Practice of scenario analysis
TCFD provides the following processes as a reference for businesses to analyze scenarios.
Processes for applying scenarios analyses to climate-related risks and opportunities presented by TCFD
(TCFD(2017) "Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities" and "Ministry of the Environment (2020) "Strategic planning utilizing TCFD: Scenario analyses incorporating climate-related risks and opportunities. Ver2 0." Compiled by National Institute for Environmental Studies.)
1. Establishment of governance
Incorporate scenario analysis into strategy formulation and risk management processes. In addition, we have established a monitoring system with the relevant Board of Directors and other bodies. Identify the internal and external stakeholders to be involved and how they are involved.
2. To assess the importance of risk
Assess the potential impact of transition risk and physical risk. Consider current and potential future risks and opportunities facing the company, their potential importance in the future, and the interests of stakeholders in the organization.
The section on Climate Change Impacts and Adaptation by Industry presents information on climate change impacts (physical risks and opportunities) and adaptation measures by industry.
3. Definition of scenario groups
Establish multiple future scenarios that encompass relevant transition and physical risks. Consider what scenarios (and stories) are appropriate for your company, input variables, assumptions, and analytical methods. It also identifies the scenario to reference.
In the Forecast WebGIS, you can see forward-looking statements about physical risks.
4. Evaluation of business impact
In each scenario, we assess the potential impact on our strategic and financial position. The impact on the business is "input cost," "business cost," "profit," "supply chain," "business shutdown," and "timing." Sensitivity analysis is also performed.
5. Definition of countermeasures
Identify applicable and realistic options to manage identified risks and opportunities. Countermeasures include business model reform, portfolio reform, and investment in capabilities and technology. We examine what modifications are required to our strategic and financial plans.
In examining responses, let's look at the actual examples of corporate climate risk management and opportunities (Adaptation business).
6. Documentation and Information Disclosure
Document the process. Communication with related organizations. Prepare for disclosure of key input variables, assumptions, analytical methods, analytical results, and possible management options.
- Ministry of the Environment (2020) "Management Strategy Planning Utilizing TCFD: Scenario Analysis Implementation Guide Incorporating Climate-related Risks and Opportunities Ver2 0"
http://www.env.go.jp/policy/policy/tcfd/TCFDguide_ver2_0_J.pdf - TCFD (2017)「Technical Supplement: The Use of Scenario Analysis in Disclosure of Climate-related Risks and Opportunities」)