CDP Climate Change 2022 Reporting Guidance

(C3.2a) Provide details of your organization’s use of climate-related scenario analysis.

Question dependencies

This question only appears if you select “Yes, qualitative”, “Yes, quantitative”, “Yes, qualitative and quantitative” or “Yes, qualitative, but we plan to add quantitative in the next two years” in response to C3.2.

Change from last year

Modified question

Rationale

Scenario analysis as a planning tool is a recommended practice for businesses preparing for possible futures. Investors are interested in understanding how companies use this planning tool to guide climate-related strategy, and specifically which scenarios different organizations utilize in their planning process.

Connection to other frameworks

TCFD

Strategy recommended disclosure c) Describe the resilience of the organization’s strategy, taking into consideration different climate related scenarios, including a 2°C or lower scenario.

SDG

Goal 13: Climate action

Response options

Please complete the following table. You are able to add rows by using the “Add Row” button at the bottom of the table.

Climate-related scenario	Scenario analysis coverage	Temperature alignment of scenario	Parameters, assumptions, analytical choices
Select from:  Transition scenarios IEA NZE 2050 IEA B2DS IEA 2DS IEA 450 IEA SDS IEA APS IEA STEPS (previously IEA NPS) IEA CPS Greenpeace  DDP  IRENA  BNEF NEO  NGFS scenarios Framework [Financial Services only]  Customized publicly available transition scenario  Bespoke transition scenario  Physical climate scenarios RCP 1.9  RCP 2.6  RCP 3.4  RCP 4.5  RCP 6.0 RCP 7.0 RCP 8.5  Customized publicly available physical scenario  Bespoke physical scenario	Select from: Company-wide Business division Business activity Facility Country/area Product-level Portfolio [FS only] Other, please specify	Select from: 1.5ºC 1.6ºC – 2ºC 2.1ºC - 3ºC   3.1ºC - 4ºC   4.1ºC and above  Unknown	Text field [maximum 2,500 characters]

[Add Row]

Requested content

General

• As recommended by TCFD, scenarios should be sufficiently diverse to allow challenging “what-if” analyses and capture a wide range of insights about uncertain futures. In assessing transition risks, a company should consider using or developing a 1.5°C scenario. In assessing physical risks, a company should use the current GHG pathway based on government policies currently in place, which according to latest estimates from the Climate Action Tracker would result in warming of about 2.7°C above pre-industrial levels. 2.7°C is the median of the low and high ends of current policy projections.
• Companies using customized or bespoke scenarios should have a robust and accountable process to ensure that the scenarios used are objective and diverse, and should transparently disclose this process and the content of the scenarios in this question.

Climate-related scenario (column 1)

• Add a row for each scenario used in your scenario analysis.

Scenario analysis coverage (column 2)

• The TCFD Guidance on Scenario Analysis recommends that scenario analysis should encompass the whole company. Note that “company” refers collectively to all the companies, businesses, organizations, other entities or groups that fall within your definition of the reporting boundary.
• If the scenario analysis does not apply to the whole company, select the option that best describes the coverage of the scenario, and provide further details in column 4 “Parameters, assumptions, analytical choices”.

Temperature alignment of scenario (column 3)

• This column is only presented if “Customized publicly available physical scenario”, “Customized publicly available transition scenario”, “Bespoke physical scenario”, or “Bespoke transition scenario” is selected in column 1.

Parameters, assumptions, analytical choices (column 4)

• Provide details on how the selected scenario was identified, with reference to the parameters, assumptions and analytical methods used:
  • Parameters refer to measurable factors built into the scenario that may have a material impact on your business performance, such as discount rate, GDP, and other macro-economic or demographic variables.
  • Assumptions refer to assumptions made about how the parameters are likely to develop over the scenario’s timeframe, such as the timing of policy changes (e.g., carbon prices) or the development of market prices of key commodities/products.
  • Analytical choices refer to the time horizons, data sources and models used, such as any SSPs (Shared Socioeconomic Pathways) used in conjunction with your scenario.
• Indicate in your response whether your analysis using this scenario was quantitative or qualitative.

Note for financial services sector companies:

• State if your organization uses climate-related scenario analysis to understand the impact of climate-related issues on lending, financial intermediary, investment and/or insurance underwriting activities, in addition to operational activities.
• Note that “Company-wide” in column 2 refers to the reporting boundary as disclosed in question C0.5 in the introduction module. Financial services sector organizations using scenario analysis on their portfolios should select “Portfolio [FS only]”, even when the scenario analysis covers all financial activities and portfolios.
• Both physical and transition pathway risks should be considered in your scenario analysis.
• Banks:
  • Banks are encouraged to use the Network for Greening the Financial System (NGFS) scenarios Framework.
• Insurance companies:
  • Insurance companies that perform climate-related scenario analysis on their underwriting activities should provide the following information:
    • Information on the time frames used for the climate-related scenarios, including short-, medium-, and long-term milestone; and
    • Companies with substantial exposure to weather-related perils should consider a greater than 2°C scenario to account for physical effects of climate change.

Explanation of terms

• 1.5°C or lower scenario: A core element of the TCFD’s Strategy recommendation c) “Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario”. As noted on page 26 of The TCFD Guidance on Scenario Analysis for Non-Financial Companies, the TCFD now recommends that in assessing transition risks, companies should consider using or developing a 1.5°C scenario for the “2°C or lower scenario”, stating that “a 1.5°C scenario would provide stronger diversity in assumptions about future policies and technologies. A 1.5°C scenario also aligns with the latest scientific research from the IPCC, the growing momentum of pledges to limit emissions to net-zero by 2050, and the spirit of the Paris Agreement, demonstrating a company’s alignment to recognized temperature targets.”
• Publicly available scenarios: Taken from TCFD recommendations, “Publicly available scenarios” refer to scenarios which are:
  • used/referenced and issued by an independent body;
  • wherever possible, supported by publicly available datasets;
  • updated on a regular basis; and
  • linked to functional tools (e.g., visualizers, calculators, and mapping tools) that can be applied by organizations.
• IEA NZE 2050: IEA’s Net Zero by 2050 scenario presents a roadmap for the energy sector to transition to a net zero energy system by 2050. It assumes that advanced economies will reach net zero in advance of 2050 and sets out an emissions trajectory consistent with a 50% chance of limiting the global temperature rise to 1.5°C without a temperature overshoot.
• IEA B2DS: IEA’s Beyond 2°C Scenario (B2DS) sets out a rapid decarbonization pathway in line with international policy goals. The B2DS looks at how far known clean energy technologies could go if pushed to practical limits, in line with countries’ ambitious aspirations in the Paris Agreement. In this scenario, the energy sector reaches carbon neutrality by 2060 to limit future temperature increases to 1.75°C by 2100. This pathway implies that all available policy levers are activated throughout the outlook period in every sector worldwide, requiring unprecedented policy action as well as effort and engagement from all stakeholders.
• IEA 2DS: IEA’s 2°C Scenario is built on a projected warming limit of 2°C and is part of the annual publication “Energy Technology Perspectives”, providing scenario analysis based on the development of lower carbon technology and its deployment in various sectors. The IEA ETP 2DS sets out an energy system development pathway and an emissions trajectory consistent with at least a 50% chance of limiting the average global temperature rise to 2°C. It sets the target of cutting CO2 emissions by almost 60% by 2050 (compared with 2013), followed by continued decline after 2050 until carbon neutrality is reached. It also identifies changes that help ensure a secure and affordable energy system in the long run, while emphasizing that transforming the energy sector is vital, but not enough on its own.
• IEA 450: IEA’s World Energy Outlook 450 scenario is expressed as realizing a 50% chance of limiting warming to a 2°C rise by 2100 (originally based upon a projected warming limit of 2°C through limiting the concentration of GHG’s to around 450ppm of CO2 equivalent) and offers steps by which that goal might be achieved. It references many separate measures which are required to reduce energy-related emissions from 2015 to 2040, including stronger deployment of technologies that are familiar and available at a commercial scale today, delivering close to 60% of the emissions reductions. Technologies referenced include the building of significant additional nuclear capacity and rapid CCS expansion.
• IEA SDS: IEA’s Sustainable Development Scenario (SDS) is compatible with the Paris Agreement’s less ambitious “well-below 2°C” goal. It assumes all energy-related SDGs and all current net-zero pledges are achieved, with advanced economies reaching net zero emissions by 2050, China by 2060 and all others by 2070 at the latest. It has a 50% probability of limiting global temperature rise to 1.65°C, assuming no extensive net negative emissions. With some net negative emissions after 2070, temperature rise could be reduced to 1.5°C by 2100.
• IEA APS: IEA’s Announced Pledges Scenario (APS) takes account of all climate commitments made by governments around the world including Nationally Determined Contributions (NDCs) as well as longer-term net-zero targets and assumes they will be met in full and on time. The global emissions difference between the APS and the NZE represents the “ambition gap” that needs to be closed for governments to achieve the goals agreed in the 2015 Paris Agreement.
• IEA STEPS (previously IEA NPS): IEA’s Stated Policies Scenario (STEPS) does not take for granted that governments will meet all announced goals. It instead looks at where the energy system might go without additional policy implementation, looking at existing policies and measures and those under development. The global emissions difference between the STEPS and the APS represents the “implementation gap” that needs to be closed for governments to achieve their announced decarbonization targets.
• IEA CPS: IEA’s Current Policies Scenario (CPS) includes only existing energy policies. This default setting for the energy system is a benchmark against which the impact of “new” policies can be measured.
• Greenpeace: Refers to the Advanced Energy [R]evolution scenario. Based on Greenpeace’s basic Energy [R]evolution scenario, which includes significant efforts to exploit opportunities for energy efficiency, along with large-scale integration of renewables, biofuels, and hydrogen into the energy mix, the Advanced Energy [R]evolution scenario sets out an ambitions pathway towards a fully decarbonized energy system by 2050 through much stronger efforts to move energy towards a 100% renewable energy supply. Consumption pathways remain similar to the basic scenario, but faster introduction of technologies leads to complete decarbonization. The IEA’s Current Policies Scenario serves as the reference point in the development of Greenpeace’s Advanced Energy Revolution scenario.
• DDP: The Deep Decarbonization Pathways (DDP) initiative builds and brings to the public debate realistic decarbonization pathways to 2050. These are designed to deeply reduce carbon emissions while satisfying socio-economic objectives. The pathways are developed country by country, considering in each case the specific context and highlighting key drivers of the transformation and their potential effects.
• IRENA: IRENA’s REmap determines the potential for countries, regions and the world to scale up renewables in order to ensure an affordable and sustainable energy future. REmap assesses worldwide renewable energy potential assembled from the bottom-up, starting with country analyses – in collaboration with country experts, and then aggregating these results to arrive at a global picture. REmap accounts for renewable power technologies, but also considers technology options in heating, cooling and transport. In determining the potential to scale up renewables, REmap focuses on possible technologies pathways and assesses numerous other metrics, including: technology, sector and system costs; investment needs; externalities relating to air pollution and climate; CO2 emissions; and economic indicators such as employment and economic growth. Based on these country driven results, REmap provides insights to policy and decision makers for areas in which action is needed.
• BNEF NEO: Bloomberg New Energy Finance’s (BNEF) New Energy Outlook (NEO) focusses on the annual long-term economic analysis of the world’s power sector out to 2050. 2021’s edition presents three scenarios that are aligned with the Paris Agreement, achieving net-zero emissions in 2050. The Green Scenario is a net-zero pathway where so-called ‘green hydrogen’ complements greater electricity use, recycling and bioenergy. The Grey Scenario assumes greater use of electricity and renewable power is complemented by carbon capture and storage technology and allows for the continued use of some fossil fuels. The Red Scenario assumes smaller, modular nuclear is deployed to complement wind, solar and battery technology in the power sector, with dedicated nuclear plants manufacturing so-called “red hydrogen”.
• NGFS scenarios Framework [Financial services only]: To facilitate the uptake of climate scenario analysis by central banks, financial regulators, and the larger financial community, the NGFS developed a global set of scenarios and published guidance on conducting such analysis.
• RCP 1.9: Representative Concentration Pathway (RCP) 1.9 is the IPCC’s lowest emission pathway that focuses on limiting warming to below 1.5°C by the end of the century, which is the aspirational goal of the Paris Agreement. RCPs provide a quantitative description of atmospheric pollutions over time, as well as radiative forces in 2100. In RCP 1.9, radiative forcing is limited to no more than 1.9 W/m2 above pre-industrial levels.
• RCP 2.6: In RCP 2.6, radiative forcing peaks at 3.1 W/m2 before returning to 2.6 W/m2 by 2100, achieved through; a shift to renewable energy sources; CO2 remaining at today’s level until 2020, then decline and becoming negative in 2100; and CO2 concentrations peaking by 2050, followed by a modest decline to around 400 ppm by 2100.
• RCP 3.4: RCP 3.4 represents the IPCC’s intermediate pathway between the very stringent RCP2.6 and the less stringent mitigation efforts associated with RCP4.5.
• RCP 4.5: RCP 4.5 represents one of IPCC’s intermediate stabilization pathways in which radiative forcing is stabilized at approximately 4.5 W/m2 after 2100.
• RCP 6.0: RCP 6.0 represents one of IPCC’s intermediate stabilization pathways in which radiative forcing is stabilized at approximately 6.0 W/m2 after 2100.
• RCP 7.0: RCP 7.0 consists of a baseline outcome rather than a mitigation target, and represents the medium-to-high end of the range of future emissions and warming resulting from no additional climate policy.
• RCP 8.5: RCP 8.5 represents the IPCC’s high-end pathway in which radiative forcing reaches greater than 8.5 W/m2 by 2100, and continues to rise for some time afterwards.
• Transition risks
  • Current and emerging regulation – policy developments that attempt to constrain actions that contribute to the adverse effects of climate change or policy developments that seek to promote adaptation to climate change;
  • Technology – all risks associated with technological improvements or innovations that support the transition to a lower-carbon, energy-efficient economic system;
  • Legal – all climate-related litigation claims;
  • Market – all shifts in supply and demand for certain commodities, products, and services;
  • Reputation – all risks tied to changing customer or community perceptions of an organization’s contribution to or detraction from the transition to a lower-carbon economy.
• Physical risks
  • Acute – risks that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods;
  • Chronic – longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.

Additional information

IEA Energy Technology Perspectives (ETP)

International Energy Agency (IEA)’s comprehensive publication on energy technology focuses on the opportunities and challenges of scaling and accelerating the deployment of clean energy technologies. Additional information on this publication can be found here.

Critical uncertainties

Identified using a process of scaling potential impacts and uncertainties, those meeting high for both impact and uncertainty should be considered ‘critical uncertainties’ and the basis for the development of scenarios. A common process for identifying critical uncertainties is the development of an impact/uncertainty grid. Further information on critical uncertainties can be found in CDP’s technical note on Scenario Analysis.