How to make better use of public data for climate scenario analysis
How to make better use of public data for climate scenario analysis
Most organisations approach climate scenario analysis as a reporting requirement, but we see its greatest value in testing whether today's strategy would still succeed under different future conditions. With growing access to publicly available climate data and scenarios, organisations can now conduct more robust resilience assessments without building every assumption from scratch. Used effectively, these resources can strengthen strategic decision-making while reducing the time and cost involved in developing climate resilience assessments.
Under Australia's climate reporting framework, scenario analysis is designed to test the resilience of an organisation's strategy under different future climate conditions and help leaders understand what could materially affect performance, investment decisions and long-term value creation.
Scenario analysis is not a prediction
Scenario analysis is best thought of as a strategic 'what if' exercise. Rather than trying to forecast exactly what will happen, organisations explore a small number of plausible futures and assess how their strategy, operations and business model would perform in each. The goal is to challenge assumptions, identify vulnerabilities and understand where adaptation may be needed.
Australia’s climate reporting rules remove one of the biggest decisions
Australia has taken a distinctive approach to climate-related financial disclosures, by requiring organisations to assess at least two climate scenarios:
- A low global warming scenario where warming is limited to 1.5°C
- A high global warming scenario where warming reaches 2.5°C or higher.
This provides a clear starting point for organisations undertaking climate resilience assessments. Rather than deciding which climate futures to model, businesses can focus on selecting appropriate scenario sources and understanding what those scenarios mean for their operations, customers, supply chains and broader value chain.
One common misconception is that climate risk assessment and scenario analysis are the same exercise. Identifying climate-related risks and opportunities is an important foundation, but performing a climate scenario analysis goes further, testing whether an organisation's strategy will be effective under different future climate conditions and whether changes may be required to remain resilient over time.
Why most organisations don’t need to start from scratch
A lot of organisations assume they need to create bespoke climate scenarios, but in many cases, this not true - publicly available climate scenarios are widely used and internationally recognised. In fact, they are often viewed favourably because their assumptions are transparent and externally validated.
Three sources commonly form the foundation of scenario analysis in Australia. Many organisations use a combination of these sources, drawing on each for different insights rather than relying on a single dataset:
The IPCC provides globally recognised climate scenarios that help organisations understand how environmental, economic and societal conditions may evolve under different warming pathways.
Developed by central banks and financial regulators, NGFS scenarios are particularly useful for understanding transition risks and how policy, technology and economic conditions could affect future business performance.
The IEA's World Energy Outlook provides sector-specific insights into energy transitions, technology adoption, carbon pricing and wider market changes, making it particularly useful for organisations with significant energy exposure.
Turning global scenarios into business decisions
The real challenge is not selecting a scenario; it's translating global climate pathways into organisation-specific impacts. This requires businesses to identify the factors most likely to influence future performance, which may include:
- Policy developments
- Technology changes
- Customer expectations
- Supply chain vulnerabilities
- Physical climate risks.
Effective scenario analysis focuses on the drivers that are both highly impactful and genuinely uncertain. Trying to model every possible climate-related risk often adds complexity without improving decision-making.
In a higher-warming future, organisations may face increasing physical climate risks, slower technology progress, continuing resource constraints and limited policy change.
In a lower-warming future, the focus may shift to rapid policy reforms, accelerating technology adoption, stronger decarbonisation requirements and transition-related risks.
By mapping these conditions to their organisation, leaders can develop scenario narratives that are both credible and relevant to strategic decision-making. A useful test is whether the scenarios lead to meaningfully different outcomes. If conclusions look largely the same regardless of which future is being considered, organisations may not be sufficiently challenging their assumptions or fully testing their resilience.
Why quantification matters
Robust scenario analysis should not stop at storytelling. Once future scenarios have been developed, organisations should identify opportunities to quantify potential impacts using publicly available data. Sources such as the NGFS, IEA and Australian government publications provide information on economic growth, inflation, carbon pricing, energy markets, industry trajectories and physical climate risks. This information can be used to assess potential impacts on revenue, costs, capital expenditure, productivity and other key performance indicators.
Quantification strengthens climate resilience assessments and provides boards and management teams with a more practical basis for decision-making. It also helps organisations demonstrate how climate-related risks and opportunities could influence financial performance over time.
Scenario analysis shouldn’t sit with sustainability teams alone
The most valuable scenario analysis processes bring together expertise from teams across an organisation. Finance teams often coordinate the process, but meaningful insights also come from operations, procurement, supply chain, sustainability, innovation, public affairs and customer-facing teams.
Different perspectives help organisations identify vulnerabilities, challenge assumptions and develop a more realistic understanding of future risks and opportunities. Importantly, scenario analysis should encourage debate and challenge assumptions across the organisation.
How BDO can help
BDO helps organisations navigate the challenges that climate-related reporting and climate resilience assessments can present. Our Sustainability Reporting team can assist with selecting appropriate climate scenarios, developing organisation-specific narratives, identifying relevant public data sources and quantifying potential financial impacts. We also support organisations in assessing climate resilience under AASB S2 and integrating scenario analysis into broader sustainability reporting and strategic planning processes.
