While financial actors and regulators are gaining experience with scenario analysis, they still face difficulties identifying what should be done to ensure the strategic relevance of the exercise. In particular, as explained in the report, “deep uncertainty” is a key characteristic of transition risks that should be better explored and integrated into decision-making processes through the scenario analysis process.
This report defines six key building blocks of scenario analysis with good principles that financial actors should implement to enable the full integration of transition risk and deep uncertainty in their business strategy. The principles cover technical and organizational aspects. They are summarized as a checklist of questions that financial actors can use to improve their internal approaches and to challenge their service providers.
The report also takes stock of the implementation of the principles by the existing methodological approaches and it proposes actions for a range of stakeholders to make further progress.
I4CE wrote this report as part of the Finance ClimAct European project.