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How accurate are current methods of High-Temperature Scenario Analysis? According to SR Inc’s latest Member Advisory, not very – but simple adjustments can vastly increase the accuracy of a sustainability team’s forecasts.

Due to TCFD guidelines’ reliance on outdated climate risk models, conventional approaches to Scenario Analysis may significantly undercount both physical and transition climate risks. In this Q+A, SR Inc’s Sustainable Leadership Blog speaks with Brianna Jefferson, Associate of Strategic Advisory Services, to preview the problem with conventional climate models and how SR Inc’s recent Member Advisory helps SBER Member-Clients to gauge their organization’s risks more accurately.

As an Associate, Strategic Advisory Services, Brianna works to decarbonize Corporate Operations for SR Inc's world-leading Member-Clients.

Thanks so much for joining us, Brianna. Your Member Advisory “Rethinking Climate Risk: Why Corporate Climate Scenario Analysis Must Move Beyond the DICE Model” argues that TCFD and IPCC guidelines leads to overly sanguine assessments about how a corporation will fare amid human-caused climate breakdown. What causes the mismatch?

TCFD technical guidance recommends that organizations use specific, well-established climate pathways when conducting scenario analysis. Inputs to those pathways include the Dynamic Integrated Climate-Economy model, by Nobel Prize-winner William Nordhaus, that earth scientists believe vastly underestimates the economic carnage that human-caused climate and environmental breakdown will, if unchecked, cause over the next century.

What does this mismatch mean for Corporate Sustainability?

Teams conducting scenario analysis know the exercise is an important but incomplete input to a sustainability strategy. By understanding the bias of current guidelines, Corporate Sustainability executives can guide their teams to supplement TCFD-aligned analyses with distinct statements of what more accurate models predict.

They can also contribute to climate industry leadership by speaking up about the downsides of the DICE model and the need to update TCFD guidance to reflect more accurate alternatives.

So more accurate alternatives to the DICE model exist? What are they?

Depressingly but pragmatically named, the “Dismal Theorem” – created by Nordhaus’ contemporary, former Harvard professor Martin Weitzman – argues that predictions around human-caused climate breakdown are incomplete without accounting for unlikely but catastrophic outcomes.

Where Nordhaus argues that too much climate-forward policy inappropriately burdens business, Weitzman argues that business is ultimately best off with strong, proactive policy to limit the likelihood of incredibly damaging later events.

How does SR Inc’s Member-Advisory guide sustainability teams to improve their risk management?

Sustainability teams need to follow TCFD guidance to follow industry reporting standards. This piece educates readers on how to follow that guidance for their external reporting while updating their scenario analysis process to provide more accurate information for their internal risk management teams. It also highlights how Member-Clients can encourage the industry to adopt official guidance that promotes more accurate risk assessments.

One more question. Like other SR Inc Member Advisories, this piece calls itself a draft that will continue to evolve with input from our industry-leading Member-Clients. Can you say a bit more about what that means? Why is it published as a draft?

I’m glad you asked! I love the collaborative nature of our SBER work, and this Member Advisory exemplifies that process.

Our CEO, Jim Boyle, previewed the piece at our Q2 Executive Symposium. Now, we’re soliciting Member-Client commentary based on their expertise in running scenario analysis exercises and creating related outputs. After this pilot phase, we’ll update the Member Advisory to include even more practical tips from that input.

We look forward to strengthening our guidance to make it as practical and tailored as possible. That way, we can effectively help Member-Clients adjust their scenario analysis outputs to help their enterprises adequately prepare for future risks.

I’m excited about this piece and even more excited to see how it will grow with Member-Client feedback.

Thank you so much, Brianna! We look forward to seeing how SR Inc Member-Clients improve their risk management forecasts – and develop more resilience plans – based on this guidance.

Curious to learn more about scenario analysis best practices and SBER’s collaborative research advisory service? Schedule your briefing by emailing info@sustainround.com.