Anticipating the Heat: Using scenarios to make future climate change impacts tangible
Brinke, B.J. ten
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The TCFD-guidelines were created to support companies, investors and other financial service providers in better identifying and addressing climate-related risks and opportunities. They differ from current disclosure practices by addressing the impact of climate change on business rather than the impact of businesses on the climate. They also aim to address a long-term time horizon by using scenario analysis. The current adoption rate of scenario analysis, however, is relatively low because there is no standardized method, tool or set of guidelines for the application hereof. Also there has been little research into the added value of scenario analysis in this process. The aim of this this research is to find the added value of scenario analysis to the TCFD-guidelines by developing, testing and disclosing a new practical method for this purpose. The method is developed by conducting a literature review and expert interviews and subsequently tested and refined in a case study. For the developed method to add value to the TCFD-guidelines seven key requirements on three different levels were identified. Firstly, on the applicational level, the method has to be engaging, generate a feeling of ownership and be applicable within time and resource constraints. Secondly, on the corporate level, the method has to generate decision useful information and be replicable and repeatable. And finally, on the supranational level, the method has to align with the goals of governing for financial stability and induce some form of transformative collective action. The developed method satisfies the requirements on the applicational level. On the corporate level it generates decision useful information, is flexible enough to be replicable, yet consistent enough to be repeatable. And finally, on the supranational level, the developed method aligns with the goals of governing for financial stability by successfully identifying direct climate-related risks and opportunities but is not yet suitable for the identification of indirect climate-related risks and opportunities, nor to quantify them. By providing and disclosing a successful method for scenario analysis this research lowers the barrier for adoption and therewith increases the potential of the guidelines inducing some form of transformative collective action. In conclusion this research has developed a successful approach to scenario analysis and shows the added value of scenario analysis in the identification of climate-related risks and opportunities. By also disclosing a replicable and repeatable method this research further increases the extent to which scenario analysis can add value to the TCFD-guidelines.