Is climate scenario modelling mandatory?

For many large UK companies, yes. TCFD-aligned climate reporting (including scenario analysis) is mandatory for UK premium-listed companies, large private companies, and financial institutions. Under CSRD (for EU-scope operations) and ISSB S2, scenario analysis is also required. Even where not mandatory, it is considered best practice and is increasingly expected by investors.

What scenarios should my organisation use?

TCFD recommends using at least two scenarios including a 2°C or lower scenario. Common choices include the IEA Net Zero Emissions by 2050 scenario (NZE), IEA Stated Policies Scenario (STEPS), and NGFS scenarios. The key is to use scenarios that are relevant to your sector and geography, and to test both transition and physical risk pathways.

Climate Scenario Modelling

The process of analysing how different climate pathways — such as 1.5°C, 2°C, or 4°C warming — might affect an organisation's operations, supply chains, and financial performance over the medium to long term.

What is Climate Scenario Modelling?

Climate scenario modelling is a forward-looking analytical tool recommended by TCFD (and now mandated under ISSB S2 and CSRD) for understanding how climate change could affect an organisation. It involves testing business strategies against plausible future climate states rather than predicting specific outcomes.

Scenarios typically fall into two categories: physical risk scenarios (examining the impact of different warming levels on operations, assets, and supply chains) and transition risk scenarios (examining how policy changes, technology shifts, and market dynamics in a low-carbon transition could affect the business).

The most commonly used scenarios are those published by the Network for Greening the Financial System (NGFS), the International Energy Agency (IEA), and the Intergovernmental Panel on Climate Change (IPCC). Organisations typically model at least two scenarios — a low-warming (orderly transition) and a high-warming (physical risk) pathway — to bracket the range of potential impacts.

Results inform strategic planning, investment decisions, asset valuations, and risk management. For example, a property company might discover that 15% of its portfolio is exposed to flood risk under a 3°C scenario, prompting divestment or adaptation investment.

Practical Examples

A financial institution models its loan portfolio against NGFS scenarios to quantify transition risk exposure and identify sectors most vulnerable to carbon pricing under a net-zero pathway.

A food retailer uses IPCC climate projections to assess how changing rainfall patterns could affect crop yields in its key sourcing regions under 2°C and 4°C scenarios.

A property company maps its estate against UK Climate Projections (UKCP18) to identify assets at risk of flooding, overheating, and subsidence under different warming pathways.

How Climatise Helps

Climatise provides the emissions data foundation that underpins climate scenario analysis. By tracking your operational and value chain emissions accurately, you can model the financial impact of different carbon prices and policy scenarios on your business.

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