Explainer | How climate scenario analysis helps firms assess the impact of global warming on their assets
- Such analysis ‘allows companies to better prepare and allocate resources to plan for a range of future scenarios’, EY analyst says
- Regulators in Hong Kong have been urging firms to become familiar with the TCFD and ISSB reporting standards before they become mandatory by 2025
Climate scenario analysis is an important tool for companies to understand the risks rising temperatures pose to their assets, and is being demanded by both regulators and investors as the impact of climate change is felt across the globe, according to analysts.
Financial markets have identified that climate-related risks and opportunities will have a material impact on enterprise values in the long run, and companies will need to consider this potential impact while framing their corporate strategies and growth outlooks, said Ee Sin Tan, EY’s climate change and sustainability services partner in Hong Kong.
“Climate scenario analysis is an integral tool to help a company understand the risks and opportunities it may encounter under different plausible futures” as a result of climate change, Tan said.
“This allows companies to better prepare and allocate resources to plan for a range of future scenarios, increasing their resilience against future shocks and disruptions brought by changing weather patterns and a low-carbon economy.”
What is climate scenario analysis and why is it important?