When assessing climate risk, scenario analysis is a valuable strategic exercise that helps companies adapt and thrive in a changing climate landscape.
Trends in climate risk have increasingly shifted towards more rigorous climate-related regulation for companies, through the adoption of frameworks such as the European Union’s Corporate Sustainability Reporting Directive (CSRD), the Task Force on Climate-related Financial Disclosures (TCFD), and the UK Government’s Climate Financial Disclosure (CFD) requirements under the Companies Act 2006. Conducting scenario analysis provides valuable insights for strategic planning, allowing organisations to effectively assess climate risks and test the resilience of their strategies.
How our Sustainability team can help you
Forvis Mazars provide a range of climate risk services and can assist with both physical and transition climate risk analysis. We can provide a quantitative and/or qualitative assessment of your climate risks across a range of potential future warming scenarios. We will use the most relevant scenarios for your organisation.
Our phased approach to scenario analysis typically includes four key stages, as outlined in the figure below:
Get in touch
If you would like further information or to discuss how the sustainability services team can help with scenario analysis, please do not hesitate to get in touch.
Our experienced sustainability services team can assist you with the following processes:
Conducting a materiality assessment to identify your potentially material climate-related risks and opportunities, outputting a shortlist to form the basis of the scenario analysis exercise.
Selecting relevant scenarios and time horizons to use in the analysis.
Calculating a financial impact figure for each material climate-related risk and assessing the strategic impacts on your organisation.
Providing insight into relevant reporting frameworks and guidance on alignment.
Common climate risk modelling FAQs
What are physical and transition risks resulting from climate change?
Physical risks resulting from climate change can be event-driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organisations, such as direct damage to assets and indirect impacts from supply chain disruption. Organisations’ financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting organisations’ premises, operations, supply chain, transport needs, and employee safety.
Transitioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organisations.
What is the importance of climate risk modelling?
With the increasing frequency and severity of extreme weather events, coupled with the accelerating push towards a lower-carbon economy, it is imperative for organisations to proactively manage climate-related risk. By using advanced modelling techniques, such as climate scenario analysis, organisations can assess the impact of both physical and transition climate-related risks on their operations, supply chains and financial performance, and quantify the financial impact.
The CSRD marks a significant milestone in the integration of sustainability reporting and financial reporting. It obliges companies operating within the EU to disclose details of material ESG-related impacts, risks and opportunities in their management reports.
The climate-related financial disclosures landscape is changing, since the UK government has amended the Companies Act 2006 to introduce additional requirements for TCFD-aligned climate-related disclosures in the annual reports of a significant mainstream of companies.
We all know that climate change is a global challenge that needs to be addressed. Whilst the UK and EU have existing Greenhouse Gas (GHG) emissions reduction schemes in place, there is a risk that this effort to tackle climate change and the objective of decarbonisation could be undermined by carbon leakage.
The EU Deforestation Regulation (EUDR), coming into force on 30 December 2025, is a product-related regulation that aims to ensure deforestation-free supply chains and aims at reducing global deforestation. In this way, the EUDR is intended to contribute to the fulfilment of the EU Green Deal.
