Scenario Planning for Climate Change
Scenario Planning for climate change has become a hot topic as companies are being increasingly pressured by investors and other stakeholders to assess and disclose their climate related risks. The Task Force on Climate Related Financial Disclosures (TCFD) has developed its own scenario planning methodology that it is advocating that companies follow. But the TCFD methodology is just one way to use scenario planning. A lot depends on whether management is focused on climate change in isolation of other strategic issues, and whether it sees scenario planning primarily as a way to fulfilling stakeholder calls for climate risk disclosure.
Problem: A Fortune 100 technology firm’s business model was based on megatrends including global urbanization and growth in the number of middle class consumers. It has been assumed, for example, that airline miles travelled globally will grow several-fold as a billion new middle class consumers start taking vacations. But the impacts of climate change, and particularly the often overlooked effects of possible policy responses to climate change, could disrupt those expectations. How could the company internalize the uncertainties that climate change might create for its key markets?
Solution: We were called in to walk the company through its first climate change scenario planning initiative. We developed several scenarios based on combinations of assumptions about the direction and pace of climate change itself, introducing to the company the previously unanticipated possibility that disruptive policy responses to climate change could be triggered in the relatively near term.