From
droughts
in the West that lead to
wildfires
and water restrictions; to severe storms in the East that affect transportation
and supply chains; to Southern
hurricanes
that cost lives and damage homes, climate change is affecting cities and
businesses across the United States. Costs from these disasters are straining
cities and businesses
budgets.
The recent climate
assessment
released by the US Government warns that the danger of more catastrophes is
worsening and that climate change will threaten our economy, public health and
wellbeing as well as the country’s infrastructure and natural resources.
Organizations will need to use scenario analysis, a forward-looking
assessment of risk, to predict problems and possible solutions and deal with the
uncertain climate and policy future. Using published global climate-related
scenarios (both physical and transitional) businesses have a starting point to
tailor their own analysis to understand future risks and
opportunities.
The Task Force on Climate-related Financial
Disclosures has developed a robust methodology to
conduct scenario analysis that includes materiality assessment for
climate-related risks and steps to determine appropriate published scenarios.
The petroleum, mining and finance industries are among the first to
run this type of scenario analysis.
For instance, ENGIE Insight client ConocoPhillips
— the world’s largest independent energy exploration & production company, based
on production and proved reserves — has a public climate change strategy. As is
the case with other
companies
in the sector, ConocoPhillips has developed scenarios combining different rates
of alternative energy technology
advancement
and government actions. Running the scenarios through their own energy-planning
model, the company gains insight into future supply, demand and prices of key
commodities. This strategy helps it understand the range of risk around
commodity prices, and the price risk associated with greenhouse gas reduction.
London-based real estate investment trust company Landsec also has a strong
scenario analysis plan in place. Using best- and worst-case temperature-change
scenarios, it modeled how future weather patterns could impact its assets before
and after 2030. The company found in a worst-case scenario — a temperature
increase of 4°C — and without any new controls in place, its assists will begin
to be negatively impacted after 2030. This research helps it know to invest in
controls and efficient energy systems in its properties, as well as information
that helps it analyze its insurance
coverage.
Their scenario analysis also aids Landsec in engineering its future developments
to be resilient in the face of extreme temperature and weather.
And South32 — a mining and metals company headquartered in Perth, Western
Australia — uses three different scenarios to stress test its portfolio:
Runaway Climate Change, Patchy Progress and Global Cooperation. The
results from the Global Cooperation scenario were broken down by commodity,
describing the financial resilience of each in its portfolio. The scenarios help
South32 better understand the potential effects to its portfolio and how to
communicate those changes to their stakeholders.
Climate change will continue to affect businesses and their business. They can prepare for
the costly and dangerous effects by creating different scenarios to predict the
impacts of climate change on their current and future financial performance.
Scenario analysis can help companies change their ways of doing business, help
customers and provide them with information to better assure their stability in
an uncertain future.
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Martin Sieh is responsible for leading ENGIE Insight’s operations, sales, client management and fulfillment teams that serve our clients across the globe – delivering energy and sustainability solutions, driving insight and action worldwide.
Published Jan 24, 2019 7am EST / 4am PST / 12pm GMT / 1pm CET