbon Brief. Climate Models. 2018. https://www.carbonbrief.org/wp-content/uploads/2018/01/
Evolution-of-climate-models-final.jpg.
Carbon Brief. How do climate models work? February 2020. https://www.carbonbrief.org/qa-how-doclimate-models-work.
Carbon Brief. How SSPs Explore Future Climate Change. 2018. https://www.carbonbrief.org/explainerhow-shared-socioeconomic-pathways-explore-future-climate-change.
Carbon Brief. Profound Shifts Underway in Energy Systems. 2019. https://www.carbonbrief.org/
profound-shifts-underway-in-energy-system-says-iea-world-energy-outlook.
Carlsen, Henrik, et al. “Systematic exploration of scenario spaces.” Foresight 18.1 (2016): 59–75.
https://www.sei.org/publications/systematic-exploration-of-scenario-spaces/.
Climate Change in Australia (CCIA). Climate Models. 2016. https://www.climatechangeinaustralia.gov.
au/en/climate-campus/modelling-and-projections/climate-models/.

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CCIA. How does a climate model work? 2016. https://www.climatechangeinaustralia.gov.au/en/climatecampus/modelling-and-projections/climate-models/theory-and-physics/.
CCIA. “Technical Report: Projections for Australia’s NRM Regions.” 2015. https://www.
climatechangeinaustralia.gov.au/media/ccia/2.1.6/cms_page_media/168/CCIA_2015_NRM_
TechnicalReport_WEB.pdf.
CCIA. Uncertainty and confidence in projections. 2016. https://www.climatechangeinaustralia.gov.
au/en/climate-campus/modelling-and-projections/projecting-future-climate/uncertainty-andconfidence/.
CDP. “Carbon Pricing Corridors: The Market View.” 2017. https://www.cdp.net/en/climate/carbonpricing/corridors.
CDP. “CDP Technical Note on Scenario Analysis.” 2017. https://b8f65cb373b1b7b15febc70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/guidance_docs/
pdfs/000/001/430/original/CDP-technical-note-scenario-analysis.pdf?1512736385.
Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

CDP. “Dataset – CDP Questionnaire Data for 2019.” 2019.
CDP. From Agreement to Action: Mobilizing suppliers toward a climate resilient world. San Francisco:
BSR, 2016. https://www.bsr.org/reports/BSR_CDP_Climate_Change_Supply_Chain_
Report_2015_2016.pdf.
CDP. How-to guide to corporate internal carbon pricing – Four dimensions to best practice
approaches. London: Ecofys, The Generation Foundation and CDP, 2017. http://
b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.r81.cf3.rackcdn.com/cms/
reports/documents/000/002/740/original/cpu-2017-how-to-guide-to-internal-carbon-pricing.
pdf?1521554897.
CDP. “Major Risk or Rosy Opportunity? Are Companies Ready for Climate Change.” CDP Climate
Change Report 2019. 2019. https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.
ssl.cf3.rackcdn.com/cms/reports/documents/000/004/588/original/CDP_Climate_Change_
report_2019.pdf?1562321876.
CDP. “Putting a price on carbon: Integrating climate risk into business planning.” 2017. https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/
documents/000/002/738/original/Putting-a-price-on-carbon-CDP-Report-2017.pdf?1507739326.
CDP. “Reporting Climate Resilence: The Challenges Ahead.” 2018. https://www.oliverwyman.com/
content/dam/mmc-web/Global-Risk-Center/Files/reporting-climate-resilience.pdf.
Climate Disclosure Standards Board. “How can companies considering TCFD recommended scenario
analysis provide disclosures that help investors: A short guide.” 2018. https://www.cdsb.net/sites/
default/files/how_to_make_tcfd_scenarios_useful_for_investors_a_short_guide.pdf.
Ceres. “Running the Risk: How Corporate Boards Can Oversee Environmental, Social, and Governance
Issues.” November 2019. https://corpgov.law.harvard.edu/2019/11/25/running-the-risks-howcorporate-boards-can-oversee-environmental-social-and-governance-issues/.
Chermack, T. J. Scenario Planning in Organizations: How to Create, Use, and Assess Scenarios. Oakland, CA:
Berrett-Koehler, 2011.
CICERO. Climate Scenarios Demystified. Oslo, Norway, 2018. https://pub.cicero.oslo.no/
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pdf?sequence=1&isAllowed=y.
Cleary Gottlieb. “Climate Change Risks: An Update on Current Litigation Trends.” Alert Memorandum.
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Climate Action Tracker. “Warming Projections Global Upate.” 2018. https://climateactiontracker.org/
documents/507/CAT_2018-12-11_Briefing_WarmingProjectionsGlobalUpdate_Dec2018.pdf.

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Climate Works Australia. “Pathways to Deep Decarbonisation by 2050: How Australia can prosper
in a low carbon world.” 2014. https://www.climateworksaustralia.org/resource/pathways-todeep-decarbonisation-in-2050-how-australia-can-prosper-in-a-low-carbon-world/.
ClimateWise. “Physical rsk framework: Understanding the impacts of climate change on real estate
lending and investment portfolios.” 2019. https://www.cisl.cam.ac.uk/resources/publication-pdfs/
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ClimateWise. “Transition risk framework: Managing the impacts of low carbon transition on
infrastructure investments.” 2019. https://www.cisl.cam.ac.uk/resources/sustainable-financepublications/transistion-risk-framework-managing-the-impacts-of-the-low-carbon-transition-oninfrastructure-investments.
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coastal_risk_Australia.pdf.
Executive Summary

CoastAdapt. Assessing Risks and Vulnerabilities. 2017. https://coastadapt.com.au/C-CADS/step-2determine-vulnerability.

Table of Contents

CoastAdapt. How to conduct a climate change risk assessment. 2017. https://coastadapt.com.au/how-topages/how-to-conduct-a-climate-change-risk-assessment.

A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

CoastAdapt. How to understand climate change scenarios. 2017. https://coastadapt.com.au/how-topages/how-to-understand-climate-change-scenarios.
Congressional Budget Office. The Economics of Climate Change: A Primer. Washington DC: Congressof the United States, 2003. https://www.cbo.gov/sites/default/files/108th-congress-2003-2004/
reports/04-25-climatechange.pdf.
Coordinated Regional Climate Downscaling Experiment (CORDEX). About. 2016. https://cordex.org/
about/.
CORDEX. “General Instructions for CORDEX integrations.” 2009. https://www.cordex.org/wp-content/
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Courtney, Hugh, Jane Kirkland and Patrick Viguerie. Strategy under uncertainty. June 2000.
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afe1&hctky=9435869&hdpid=92d7756c-d3ae-43bc-8c56-9336706f03c4.

Conclusion

CSIRO. Common Mistakes When Using Climate Change Data. 2016. Commonwealth Scientific andIndustrial Research Organisation. September 2020. https://www.climatechangeinaustralia.gov.
au/en/climate-campus/modelling-and-projections/using-projections/common-mistakes/.

Appendix 1:
An Overview of Public
Scenarios and Models

Deep Decarbonization Pathways Project. About. 2019. https://www.iddri.org/en/project/deepdecarbonization-pathways-project.

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

DeFries, Ruth, et al. “The missing economic risks in assessments of climate change impact.” Policy
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Deloitte. Clarity in financial reporting: Disclosure of climate-related risks. Sydney NSW Australia: Deloitte
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Deloitte. “The atmosphere for climate-change disclosure.” 2020. https://www2.deloitte.com/content/
dam/Deloitte/us/Documents/center-for-board-effectiveness/us-the-atmosphere-for-climatechange-disclosure-otba-march-2020.pdf.

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Deloitte. “The Four Phases of Building a Scenario-based Planning Model with Econometrics.”
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Executive Summary
Table of Contents

Dittrich, R., A. Wreford and D. Moran. “A survey of decision-making approaches for climate change
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A.
Introduction

Dodge Data and Analytics. “World Green Building Trends 2016: Developing Markets Accelerate Global
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B.
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C.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

European Capacity Building Initiative. “Pocket Guide to the NDCs under the UNFCCC.” 2018.
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Fiksel, Joseph. Resilient by Design. Washington DC: Island Press, 2015.
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Executive Summary

Gladwell, Malcolm. The Tipping Point: How Little Things Can Make a Big Difference. New York: Little,
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Table of Contents

Goldstein, Allie, et al. “The private sector’s climate change risk and adaptation blind spots.” Nature
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A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

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Howard, Peter. “Omitted Damages: What’s Missing from the Social Cost of Carbon.” 2014. https://
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Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

IEA. Global EV Outlook 2018. Paris: IEA, 2018. https://www.iea.org/reports/global-ev-outlook-2018.
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International Institute for Applied Systems Analysis (IIASA). Overview of IIASA IAM Framework. 2019.
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IIASA. SSP Database. 2020. https://tntcat.iiasa.ac.at/SspDb/dsd?Action=htmlpage&page=about#regiondefs.
IIASA. “Supplementary note for the SSP data sets.” 2012. https://tntcat.iiasa.ac.at/SspDb/static/
download/ssp_suplementary%20text.pdf.
Ilhan, Emirhan, et al. “Institutional Investors’ Views and Preferences on Climate Risk Disclosure.”
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Institute for Climate Economics. “Getting started on physical climate risk analysis in finance:
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Appendix 4:Interviewed Organizations

Institute for Climate Economics. “Understanding transition scenarios: Eight steps for reading andinterpreting these scenarios.” 2019. https://www.i4ce.org/wp-core/wp-content/uploads/2019/11/
I4CE-ScenariosTransition-Rapport-complet-VA.pdf.

Glossary, Abbreviations,
References, andAcknowledgments

Investor Leadership Network. “Climate change mitigation and your portfolio: Practical tools forinvestors.” 2020. https://www.investorleadershipnetwork.org/wp-content/uploads/2020/09/
ILN_Climate-Change-Mitigation-and-Your-Portfolio.pdf.
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Intergovernmental Panel on Climate Change (IPCC). “Evaluation of Climate Models.” Chapter 9 in
Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth
Assessment Report of the Intergovernmental Panel on Climate Change. 2013. https://www.ipcc.
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IPCC. “Fifth Assessment Report (AR5) Climate Change 2014: Impacts, Adaptation, and Vulnerability.”
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IPCC. Scenario Background. 2019. https://sedac.ciesin.columbia.edu/ddc/ar5_scenario_process/scenario_background.html.
IPCC. “Special Report – A Global Warming of 1.5°C – Glossary.” 2018. https://www.ipcc.ch/site/assets/
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IPCC. “Special Report – Global Warming of 1.5°C.” 2018. https://www.ipcc.ch/sr15/.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process

IPCC. “Special Report on Emission Scenarios.” A Special Report of Working Group III of theIntergovernmental Panel on Climate Change. 2000. https://www.ipcc.ch/site/assets/
uploads/2018/03/emissions_scenarios-1.pdf.
IPCC. Synthesis Report-Contributions of Working Groups I, II and III to Fifth Assessment Report of theIntergovernmental Panel on Climate Change. Geneva, Switzerland: IPCC, 2014. https://www.ipcc.ch/site/assets/uploads/2018/05/SYR_AR5_FINAL_full_wcover.pdf.
Jones, Roger and Linda Mearns. “Assessing Future Climate Risk.” Adaptation Policy Frameworks for
Climate Change: Developing Strategies, Policies and Measures. Ed. Bo Lim, et al. Cambridge University
Press, 2005. 119–144.
Jurgilevich, A., et al. “A systematic review of dynamics in climate risk and vulnerability assessments.”
Environmental Research Letters 12 (2017): 16. https://iopscience.iop.org/article/10.1088/1748-9326/
aa5508.

D.
Strategic Management
Using Scenarios

Kätelhön, Arne, et al. “Climate change mitigation potential of carbon capture and utilization in thechemical industry.” Proceedings of the National Academy of Sciences (2019): 11187–11194. https://www.pnas.org/content/116/23/11187#:~:text=To%20reduce%20oil%20consumption%20
and,alternative%20carbon%20source%20for%20chemicals.&text=Once%20and%20where%20
these%20other,contribute%20to%20climate%20change%20mitigation.

E.
Disclosure: Demonstrating
Strategy Resilience

Kinzig, A. P., et al. “Resilience and Regime Shifts: Assessing Cascading Effects.” Ecology and Society 11.1
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Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Knutti, R. and J. Sedlácek. “Robustness and uncertainties in the new CMIP5 climate model projections.”
Nature Climate Change 3 (2013): 369–373. https://www.nature.com/articles/nclimate1716.
Kolk, A and J. Pinske. “Business responses to climate change: Identifying emergent strategies.”
California Management Review 47.3 (2005): 6–20. https://journals.sagepub.com/
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Kolk, A. and J. Pinske. “Market strategies for climate change.” European Management Journal 22.3
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Kosow, H. and R. Gabner. Methods of future and scenario analysis: overview, assessment, and selection
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KPMG. “Climate Disclosures within the Annual Report: An Australian Focus.” 2020. https://assets.
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KPMG. “Identifying Natural Capital Risk and Materiality.” 2013. https://naturalcapitalcoalition.org/wpcontent/uploads/2016/08/Identifying-natural-capital-risk-and-materiality.pdf.
Lemoine, D. and C. P. Traeger. “Economics of tipping the climate dominos.” Nature Climate Change 6(2016): 514–520. https://www.nature.com/articles/nclimate2902.
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Lempert, R., et al. “Characterizing climate-change uncertainties for decision-makers.” Climate Change
65 (2004): 1–9. https://link.springer.com/article/10.1023/B:CLIM.0000037561.75281.b3.
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Lempert, Robert. “Scenarios that illuminate vulnerabilities and robustness.” Climate Change 117 (2013):
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Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience

Lepousez, Violanie, et al. Climate Risk Impact Screening: the methodological guidebook. Paris: Carbone
4, 2017. http://crisforfinance.com/wp-content/uploads/2017/11/CRIS-Guidebook_Publicversion_
Nov2017.pdf.
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science.energy.gov/publications/community-modeling-and-long-term-predictions-integratedwater-cycle.
Lindgren, Mats and Hans Bandhold. Scenario Planning: The Link Between Future and Strategy. Palgrave
MacMillan, 2009.
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Lord, Steven, Ariella Helfgott and Joost M. Vervoort. “Choosing diverse sets of plausible scenarios
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disclosure_in_the_capital_markets.pdf.

Conclusion

Maier, H. R., et al. “An uncertain future, deep uncertainty, scenarios, robustness and adaptation:
How do they fit together?” Environmental Modeling & Software 81 (2016): 154–164.
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Appendix 1:
An Overview of Public
Scenarios and Models

Marsh & McLennan. “How Climate Resilient is Your Company?” 2017. https://www.mmc.com/content/
dam/mmc-web/Global-Risk-Center/Files/how-climate-resilient-is-your-company.pdf.

Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Martelli, A. Models of Scenario Building and Planning: Facing Uncertainty and Complexity. Houndsmill, UK:
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McKinsey. “Climate risk and response: Physical hazards and socioeconomic impacts.” 2020.
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McKinsey. “Climate Math: What a 1.5-degree Pathway Would Take.” 2020. https://www.mckinsey.
com/~/media/McKinsey/Business%20Functions/Sustainability/Our%20Insights/Climate%20
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McKinsey. “Pathways to a Low-Carbon Economy: Version 2 of the Global Greenhouse Gas Abatement
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Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process

Mearns, Robin and Andrew Norton, Social Dimensions of Climate Change: Equity and Vulnerability
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D.
Strategic Management
Using Scenarios

Milestad, R., A. Svenfelt and K. H. Dreborg. “Developing integrated explorative and normative
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E.
Disclosure: Demonstrating
Strategy Resilience

Millett, Stephen M. “Should probabilities be used with scenarios?” Journal of
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look%20like%20predictive%20scenarios.

Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

Massachusetts Institute of Technology. Climate-related Financial Disclosures: Use of Scenarios. Officeof the Vice President for Research. Cambridge, MA: Massachusetts Institute of Technology, 2019.
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Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios

Nordhaus, William. The Climate Casino: Risk, Uncertainty, and Economics for a Warming World.
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E.
Disclosure: Demonstrating
Strategy Resilience

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Conclusion

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Scenarios and Models

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Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations

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Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation

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Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction

Sussman, Frances and J. Randall Freed. Adapting to climate change: A business approach. Arlington, VA:
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Appendix 3:
Summary of Selected
Scenario Tools andInformation

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Appendix 4:Interviewed Organizations

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Glossary, Abbreviations,
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Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments

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Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models

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Appendix 2:
Scenario Construction

WEF. “The Global Risks Report 2020.” 2020. https://www.weforum.org/reports/the-global-risksreport-2020.

Appendix 3:
Summary of Selected
Scenario Tools andInformation

WEF. The Net-zero Challenge: Fast-Forward to Decisive Climate Action. Cologny/Geneva Switzerland: World
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Appendix 4:Interviewed Organizations

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Glossary, Abbreviations,
References, andAcknowledgments
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Ziervogel, G., T. E. Downing and A. Patwardhan. “Linking Global and Local Scenarios Under Climate
Change.” SEI Adaptation Research Workshop, November 2003. Stockholm: Stockholm Environment
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469–477. https://www.nature.com/articles/s41558-018-0156-3.

Executive Summary
Table of Contents
A.
Introduction
B.
Getting OrganizedC.
The Scenario Process
D.
Strategic Management
Using Scenarios
E.
Disclosure: Demonstrating
Strategy Resilience
Conclusion
Appendix 1:
An Overview of Public
Scenarios and Models
Appendix 2:
Scenario Construction
Appendix 3:
Summary of Selected
Scenario Tools andInformation
Appendix 4:Interviewed Organizations
Glossary, Abbreviations,
References, andAcknowledgments
131

Acknowledgments
The TCFD greatly appreciates the assistance provided by the following individuals in developing this guidance:

The TCFD Advisory Group on Scenario Analysis
Andreas Horn, BASF, Senior Specialist Carbon Steering
Francesca Gostinelli, ENEL, Head of Group Strategy, Economics and Scenario Planning
Simon Wild, Lendlease, Group Head of Transformation & Sustainability
Duncan Pollard, Nestlé, Vice President Sustainability & Stakeholder Engagement
Alison Bewick, Nestlé, Head of Group Risk Management
Chris Brown, Olam, Vice President, Corporate Responsibility and Sustainability
Daniel-Sascha Roth, Volkswagen, Head of Sustainability Management
Ina Thurn, Volkswagen, Director Sustainability Rankings and Ratings
Patrick van der Voort, Vopak, Director, Global Operations & Strategy
Steven Rose, Electric Power Research Institute, Senior Research Economist
Wim Bartels, Member of TCFD, Partner, Corporate Reporting, KPMG
Curtis Ravenel, TCFD Secretariat
Jeff Stehm, TCFD Secretariat

Other Contributors
Fiona Wild, BHP
Anne-Cecile Moreno, KPMG
Amy Steel, Michael Wood, and Paul Dobson of Deloitte Australia (Appendix 1)
Joe Solly & Madeline Collins of Deloitte Canada & James Penn of Deloitte UK (Appendix 3)External Reviewers
Thomas Liesch, Allianz Group
Adam Matthews, Church of England Pension Board
James Stacey, ERM
Zoe Knight and Gemma Rastelli, HSBC

For more information, please visit fsb-tcfd.org
Nothing in this document constitutes an offer or a solicitation of an offer to buy or sell a security or financial instrument or investment advice
or recommendation of a security or financial instrument. The Task Force on Climate-related Financial Disclosures believes the information herein
was obtained from reliable sources but does not guarantee its accuracy. Copyright 2020 The Task Force on Climate-related Financial Disclosures.