Climate scenario frameworks

May 2023

Modeling climate risk is becoming increasingly common among institutional investors, particularly in using climate scenarios which analyze the impact to portfolios from a broad range of changes to the Earth’s climate over time. In this paper we discuss popular scenario frameworks, ways to compare their different modeling approaches, as well as pros and cons of the various frameworks for institutional investors.

Ultimately the use of these frameworks aids the evaluation of the impact of various climate-related proposals and potentially aids the comparability of impacts across different groups of stakeholders conducting similar analyses.

Forward-looking scenario analysis, when combined with assessment of the current climate positioning of a portfolio, makes it possible to better understand the costs of various climate objectives for an investment portfolio and determine a more optimal plan for helping attain both investment as well as pre-existing financial goals.