Risk exposure | Climate resilience | Scenario planning

Climate risk assessment, resilience, scenario planning and analysis

When upper management needs to determine if a portfolio of capital projects will be affected by climate risks, or when your chief financial, strategy and/or risk officers need to better understand how these risks can be mitigated, we can help enhance your team’s understanding of climate risks and impacts. Our advisors can nudge your group forward, improve your company’s climate-readiness, and help you gain a clearer sightline on potential opportunities.

Collaboratively, we raise awareness, assess risks, and develop mitigation strategies. Whether you choose to include risk assessment, climate-resilience, and scenario planning in your journey to build a Climate-Ready Business Foundation, or whether you are seeking expert guidance limited to meeting the TCFD’s recommendations, we are committed to supporting you and your team reach your goals.

Climate risk assessment and resilience planning

Pressure is mounting to position corporations to face climate change risks and capitalize on opportunities. Boards, investors, credit rating agencies, insurers and external stakeholders are increasingly thirsty for climate risk management. This requires companies to assess what climate change could mean to their business operations, supply chain, real assets and human resources (among others). It also requires them to determine what climate-related opportunities may be beneficial and worth pursuing over time.

Once aware, it then becomes incumbent upon company leaders to integrate these climate-related risks and opportunities into corporate strategy and planning. And while it is unquestionably a challenging process, we are confident that those leading the charge will be rewarded with substantial, sustainable opportunity. We are confident that financial markets will reward change leaders.

What is a physical and transition risk exposure assessment and climate resilience planning?

Identifying, considering, mitigating and strategizing around climate-related risks is a complex and long-term process. Assessing exposure to physical and transition risks is the first part of this process. It entails:

Evaluating what could be the potential consequences of physical risks on a company’s assets and value creation model (e.g., the consequences of more frequent and significant weather events on resources, assets, suppliers, production, revenues, costs, etc.), and
Evaluating what could be the potential consequences of transition risks to a company’s value creation model (e.g., shifts in profitability drivers caused by a transition to a low-carbon economy. These could include increased costs related to carbon taxation, tighter regulations, mandatory responsible sourcing requirements, disruptions from carbon capture and storage technology and other green-tech initiatives, etc.).

Frameworks

At Clearsum, our physical and transition risk assessment method uses state-of-the-art (from simpler to more complex) frameworks. With a focus on the energy, real assets, and infrastructure sectors, it combines most up-to-date academic science with latest industry-based research and insights. While centered around the Task Force on Climate-Related Financial Disclosures (TCFD), our method integrates key elements drawn from approaches developed by the Cambridge Institute for Sustainability Leadership, the University of Oxford, the Massachusetts Institute of Technology, as well as guidance from leading organizations such as the Intergovernmental Panel on Climate Change (IPCC), the Climate Disclosure Standards Board (CDSB) and a number of select others.

Time Horizons

In assessing exposure to climate-related physical and transition risks and opportunities, we use short to medium time frames, a method designed to align with typical 3 or 5-year strategic plans that may be extended up to 10 years. Among others, this time frame is an important difference between physical and transition risk assessment and future scenario planning and scenario analysis.

How do we help clients and partners embark on the journey towards climate resilience?

Discovery meetings

At a high level, our approach begins with focused engagements, and succinct discovery meetings and interviews with key internal stakeholders. We begin by exploring potential corporate exposure issues and seeking to understand behavioural biases inherent to teams and company culture. We then concurrently focus conversations around raising awareness, establishing the mindset, and deepening your team’s knowledge of the topic at hand. These early, succinct interventions are integral to successfully leading the process forward.

In-depth assessment

Once the table is set and relationships of trust begin to establish themselves, we begin our in-depth assessment. Using the appropriate frameworks, we comprehensively analyze physical and transition risk exposure along several axes, with emphasis on those deemed more critical to select stakeholders. Once our analysis is complete, a summary of our findings is produced and presented to our clients.

Strategy sessions

Guided by our scope of engagement, our expert advisors then typically begin leading short, collaborative ideation sessions to explore the best possible mitigations to abate risks and strategies to realize the full value of opportunities identified (in complete consideration of our clients’ business realities).

Outcomes of the strategy sessions are integrated into our internal process, setting the groundworks for the development of the climate-resilience plan.

Discrete outcomes: a climate resilience plan to benefit from expected rewards

Clearsum’s Climate Risk Assessment and Resilience Planning service enables you and your teams to demonstrate discrete and immediate action in the face of climate threats and opportunities.

By significantly increasing corporate awareness, this bonified business and climate broad scan is a critical element of developing an effective climate-resilience plan that includes:

short and medium-term strategies,
discrete mitigative and adaptation actions,
key targets and objectives,
environmental signals to be aware of, and
selected KPIs.

With a spatial and temporal roadmap to building climate resilience in hand, your company will be empowered and positioned to promptly disclose its first step to building a Climate-Ready Business Foundation to capital markets, and benefit from the expected rewards.

Future scenario planning and scenario analysis

ESG risks are now at the epicenter of investor, insurer, and credit rating agency concerns. And the financial sector continues to transform to become more sustainable. Soon, increased transparency and accountability for the effects of climate change on business will be expected from c-suites, boards, lenders, investors, regulators, employees, and customers alike.

Anticipating the effects of climate-change on corporate strategy is instrumental to being future-ready. The need to identify, measure, reduce, and disclose climate-related risks and opportunities on business activities, company earnings, costs, assets, and capital allocation is rapidly becoming an imperative.

Using scenario planning and analysis, Clearsum expert advisors can help determine what future climate-related risks are material to your organization and how these may be mitigated, as well as what opportunities may lie ahead and how their full value may be realized.

What is scenario planning and analysis?

An emergent method

In its simplest form, scenario planning and analysis is a strategic planning method used to think about alternative futures and prepare for those deemed plausible. It is different from traditional strategic planning in many ways, including the following:

A scenario isn’t a prediction. Rather, it is a story of how the future might unfold, shedding light on which risks and opportunities it might bring.
A scenario isn’t a contingency plan. While contingency and business continuity plans aim to minimize damages in a predetermined, worst-case scenario, scenario planning stretches how executives think and brings them to imagine the many scenarios potentially needing a contingency plan, or in which their corporations could thrive.
Scenario analysis is the evaluation of various potential effects of scenarios on business activities and financials over the time horizons of choice.
A scenario is used to gain decision-useful information about an organization in the context of plausible futures over longer periods than a typical 3 to 5-year strategic plan (e.g., 10, 20, 30, 50 years are common frames).

Whether using existing and readily available scenarios or collaboratively developing our own, key aspects of business strategy and activities are evaluated against plausible futures to test strategy resilience, mitigate potential risks, and capitalize on potential future opportunities.

A method that helps identify areas of interest

When focusing on climate change, scenario planning and analysis helps identify:

potential future climate-related effects of market and technological shifts,
reputational pressures and stakeholder expectations,
policy and legal changes, and
physical effects on corporate assets, value drivers, and supply chain components.

How we help clients and partners navigate scenario planning and analysis?

A challenging exercise

Scenario planning and analysis can be challenging for many reasons. Among others, qualitative scenarios are based on plausibility and the process of developing quantitative scenarios is complex. Furthermore, organizations are unique and executives perceive the effects of climate change on business differently. Other reasons include the relatively emergent nature of scenario use to identify climate-related risks and opportunities, and the limited body of knowledge available to help its rapid and broader adoption.

Recognizing this gap, Clearsum expert advisors have developed skills and acquired leading-edge training in future scenario planning and analysis using frameworks such as the Oxford Scenario Planning Approach (OSPA) and the Task Force on Climate-Related Financial Disclosures (TCFD). Although typically broader, the OSPA may also be adapted to produce a first set of draft scenarios more rapidly. This can be done at a lower cost while respecting the OSPA’s distinguishing principles, enabling companies of all sizes to experiment with, and benefit from, this approach.

A pragmatic and data-driven method

Developed based on most recent academic advancements, institutional investor needs, environmental sciences, and business management expertise, our pragmatic and data-driven scenario planning and analysis method is rigorous and systematic.

This method:

is designed to help embed a culture of resilience and learning within the organizations we engage with;
exposes boards, strategy leaders, and risk management teams to a range of plausible future states against which business strategies, hypotheses, and assumptions can be tested;
fosters the development of strategic plans that are better adapted to respond to potential climate-related effects by embedding greater flexibility and improving strategy robustness; and
acknowledges and accounts for the limitations and challenges of using scenarios in assessing climate-related risks and opportunities.

Early warning signal monitoring and tracking

Upon request, Clearsum experts can also provide early warning signal monitoring and tracking, and seamless integration into enterprise risk management registers and early warning systems.

Discrete outcomes: a resilient strategy to benefit from all opportunities

Focused on climate change, our Scenario Planning and Analysis service provides organizations that want to reduce corporate risk and climate change investment risk with the foundational information necessary to develop long-term climate change adaptation and disaster risk reduction plans.

Using a combination of approaches, Clearsum advisors will guide you through the process of testing your strategy’s resilience, mitigating potential risks and capitalizing on future opportunities.

Discrete outcomes of our method include, among others:

decision-useful, climate-related information for boards, executives and investors,
the identification of key climate drivers (driving forces) affecting the future of the organization, and
a comprehensive register of potential future threats needing monitoring (faint warning signals).

Most significantly, you will gain the know-how and confidence to realign your strategy, make it more resilient to future changes, and benefit from the full value of opportunities.

Increase in losses due to weather-related events in the past 40 years.

Financial firms comfortable with their strategy's resilience to climate risks.

Required to combat global losses from climate impacts for the next 20 years.

Four Services to Build a Climate-Ready Business Foundation

Climate Risk Assessment and Resilience Planning
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Future Scenario Planning and Scenario Analysis
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Building a Culture of
Environmental Excellence
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Environmental Due Diligence for Financials and Corporates
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