In a world subject to the inherent uncertainties of climate change, asset owners still need to make informed decisions. In situations like this, where the evolution of events is unknown, scenario analysis serves as a useful way to ask 'what if' questions, ponder potential future states of the world, and explore how assets and liabilities may change in these different scenarios.

In this paper, Hymans Robertson discuss how their approach to climate scenario analysis and modelling has evolved. They believe that models can be improved by focusing on real-world action and market response – that is, different climate scenarios can be constructed based on the speed and strength of each. This is essential because asset owners are increasingly required to undertake climate scenario analysis. However, if the results of their analysis are not comprehensive enough, the effects of climate change are likely to be underestimated. A clearer and more accurate picture of the risks can only help institutional investors make crucial decisions.

Published: October 2023.

Learn more here