By: Rolls-Royce, NormannPartners
There is growing recognition and scientific understanding of the physical and transitional impacts that climate change will have on society and businesses. Rather than attempting to predict specific climate change effects, organisations can use scenario planning to increase strategic robustness and identify opportunities under a broad range of plausible climate change outcomes, an approach recommended by the Task Force on Climate-related Financial Disclosures (TCFD).
This article illustrates how Rolls-Royce did this easily, quickly, and effectively. By having conducted this case, Rolls-Royce is in a better position to respond to investor disclosure requests, to help shape external policy, and to strengthen its strategy.
This case study is an extract taken from the paper “How to prepare your business for climate-related risk”. To read the full paper, click on the link below.
MORE INFORMATIONRolls-Royce plc started with scenario planning in 2016 and it has since become an integral part of the strategic investment prioritisation and decision-making processes. In 2018 Rolls-Royce enlisted the support of a strategy consulting firm (NormannPartners) to consider the future implications of climate change. This case study describes how Rolls-Royce adapted and tailored the process recommended by the TCFD.
The purpose of the analysis was to improve the understanding of how the risks and opportunities associated with climate change may impact Rolls-Royce over the medium term, with a view to bringing context to Rolls-Royce’s business strategy and to enable more informed decision making.
Tailoring the TCFD scenario analysis process
Although the TCFD recommends using scenarios, readers of their technical reports may be forgiven for not yet being able to perform this analysis. TCFD reports only describe the broad, high-level, process, which needed to be adjusted and tailored for the purpose of Rolls-Royce.
Identifying ‘useful’ scenarios
Ideally, scenarios are developed specifically for an organisation, to ensure they talk to the concerns and challenges of that organisation. But sometimes it is acceptable to use an existing set of scenarios and tailor these. After an extensive review of publicly available scenarios one set was identified that was felt to be useful (‘complete and relevant’) for describing plausible future contexts for Rolls-Royce. This set was informed by and partly based on externally recognised and scientifically accepted climate scenarios, including those developed for CDP/We Mean Business.
Evaluating business impacts
In scenario planning, in a process stage called ‘scenario wind-tunnelling’, the exposure of a business to external change can be assessed. This is done by evaluating, under each scenario, the resilience of the current strategy and business plan (including strategic and operational objectives) as well as other aspects of the ‘current business design’, such as current organisation, company culture, location of factories, choice of ERP system, current technology development roadmap, portfolio of intellectual property, etc. So, to ensure testing and assessment of the Rolls-Royce business against different scenarios was possible, the current Rolls-Royce business strategy was captured in a simple but explicit strategic framework, which included such elements as brand value and reputation, access to capital, and people.
One scenario implications workshop
A diverse group of Rolls-Royce executives representing business units, strategy, technology, HR, investor relations and risk were gathered for a day-long workshop where implications were assessed, and action items identified.
By having conducted this case, Rolls-Royce is in a better position to inform strategic decision making; respond to investor disclosure requests, and to help shape company policy. The insights gained by Rolls-Royce are being used to stimulate further exploration of the company’s strategic options and better engage with external stakeholders. Over the coming months and years Rolls-Royce will work internally and externally to extract the maximum possible value from undertaking these and similar studies to ultimately ensure better outcomes for the company, the industry, and the environment in general.