How can investors use climate scenarios?

“Climate scenarios” is an umbrella term used to refer to various forward-looking analyses that explore possible climate futures. Climate scenario analysis is still in its infancy, but regulators are starting to require the reporting of some climate scenario metrics , and many financial institutions are also using these metrics for stress testing, risk management and decision making.¹

Climate scenarios aim to answer two key questions: first, what might happen to global warming as a result of certain actions, such as policy measures or technological choices, or their absence; and second, what it could take to limit the global temperature rise to a specific goal.

¹ The 2021 Task Force on Climate-Related Financial Disclosures (TCFD) status report notes that eight countries/jurisdictions have announced TCFD-aligned reporting requirements as well as “dozens of regulators and supervisors”. https://www.fsb.org/wp-content/uploads/P141021-1.pdf

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