Do you need help with TCFD Climate Scenario Analysis?

TCFD Scenario Development & Enrichment

TCFD Scenario analysis and enrichment enables strategic planning and internal/external dialogue in response to future uncertainties, and requires a holistic approach and multi-stakeholder participation.

Public disclosures are often filled with poor information, out of date info, or greenwashing content. In order to help investors better diligence and screen companies who have proper fundamentals to add to robust portfolios, clearly digestible disclosures are paramount.

The largest issues we see are the climate-related energy transition, geopolitical conflicts, liquidity issues, and supply chain disruptions.

Is it material?

A company will determine the materiality of risks based on the scale of impact on business in the event that the risk/opportunity occurs.

Scenario enrichment enables strategic planning and internal/external dialogue in response to future uncertainties to create opportunities based on mapping material issues and changing conditions.

The TCFD recommendations are structured around four thematic areas: Governance, Strategy, Risk Management, and Metrics and Targets; we incorporate these areas through the below arenas of risk.

  • The direct impacts on property, assets, labor, and supply chains from geopolitical disruptions, climate-related events, such as floods and storms, and indirect impacts on blocked global supply chain or scarcity of resources.

  • The impacts that could arise if parties who have suffered loss or damage from the effects of climate change seek compensation from those they hold responsible. Increasingly robust climate data may actually make it more difficult for parties to argue force majeure. Recent arbitral decisions have seen force majeure claims based on flooding and even refugee crises rejected on the basis of foreseeability.

  • The risks which could result from reassessment of the value of a large range of assets with a large volume of greenhouse gas emissions during the process of adjustment towards a lower carbon economy. This includes electrification and energy transition, finance, global supply chain remapping, and increasing scarcity of raw materials.

A company will determine the materiality of risks based on the scale of impact on business in the event that the risk/opportunity occurs. Scenario analysis also enables strategic planning and internal/external dialogue in response to future uncertainties.

The TCFD recommendations are structured around four thematic areas: Governance, Strategy, Risk Management, and Metrics and Targets; we incorporate these areas through the below arenas of risk.

Our scenario enrichment process includes foresight into:

TCFD Climate Scenario Analysis Development and Enrichment

How we work

CLAIM8’s team will assist you in defining the conditions, locations, and materials issues needed to develop and conduct scenario analysis.

Scenario analysis is the most difficult part of the TCFD process according the the 2022 TCFD Status Report.

We conduct in person or remote workshops, scenario sessions and encode this work into tools that can be used to assist in TCFD development and strategic planning.

We excel at complex multi-stakeholder engagements and have conducted scenario workshops for the UN, Microsoft, Cisco, City of NY, IBM, NASA, DoE, and others.

TCFD Arenas of Risk

We have defined the below arenas of risk that are material to protecting enterprise value through better understanding of global value chains, externalities, and shareholder sentiment to improve resilience, edge, and conviction.

Enterprise Value

Impacts on operating costs & share price

  • Physical risk, market volatility, PR, disruption, mitigation, adaptation, compliance, insurance, raw materials, and increased labor issues can all reduce enterprise value

  • Mandatory disclosures, policy, governance, reporting, legal, technological, and market changes including stakeholder capitalism are complex and rapidly changing

  • Major investment needed in developing Supply Chain Resilience vs. Optimization

Assets

At risk now, toxic, or may become stranded soon

  • Write off or early retirement of assets or entire portfolios at risk due to location, sectors, policy, and/or investor preferences and advocacy

  • Includes credit, residential and commercial RE, energy production facilities, manufacturing facilities, ports, fleets, tourism, and tax havens

  • Inversion of asset lifetime value calculations (5 to 10 years, shrinking from 20 to 30-year outlooks)

Reduced Demand for Goods & Services

Changing SKUs, social pressure, and reduced availability

  • Changing consumer preferences, regulatory, and supply chain transparency

  • Industry lacks the agility to change products and supply chains with demand in increased transparency and disclosures

  • Climate sensitive populations and locations have reduced spending power

Fragile & Disrupted Supply Chains

Global trade routes, ports, labor, and materials

  • Market instability and shifting supply and demands for commodities. Ex: Lumber, metal, microchip, plastics, paper, fuel, and wheat shortages

  • Climate Vulnerable Trade Routes are remapping ports, canals, and ocean shipping lanes

  • Forced labor and unworkable or unsafe labor conditions due to heat, humidity, fires, and increasing workplace danger

Geo-Political Instability & Civil Unrest

Security, extreme weather, scarcity, and war can become more frequent and rapid

  • Unrest in one part of the world leads to instability across a complex globalized trade network

  • Increasing East and West national interests over global resources can lead to wars of energy, water, food, and goods

  • Increased optics on issues affect raw materials across agriculture, mining, and manufacturing outside of traditional industry players

  • Labor can become increasingly difficult to procure as workforces are more concerned about their health, safety, social issues, and security in a time of conflict

Insurance Force Majeure & Total Cost of Risk (TCOR)

  • Increased force majeure claims for extreme weather events prevent or eliminated payouts

  • Foreseeability (Sea level rise vs. 100 Year Storm)

  • Uninsurable Asset Classes, Business Activities, and Trade Routes

  • Insolvency and liquidity issues arise as exponential claims are paid out