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How does climate change impact the finance of your business?

5 september 2019

To help identify the information needed by investors, lenders, and insurance underwriters to appropriately assess and price climate-related risks and opportunities, the Financial Stability Board established an industry-led task force: the Task Force on Climate-related Financial Disclosures (the Task Force).

The Task force believes that organizations should use scenario analysis to assess potential business, strategic and financial implications of climate-related risks and opportunities and disclose those, as appropriate, in their annual financial filings.

For many organizations the scenario analysis is a qualitative exercise. However, organizations with more significant exposure to transition risk and/or physical risk should undertake more rigorous qualitative, and if relevant, quantitative scenario analysis. For organizations just beginning to use scenario analysis, a qualitative approach that progress and deepens over time may be appropriate.

The TCFD Technical Supplement to the final report describes a process is structured in the following steps:

  1. Ensure governance is in place
  2. Asses materiality of climate related risks
  3. Identify and define range of scenarios
  4. Evaluate business impacts
  5. Identify potential responses
  6. Document and disclosure

Sweco sees that a climate-change scenario analysis is a valuable tool in order to frame and better understand climate-related risks and opportunities. The Sweco Energy Markets team with climate experts also from Sweco Environment, performs full climate-change scenario analyzes applied to out customers operations. Sweco has interpreted step 2-5 of the TCFD-process above:

The TCFD has identified four climate-related risks categories:

  • Market and technology shifts
  • Reputation
  • Policy and legal
  • Physical risks

Sweco propose a methodology based on the four TCFD-categories where climate related risks and opportunities are asses within each category, for each scenario. In each category serval different aspects should be discussed on the scenario parameters, see below.

The consultants from Sweco Energy Markets team, have deep knowledge and understanding in energy markets, technology development, policy and regulation, taxes and policy instruments. The Sweco Environment team have expertise in environmental risks, climate change analysis, physical risks within industry, and with this broad competences Sweco can analyze all the risk categories thoroughly.

Read the full TCFD report here.

Do you want to learn more about Climate Scenario analysis or the TCFD Framework? Contact or expert Frank Krönert at frank.kronert@sweco.se

Emma Wiesner är energimarknadsanalytiker på avdelningen för strategi och energimarknader samt trainee i Swecos traineeprogram 2017-2018. Kontakt: emma.wiesner@sweco.se

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