Glossary
Climate scenario analysis
Modeling how different future climate and policy pathways would affect an organization's assets, costs or strategy.
Also called: climate stress testing
Climate scenario analysis tests how an organization's assets, revenue or supply chain would perform under a small set of contrasting future pathways, typically an orderly transition to low carbon, a disorderly late transition, and a hot-house-world scenario with limited policy action. It draws on physical-climate and transition-pathway data from bodies such as the IPCC and the Network for Greening the Financial System.
Unlike general scenario planning, which can explore any strategic uncertainty, climate scenario analysis is anchored to published climate and policy pathways so results are comparable across companies and over time. It separates two distinct risk types: physical risks from a changing climate itself (heat, flooding, drought) and transition risks from policy, technology and market shifts as economies decarbonize.
Regulators and frameworks including the TCFD and ISSB expect climate scenario analysis as part of ESG reporting, and its outputs feed measures like climate value-at-risk and inform double materiality assessments of which climate issues are financially material. The main pitfall is treating scenario outputs as forecasts rather than what-if illustrations bounded by each scenario's assumptions, which understates the true range of possible outcomes.
Last reviewed September 22, 2026