June 17, 2019

Scenario Planning for a Wicked Problem – Climate Change

Dr. Mark Trexler
Managing Director - The Climatographers

Scientists have been discussing the potential risks of adding hundreds of billions of tons of CO2 and other greenhouse gases to the atmosphere through human activities for more than 50 years. Policy discussions have been ongoing for more than 30 years. Meanwhile, CO2 emissions have soared, average global temperature has risen by almost 1⁰C (taking it beyond its range of the last 10,000 years), and scientists are forecasting dire changes to come.

For many years, business did not really participate in these discussions. Business leaders considered climate change a corporate social responsibility (CSR) issue. Since independent power producer AES funded the first voluntary carbon offset project in 1988, it has become routine for companies to document their carbon footprints, commit to voluntary GHG emissions reductions, and purchase green energy and carbon offsets.

Today, the business conversation has shifted to one of business materiality. Mercer Consulting’s 2011 report was the first mainstream call to action regarding the potential business materiality of climate policies and measures. The report discounted the materiality of physical impacts of climate change, however; the authors considered such physical impacts to be decades away and thus not material to business decision-making today. Only four years later, Mercer’s 2015 report concluded that climate change had arrived, decades ahead of schedule.

Since then, the “business materiality” conversation has accelerated. The investor-driven Task Force on Climate Related Financial Disclosures (TCFD), for example, urges companies to disclose whether they are prepared for a warming world although TCFD assumes this warmer world is one in which global average temperature change is successfully limited to 2⁰C.

The TCFD’s 2⁰C limit, however, is by no means fixed:

• What if the policies and measures necessary to remain within a 2⁰C limit are never implemented, leading to a 3-5⁰C outcome instead?

• What if Lloyd’s 2015 report based on three simultaneous breadbasket droughts comes to pass next year or the year after?

• What if one or more of the climate change “tipping points” scientists worry about are triggered?

• What if changing patterns of extreme events in the U.S. and elsewhere are shown to be a function of accelerating climate change?

• What if public opinion “tips,” causing the global temperature target to be lowered to 1.5⁰C?

• What if changing public opinion were to break the 20-year climate policy logjam?

The vulnerabilities and opportunities such possibilities suggest for different business sectors range widely. The bottom line, though, is that there is no longer any doubt that companies should be considering how climate change could affect their operations, supply chains, markets, and brands. Impacts could come in many forms: the direct and indirect impacts of climate change, national and state-level climate policies and measures, changes in consumer attitudes and behavior, and structural market changes associated with an accelerating low carbon transition.

Most CEOs have been thinking of climate change as a problem for their successors. Their thinking may be changing, yet the speed with which the climate materiality conversation has evolved means that most companies are still catching up. A lot of current decision-making remains guided by increasingly outdated information and assumptions. Whether integrating climate change into existing strategic planning initiatives, or undertaking climate change scenario planning in its own right, scenario planning is the right tool for decision-makers to deploy in getting their heads around the complexities and uncertainties of a warming planet.

 

Dr Mark Trexler is Managing Director of The Climatographers, a specialist group that provides actionable knowledge for business climate change decision-making. Dr Trexler has more than 30 years of regulatory and energy policy experience., and has advised clients around the world on climate change risk and risk management.

Thoughts?