Climate scenarios: assess financial impacts and test decisions.

Ledger + Leaf Advisory · Scenario and physical-hazard guidance updated September 20, 2026

Scenario analysis is useful when the future is uncertain and decisions have long-lived consequences. Its purpose is to test resilience and expose dependencies, not to produce a single prediction.

Start with the business question

Examples include site resilience, fleet replacement, and exposure to changing energy prices or customer demand. For global supply chains, test key suppliers, ports, transport routes, and shared regional dependencies: a resilient facility can still stop when a critical input cannot arrive. Define the decision, time horizon, and business boundary before choosing scenarios, then compare contingency stocks, alternative sourcing, and supplier adaptation to reduce disruption.

Identify relevant risks before estimating impacts

Map physical risks, such as extreme heat, flooding, water shortages, hurricanes and typhoons, or wildfires, and transition risks, such as policy, technology, or demand changes, to your sites, suppliers, products, and markets. Select plausible climate scenarios and time horizons that test these exposures—not a generic list of hazards.

Assess the financial consequences

Trace each risk from scenario assumptions to operational effects, then to revenue, costs, capital needs, asset values, cash flow, and access to finance. Distinguish current from potential future effects, and identify where data or expert judgment are needed.

Heat and flooding can increase downtime, repairs and maintenance, and supply-chain delays. Insurance premiums, deductibles, or coverage availability may also change; test these assumptions with insurers rather than assuming a fixed increase. Compare potential losses with the costs and benefits of protection, alternative sites, and supplier diversification.

Long-lived equipment or facilities may become uneconomic before the end of their planned life as technology, policy, or regulation changes. Severe floods, wildfires, or storms may damage assets beyond economic repair. Assess early retirement or stranded-asset exposure, shorter useful lives, reduced residual or salvage values, replacement capital, and decommissioning costs. Compare retrofit, replacement, relocation, and deferral across scenarios. These are decision scenarios, not predictions or automatic impairment entries.

Compare options without false precision

Use a consistent baseline and compare outcomes across scenarios, with and without proposed responses. Test the assumptions that most affect the result, avoid counting losses twice, and document the evidence and limitations. Where numbers are not supportable, explain the likely direction of impact and information gaps rather than inventing precise estimates.

Scenario analysis informs financial-impact assessment but does not replace it. Reconcile assumptions with budgets and forecasts, explain differences, and involve finance, risk, operations, and sustainability teams. Scenario estimates are not automatically amounts to recognize in financial statements.

Choose scenarios that fit the business question

IEA energy-transition scenarios: The International Energy Agency explores how policies, technologies, and energy demand could evolve. Use pathways such as Stated Policies (STEPS) and Net Zero Emissions by 2050 (NZE) to test energy costs, fuel choices, fleet and equipment investments, and product demand. These are conditional pathways, not forecasts; use the assumptions and regional detail from the chosen publication.

IPCC SSP-based climate scenarios: Shared Socioeconomic Pathways (SSPs), combined with emissions pathways, underpin climate projections assessed by the Intergovernmental Panel on Climate Change. Compare regional changes in heat, rainfall, and other hazards across pathways such as SSP1-2.6, SSP2-4.5, and SSP5-8.5 to screen risks to facilities, workers, water supplies, and supply chains. The IPCC Interactive Atlas is a starting point; site-level decisions also need local hazard, exposure, and vulnerability data.

Use the two perspectives together to assess transition and physical risks, then translate relevant exposures into costs, revenue, cash flow, and resilience investments. Align time horizons and document differences in assumptions—IEA and SSP pathways are not one-to-one equivalents, equally likely outcomes, or ready-made estimates of business losses.

Use physical-hazard data at the right scale

Pair scenario pathways with reputable climate and hazard datasets, then add facility locations, asset condition, supplier dependencies, and vulnerability. These established public sources offer global, U.S., and Asia-Pacific starting points—not an exhaustive list or a ranking.

Global portfolio screening: NASA NEX-GDDP-CMIP6 provides daily, downscaled projections at 0.25° (about 25 km). The World Bank Climate Change Knowledge Portal offers accessible climate indicators, including a 0.25° CMIP6 collection. Use these to compare heat and rainfall exposure across operating regions—not to estimate flood depth at a building.
United States: The U.S. Geological Survey’s (USGS) National Climate Change Viewer uses CMIP6-LOCA2 projections at approximately 6 km for temperature, precipitation, and related water-balance assessment. Add FEMA’s National Flood Hazard Layer for mapped flood exposure and the U.S. Forest Service’s Wildfire Risk to Communities for wildfire screening. Check map dates and methods; these hazard layers are not substitutes for future SSP-based loss modeling or property-specific assessments.
Asia-Pacific: Singapore’s Centre for Climate Research (CCRS) V3 provides 8 km regional projections for Southeast Asia and 2 km detail for Singapore; bias adjustment differs by geography. NARCliM2.0 provides 4 km projections for southeastern Australia and 20 km coverage across Australasia. PAGASA’s CliMap adds official Philippine provincial climate information. Select the product, variables, and geographic coverage that match the business exposure.
Hurricanes and typhoons: NOAA’s IBTrACS consolidates historical cyclone tracks and intensity globally. Use it to understand past exposure and evaluate models—not as a future cyclone-risk forecast.

A smaller grid does not automatically mean a more accurate result. Check ensemble coverage, scenario, baseline, time period, bias correction, update date, and licensing. Flood-depth analysis needs suitable terrain, drainage, and hydraulic modeling; wildfire and cyclone loss assessment need hazard-specific models and asset vulnerability. Validate material exposures locally before committing capital, and document uncertainty in the financial assessment.

Use scenario data with care

Check the model version and the particular variable being used—not just the provider’s reputation. The Network for Greening the Financial System (NGFS) warns that specified Phase V physical-damage outputs rely on the retracted Kotz et al. (2024) paper; its notice identifies affected outputs and distinguishes unaffected variables and scenario sets. Do not translate an economy-wide damage estimate directly into a facility’s loss. Combine appropriate scenario and hazard evidence with business-specific exposure, test sensitivities, and retain a record of limitations and review triggers.

Bring the result back to a decision

Give leadership a clear view of relevant risks, financial exposure, options, and decisions required. Prioritize actions that hold up across scenarios, identify capital needs and accountable owners, and set signals for review. Keep material uncertainties visible.