How to run climate scenario analysis: a step-by-step guide

Scope the work to your exposure and capability, engage the people who will use the results, frame a focal question tied to a real decision, identify the driving forces, choose a diverse set of scenarios, write narratives and then quantify where it is useful, check quality, work through the implications for strategy, and draw a resilience conclusion that you disclose with its inputs and assumptions. This order follows the TCFD's 2020 guidance for non-financial companies, which UK SRS S2 says its application guidance draws on.

The TCFD's 2020 guidance says most scenario methodologies recommend three or four. Two "bookend" scenarios are a practical start but tend to be read as one good and one bad future. Three scenarios risk becoming a high, medium and low version of a preferred case. UK SRS S2 asks only that you disclose whether the range was diverse.

These are working terms rather than terms defined in UK SRS S2. A top-down analysis starts from a global or regional scenario and downscales it to the company, business unit and asset. A bottom-up analysis starts from the company's own sites, assets, suppliers and products and asks how each is exposed. Most analyses use both, because UK SRS S2 paragraph B13 requires inputs relevant to the entity's activities and the geographical location of those activities.

UK SRS S2 mandates none. The standard treats publicly available scenarios from authoritative sources as available without undue cost or effort. The NGFS long-term scenarios group into orderly, disorderly, hot house world and too little, too late categories; the IEA's World Energy Outlook 2025 presents a Current Policies Scenario, a Stated Policies Scenario and a Net Zero Emissions by 2050 Scenario. Choose a set that covers both transition and physical risk and state the vintage used.

The Met Office's UK Climate Projections (UKCP18) provide climate model projections for the UK. The Environment Agency's long-term flood risk service gives the flood risk of an area, not a specific property. Global scenario sets such as the NGFS scenarios include physical risk estimates, with caveats the NGFS itself publishes.

Often, yes. UK SRS S2 paragraph B15 says qualitative scenario narratives, alone or combined with quantitative data, can be a reasonable and supportable basis for a resilience assessment. Paragraph B17 adds that a company with high exposure and access to the necessary skills, capabilities or resources is required to use a more advanced quantitative approach.

UK SRS S2 paragraph B18 requires the analysis to be updated at least in line with the strategic planning cycle, which may be multi-year, and the resilience assessment to be refreshed every year. The TCFD's 2020 guidance observed that companies generally update their scenarios from as often as annually to every three to four years.

The TCFD's 2020 guidance carries an appendix summarising selected scenario tools and information, alongside an overview of public scenarios and models. Public scenario portals such as the NGFS portal publish their data. This page does not rank commercial tools: a tool is only as good as the inputs and assumptions you would have to disclose under UK SRS S2 paragraph 22(b).

No. Scenario analysis tests how a strategy would fare in different futures; it does not reduce emissions. A normative scenario that works back from a net zero outcome can show what would be needed to get there, which is useful input to a transition plan, but the plan and its delivery are separate.