RCP & SSP Climate Scenarios Explained: A Practical 2026 Guide for Corporate Risk and Strategy

Climate scenario analysis has evolved from a voluntary exercise to a fundamental component of corporate risk management and financial planning. While the SEC paused its climate disclosure rules in 2024, the underlying business imperative remains unchanged: US companies face material climate risks that require quantitative assessment using Representative Concentration Pathways (RCPs) and Shared Socioeconomic Pathways (SSPs).

This comprehensive guide explains how RCP and SSP scenarios enable US businesses to:

• Assess physical climate risks affecting operations, supply chains, and asset values
• Model transition risks from policy changes, technology shifts, and market disruptions
• Meet investor expectations for climate disclosure under TCFD and ISSB frameworks
• Comply with California climate laws (SB 253 & SB 261) requiring scenario-based risk reporting
• Support financial planning with US GAAP-compatible climate risk integration
• Inform strategic decisions on capital allocation, site selection, and supply chain resilience

Only 8% of US companies currently demonstrate robust scenario resilience analysis in their climate reporting, despite 82% reporting at least one TCFD recommendation. This gap represents both a risk and an opportunity: organisations that master climate scenario analysis gain competitive advantages in investor relations, operational resilience, and strategic positioning.

The distinction between RCP and SSP scenarios matters critically for financial modelling. Whilst both RCP 8.5 and SSP5-8.5 target the same radiative forcing level, they differ fundamentally in emissions composition, timing, and socioeconomic narratives—differences that translate directly into varying financial impacts across sectors and geographies.

Understanding Climate Scenarios: The Foundation of Risk-Informed Strategy

Climate scenarios serve as quantitative tools for exploring how different emissions trajectories, policy responses, and socioeconomic developments could affect your business over decades. Unlike weather forecasts that predict specific outcomes, climate scenarios describe plausible futures based on internally consistent assumptions about human behaviour, technological change, and climate system responses.

Why Climate Scenarios Matter for US Businesses in 2025

Three converging forces make climate scenario analysis business-critical rather than merely compliance-driven:

Investor-Driven Transparency: Major asset managers increasingly view climate data as fundamental to investment decisions. BlackRock, Vanguard, and State Street collectively manage over $20 trillion and systematically evaluate climate risks in portfolio allocation. Even without SEC mandates, institutional investors expect companies to demonstrate climate resilience through scenario analysis.

State-Level Regulation: California's climate disclosure laws create de facto national standards. SB 253 requires annual GHG reporting (Scope 1, 2, 3) from companies with over $1 billion revenue operating in California. SB 261 mandates biennial climate risk disclosure following TCFD standards for companies exceeding $500 million revenue. First reports are due in 2026, affecting thousands of US companies regardless of SEC rule status.

Financial Statement Materiality: US GAAP already requires disclosure of material risks. As physical climate impacts intensify and transition policies accelerate, climate risks increasingly meet materiality thresholds for financial statement notes, impairment assessments, and contingent liability disclosures. Understanding climate scenarios enables CFOs to make defensible materiality judgements.

The Federal Reserve's 2023 pilot climate scenario analysis exercise with the six largest US banks—JPMorgan Chase, Bank of America, Citi, Wells Fargo, Goldman Sachs, and Morgan Stanley—signals regulatory expectations for sophisticated climate risk management even in the absence of formal rules.

The Evolution from RCP to SSP Scenarios

Climate scenarios have progressed through multiple generations, each adding analytical sophistication:

SRES Scenarios (2000): The IPCC's Special Report on Emissions Scenarios established early climate projections but lacked integration with socioeconomic models.

RCP Scenarios (2010-2020): Representative Concentration Pathways focused purely on radiative forcing levels, providing climate modellers with standardised emissions inputs. RCP 2.6, 4.5, 6.0, and 8.5 became ubiquitous in climate science but offered limited narrative context for business planners.

SSP Scenarios (2020-Present): Shared Socioeconomic Pathways combine emissions trajectories with detailed socioeconomic narratives describing population growth, economic development, technological change, and governance structures. SSP1-2.6 through SSP5-8.5 provide richer contexts for understanding how climate policies, market transformations, and societal responses might unfold.

The transition from RCP to SSP scenarios matters profoundly for corporate risk analysis. An RCP 8.5 scenario simply states "emissions continue rising to 8.5 W/m² forcing by 2100." An SSP5-8.5 scenario tells a story: "Fossil-fuelled development with high technological innovation, strong economic growth, and minimal climate mitigation creates emissions reaching 8.5 W/m² forcing." This narrative richness enables more nuanced transition risk modelling.

RCP Scenarios Explained: Physical Climate Risk Foundations

Representative Concentration Pathways describe how much additional energy the Earth's atmosphere traps due to increased greenhouse gas concentrations, measured in watts per square metre (W/m²) by 2100.

RCP 2.6: Ambitious Mitigation Pathway

Characteristics:

• Peak emissions before 2020, then rapid decline
• Net negative emissions by 2100
• Temperature increase: 1.5-2°C above pre-industrial by 2100
• Radiative forcing: 2.6 W/m² (stabilising)

Business Implications:

• Aggressive climate policies implemented globally
• Rapid phase-out of fossil fuel infrastructure (stranded asset risks)
• Carbon pricing reaching $100-300+ per tonne CO₂
• Technological disruption across energy, transport, built environment
• Lower physical climate risks (extreme weather, sea-level rise)
• Higher transition risks (policy changes, market shifts)

Use Cases: Modelling best-case physical risk scenarios; assessing competitiveness if aggressive climate policies are implemented; evaluating stranded asset exposure.

RCP 4.5: Moderate Mitigation Pathway

Characteristics:

• Emissions peak mid-century, then decline
• Some mitigation policies implemented but insufficient for 2°C target
• Temperature increase: 2-3°C above pre-industrial by 2100
• Radiative forcing: 4.5 W/m² (stabilising)

Business Implications:

• Moderate climate policies with uneven global implementation
• Gradual transition to lower-carbon economy
• Carbon pricing in $30-80 per tonne range
• Increased physical climate risks but manageable with adaptation
• Moderate transition risks with longer adjustment periods

Use Cases: Baseline scenario for most business planning; balancing physical and transition risks; medium-term (2030-2050) strategic planning.

RCP 6.0: Limited Mitigation Pathway

Characteristics:

• Emissions stabilise by 2080 without peak
• Minimal coordinated climate policy
• Temperature increase: 2.5-3.5°C above pre-industrial by 2100
• Radiative forcing: 6.0 W/m² (stabilising)

Business Implications:

• Fragmented climate policy with limited ambition
• Slow transition to lower-carbon technologies
• Significant physical climate risks (heat stress, water scarcity, extreme weather)
• Adaptation costs escalate for exposed assets and operations
• Lower transition risks but higher operating cost pressures

Use Cases: Stress-testing physical risk resilience; evaluating adaptation investment requirements; conservative financial planning assumptions.

RCP 8.5: High Emissions Reference Pathway

Characteristics:

• Continuous emissions growth through 2100
• No climate mitigation policies implemented
• Temperature increase: 3.5-5.5°C+ above pre-industrial by 2100
• Radiative forcing: 8.5 W/m² (rising)

Business Implications:

• Severe physical climate impacts (widespread ecosystem collapse, extreme sea-level rise, unprecedented heatwaves)
• Major infrastructure failures and supply chain disruptions
• Agricultural productivity losses in many regions
• Fundamental shifts in habitability and economic geography
• Minimal transition risks but catastrophic physical risks

Use Cases: Worst-case physical risk stress testing; evaluating existential risks to long-lived assets; identifying absolute physical risk boundaries.

Important Context: Climate scientists increasingly view RCP 8.5 as implausible given actual emissions trajectories and policy momentum. However, it remains valuable for boundary-testing and tail-risk assessment.

For detailed guidance on selecting appropriate RCP scenarios for your specific business context, see our article on choosing the right RCP scenario for climate-resilient business planning.

SSP Scenarios Explained: Socioeconomic Narratives for Transition Risk

Shared Socioeconomic Pathways add critical context to emissions trajectories by describing the societal conditions that produce those emissions. Each SSP tells a story about population growth, economic development, technological innovation, environmental priorities, and governance effectiveness.

SSP1: Sustainability—"Taking the Green Road"

Narrative:

• Global cooperation on sustainability challenges
• Rapid technological progress in clean energy and efficiency
• Strong environmental governance and social equity focus
• Education and health improvements reduce population growth
• Shift towards service-based economies and circular business models

SSP1-2.6 Pairing: When combined with RCP 2.6, this represents the Paris Agreement pathway with aggressive mitigation succeeding due to favourable socioeconomic conditions.

Business Implications:

• Accelerated clean technology adoption (EVs, renewable energy, hydrogen)
• Strong carbon pricing and regulatory pressure on emissions
• Consumer preferences favour sustainable products and services
• Supply chain transparency and circular economy requirements
• Green finance availability but fossil fuel financing constraints

SSP2: Middle of the Road—"Muddling Through"

Narrative:

• Continuation of current trends with moderate progress
• Uneven technological development and policy implementation
• Persistent inequalities between and within countries
• Moderate population growth and economic development
• Environmental policies advance slowly

SSP2-4.5 Pairing: Combined with RCP 4.5, this represents a baseline scenario where climate policies are implemented but fall short of Paris targets.

Business Implications:

• Gradual transition with extended timelines for decarbonisation
• Heterogeneous policy landscapes across jurisdictions
• Moderate carbon pricing with opt-outs and exemptions
• Continued fossil fuel use in some sectors alongside growing renewables
• Adaptation increasingly necessary as physical risks mount

SSP3: Regional Rivalry—"A Rocky Road"

Narrative:

• Nationalism and regional competition dominate
• Slow technological progress due to fragmented efforts
• Weak global cooperation on environmental challenges
• High population growth in developing regions
• Resource scarcity and conflict over energy and water

SSP3-7.0 Pairing: Combined with RCP 7.0, this represents a world where climate mitigation fails due to geopolitical fragmentation.

Business Implications:

• Fragmented regulatory environments complicate global operations
• Limited carbon pricing and weak enforcement mechanisms
• Energy security concerns prioritise domestic fossil fuels
• Supply chain vulnerabilities increase due to geopolitical tensions
• Adaptation becomes critical as physical risks intensify without mitigation

SSP4: Inequality—"A Road Divided"

Narrative:

• Extreme inequality within and between countries
• Technological development benefits elite segments only
• Environmental policy focuses on wealthy regions
• Large underclass with limited access to clean energy and adaptation
• Social instability and migration pressures

Business Implications:

• Bifurcated markets with premium sustainable products for elites
• Environmental regulations vary drastically by region and class
• Labour and social unrest risks in supply chains
• Adaptation capacity concentrated in wealthy areas
• Physical climate impacts disproportionately affect disadvantaged populations

SSP5: Fossil-Fuelled Development—"Taking the Highway"

Narrative:

• Rapid economic growth fuelled by abundant fossil energy
• High technological innovation but not directed at sustainability
• Global markets and trade flourish
• Energy-intensive consumption patterns
• Climate mitigation deprioritised in favour of economic growth

SSP5-8.5 Pairing: Combined with RCP 8.5, this represents a world where economic growth continues fossil fuel dependence, leading to severe climate outcomes.

Business Implications:

• Continued fossil fuel profitability with minimal carbon pricing
• High-energy consumption business models remain viable longer
• Delayed but eventually severe transition risks as climate impacts force policy responses
• Massive physical risk exposure requiring extensive adaptation investments
• Stranded asset risks emerge suddenly when policy tipping points are reached

The distinction between SSP narratives matters critically for modelling transition risks. An SSP1-2.6 scenario implies early, orderly transition with clear policy signals. An SSP5-8.5 scenario implies delayed, disorderly transition with abrupt policy shifts following climate disasters. These differing pathways produce vastly different financial impacts.

RCP/SSP Data for SEC Climate Disclosure Requirements

The Evolving US Regulatory Landscape

The SEC's climate disclosure journey illustrates the tension between regulatory ambition and political realities. In March 2024, the SEC finalised rules requiring publicly traded companies to disclose material Scope 1 and 2 GHG emissions, climate-related risks, and impacts on financial statements. The rules emphasised materiality determinations, allowing companies to assess whether climate risks warranted disclosure under existing US GAAP standards.

Within weeks, the implementation was stayed pending legal challenges. By March 2025, the SEC ceased defending the rules, effectively suspending federal climate disclosure mandates. However, characterising this as the "end of climate disclosure" fundamentally misunderstands the broader landscape.

Alternative Compliance Drivers Beyond SEC Rules

California Climate Laws Create National Standards

California's legislative approach circumvents federal uncertainty by targeting companies operating in its $3.9 trillion economy:

SB 253 (Climate Corporate Data Accountability Act): Requires annual GHG reporting covering Scope 1, 2, and 3 emissions from companies with over $1 billion revenue doing business in California. Third-party verification is mandatory. First Scope 1 & 2 reports are due August 2026 (covering 2025 data), with Scope 3 following in 2027.

SB 261 (Climate-Related Financial Risk Act): Mandates biennial climate risk disclosure following TCFD standards from companies exceeding $500 million revenue operating in California. Reports must describe climate-related financial risks and measures adopted to reduce and adapt to those risks.

These laws affect thousands of US companies regardless of headquarters location. Any organisation with significant California operations, suppliers, or customers falls within scope. The California Air Resources Board is developing detailed implementation guidance, with stakeholder consultations ongoing through 2025.

Investor Expectations Drive Voluntary Disclosure

82% of US companies already report at least one TCFD recommendation voluntarily, driven by institutional investor demands rather than regulatory requirements. Major asset managers including BlackRock, Vanguard, and State Street systematically evaluate climate risks in portfolio allocation and proxy voting decisions.

The IFRS Foundation's 2024 progress report on climate-related disclosures found that whilst 82% of companies report some climate information, only 44% address five or more TCFD recommendations. Crucially, just 8% demonstrate robust scenario analysis evaluating climate resilience—the most analytically demanding TCFD element.

This disclosure gap creates competitive differentiation opportunities. Companies demonstrating sophisticated scenario analysis signal operational maturity and strategic foresight to investors.

Global Standards Convergence

US companies with international operations face CSRD requirements in the EU (mandatory since 2025 for large companies), ISSB standards (IFRS S2 on climate-related disclosures), and jurisdiction-specific requirements across Asia-Pacific markets. These frameworks universally expect climate scenario analysis as core disclosure components.

Practical Application of RCP/SSP Scenarios for Disclosure

Even without federal mandates, best practice climate disclosure follows the TCFD framework, which provides a blueprint adopted globally:

Governance Disclosure:

• Board oversight of climate-related risks and opportunities
• Management's role in assessing and managing climate risks
• Integration of climate considerations in strategy and risk management

Strategy Disclosure:

• Climate-related risks and opportunities over short, medium, and long term
• Scenario analysis evaluating strategic resilience under different climate futures
• Impact of climate risks and opportunities on businesses, strategy, and financial planning

Risk Management Disclosure:

• Processes for identifying and assessing climate-related risks
• Processes for managing climate-related risks
• Integration with overall risk management frameworks

Metrics & Targets Disclosure:

• GHG emissions (Scope 1, 2, and material Scope 3)
• Climate-related risks and opportunities used to assess performance
• Targets used by the organisation to manage risks and opportunities

Scenario Analysis Implementation Framework

Scenario analysis constitutes TCFD's most sophisticated element, requiring:

Scenario Selection: Utilise at least two scenarios—a Paris-aligned pathway (SSP1-2.6) to assess transition risks and a higher emissions scenario (SSP3-7.0 or SSP5-8.5) to stress-test physical risks. The divergence between scenarios reveals where business model resilience depends on climate policy assumptions versus physical impact tolerance.

Time Horizons: Define short-term (12 months), medium-term (2030), and long-term (2050, 2100) assessment periods aligned with asset lifecycles, strategic planning cycles, and financial forecasting windows. Real estate and infrastructure require century-scale thinking; technology and services focus on nearer-term horizons.

Materiality Assessment: Evaluate which climate risks are "reasonably likely" to materially affect business strategy, operational results, or financial position. This assessment must consider cumulative effects across time horizons and scenario pathways, not just current exposures.

Quantitative and Qualitative Analysis: Combine climate model outputs (temperature, precipitation, extreme weather frequency) with operational data (facility locations, supply chain nodes, customer concentrations) to estimate financial impacts. Where quantification proves infeasible due to data or modelling limitations, describe qualitative impacts systematically.

Example Implementation for US Manufacturing Company:

1. Governance: Board Risk Committee receives quarterly climate risk briefings; Chief Sustainability Officer reports to CFO with climate scenario results integrated in annual planning.

2. Strategy: Analysis under SSP1-2.6 reveals $50M stranded asset exposure in fossil fuel-dependent facilities if carbon pricing reaches $150/tonne by 2030. SSP5-8.5 analysis identifies $30M annual productivity losses from heat stress in Southern facilities by 2040 without adaptation investments.

3. Risk Management: Climate risks integrated in existing ERM framework; scenario results inform capital allocation decisions for facility hardening and renewable energy investments.

4. Metrics & Targets: Scope 1+2 emissions tracked monthly; science-based target to reduce 50% by 2030; adaptation spending as percentage of CapEx disclosed.

US GAAP Integration Considerations

Whilst US GAAP lacks climate-specific accounting standards, climate risks increasingly trigger existing disclosure requirements:

ASC 450 (Contingencies): Climate-related litigation risks, regulatory compliance costs, or physical damage exposures may require contingent liability disclosures when losses are probable and estimable.

ASC 360 (Property, Plant & Equipment): Impairment testing for long-lived assets should incorporate climate risks affecting asset utility, remaining useful life, or fair value. Facilities in flood-prone coastal areas or water-stressed regions face heightened impairment risks under high-emissions scenarios.

ASC 410 (Asset Retirement Obligations): Climate policies increasing decommissioning requirements for fossil fuel assets affect ARO calculations. Scenario analysis revealing policy tightening timelines informs liability measurement.

ASC 825 (Fair Value Measurements): Assets measured at fair value incorporate market participants' climate risk assessments. Real estate valuations increasingly reflect physical risk exposures and energy efficiency characteristics.

MD&A (Management Discussion & Analysis): Known trends, uncertainties, and events materially affecting financial condition require discussion. Climate scenario analysis revealing material risk exposures necessitates MD&A disclosure even absent specific climate rules.

For comprehensive guidance on integrating climate data into financial planning and reporting processes, see our article on using RCP and SSP data for corporate climate risk assessment.

Comparing RCP 8.5 vs SSP5-8.5 for Financial Risk Modelling

A critical technical distinction affects the accuracy and defensibility of climate risk models: RCP and SSP scenarios with identical radiative forcing levels (e.g., both 8.5 W/m²) are not interchangeable. Understanding the differences matters for financial institutions, long-term investors, and asset-intensive industries conducting scenario-based stress testing.

Emissions Composition Differences

RCP 8.5:

• Pure emissions pathway without socioeconomic context
• Specific CO₂, CH₄, N₂O concentrations through 2100
• Designed for climate model input consistency
• Lower CO₂ concentrations relative to SSP5-8.5
• Higher methane emissions

SSP5-8.5:

• Combines emissions with detailed socioeconomic narrative
• Higher CO₂ concentrations than RCP 8.5
• Lower methane emissions
• Provides economic growth, population, technology assumptions
• Integrated Assessment Model outputs linking emissions to GDP, energy systems

These compositional differences affect:

• Rate of warming: Different GHG mixes produce varying warming patterns over time
• Regional climate responses: Methane vs CO₂ dominance affects regional temperature and precipitation differently
• Extreme event frequencies: Composition influences heat wave intensity, hurricane patterns, and precipitation extremes

Timing and Trajectory Variations

RCP scenarios were developed assuming peak emissions around 2020-2030 for lower pathways. SSP scenarios reflect updated knowledge that actual emissions have tracked higher than RCP 2.6 and RCP 4.5 through the 2010s, with global mitigation policies insufficient to achieve early peaks.

SSP5-8.5 describes emissions continuing to rise through mid-century before potentially plateauing, rather than the continuous exponential growth implied by RCP 8.5. This timing difference matters critically for:

Near-term risk assessment (2025-2040): SSP5-8.5 more accurately reflects current policy inertia and fossil fuel infrastructure lock-in than RCP 8.5.

Mid-century transition dynamics (2040-2060): SSP5-8.5 narrative includes potential for late but rapid decarbonisation if technological breakthroughs occur; RCP 8.5 offers no such pathway.

Long-term planning (2060-2100): Both scenarios converge on severe climate outcomes but through different mechanisms, affecting adaptation requirements.

Socioeconomic Narratives for Transition Risk

The fundamental value-add of SSP scenarios lies in their socioeconomic narratives, which enable transition risk modelling:

SSP1-2.6 Transition Risk Profile:

• Early, orderly transition beginning immediately
• Clear policy signals enable proactive business adaptation
• Carbon pricing increases predictably: $50/tonne (2025) → $150/tonne (2030) → $300/tonne (2040)
• Technology costs decline smoothly (solar, wind, batteries)
• Stranded asset risks emerge gradually with visibility

SSP5-8.5 Transition Risk Profile:

• Delayed, disorderly transition following climate disasters
• Policy implemented reactively after tipping points
• Carbon pricing absent until 2035, then jumps to $200+/tonne in 5 years
• Technology costs remain high until crash programmes forced by climate impacts
• Sudden stranded asset write-offs with minimal warning

Financial models must capture these narrative differences. An SSP1-2.6 scenario suggests gradual fossil fuel company revenue decline with time for portfolio diversification. An SSP5-8.5 scenario suggests sustained profitability until abrupt policy shifts trigger bankruptcy risks for unprepared companies.

Physical Risk Modelling Distinctions

Physical risk models translate climate variables (temperature, precipitation, sea level, extreme events) into financial impacts (asset damage, operational disruptions, productivity losses). The differences between RCP 8.5 and SSP5-8.5 affect:

Asset Valuation Adjustments: Real estate in coastal flood zones or water-stressed regions requires different discount rates under scenarios with varying warming rates and adaptation investment assumptions.

Supply Chain Disruption Frequencies: Manufacturing exposed to extreme heat or flooding requires scenario-specific estimates of expected annual disruption days, affecting inventory management, supplier diversification, and insurance strategies.

Agricultural Productivity Shocks: Food and beverage companies with commodity exposure face different crop yield trajectories under scenarios with varying precipitation patterns and adaptation technology availability.

Case Study: Federal Reserve Pilot Climate Scenario Analysis

The Federal Reserve's 2023 pilot exercise with the six largest US banks illustrates practical scenario application:

Exercise Design:

• Transition Risk Module: Compared "Current Policies" scenario (high emissions) with "Net Zero 2050" scenario (aggressive mitigation)
• Physical Risk Module: Evaluated six severe hurricane scenarios in the Northeast US in 2050
• Static Balance Sheet Approach: Held portfolios constant to isolate climate impacts from organic growth
• 10-Year Time Horizon: Balanced analytical feasibility with meaningful risk capture

Participating Banks: JPMorgan Chase, Bank of America, Citi, Wells Fargo, Goldman Sachs, Morgan Stanley

Key Findings:

• Banks demonstrated capability improvements in climate stress testing but identified substantial gaps
• Commercial Real Estate and Corporate Loan portfolios showed moderate credit loss increases under severe scenarios
• Physical risk exposures were significant but manageable through adaptation with sufficient lead time
• Data limitations were the primary constraint: incomplete Scope 3 data, limited granular location information for counterparties, insufficient long-term climate hazard data
• Modelling challenges included translating climate variables into default probabilities, estimating loss given default adjustments, and handling long time horizons with high uncertainty

Regulatory Takeaway: The Fed characterised the exercise as "exploratory" without capital consequences, but signalled clear expectations: banks must build climate risk management capabilities even without formal capital requirements. The exercise methodology—using NGFS scenarios combining SSPs with RCPs—provides a template for other financial institutions.

NGFS Scenarios: The Financial Sector Standard

The Network for Greening the Financial System (NGFS), a coalition of central banks and supervisors, publishes climate scenarios specifically designed for financial risk analysis. NGFS Phase V (November 2024) includes:

Orderly Scenarios:

• Below 2°C: Immediate policy action, smooth transition
• Net Zero 2050: Paris Agreement achieved through aggressive immediate mitigation

Disorderly Scenarios:

• Delayed Transition: Policy action postponed until 2030, requiring abrupt changes
• Divergent Net Zero: Uneven policy implementation across regions

Hot House World Scenarios:

• Current Policies: Emissions continue on current trajectory
• Nationally Determined Contributions (NDCs): Countries implement existing pledges only

NGFS scenarios integrate SSP narratives with RCP forcing levels, providing:

• Macroeconomic variables (GDP, inflation, employment) under each scenario
• Sectoral transition pathways (energy, transport, industry, buildings, agriculture)
• Carbon price trajectories by region
• Physical risk hazard maps and damage functions

Financial institutions increasingly adopt NGFS scenarios as their analytical foundation because they provide consistency across institutions, regulatory alignment, and comprehensive datasets linking climate science to financial variables.

US Companies' Climate Scenario Usage: Case Studies and Implementation Examples

Financial Sector: Federal Reserve Pilot Exercise Deep Dive

Beyond the high-level findings, the Fed's pilot exercise revealed specific implementation challenges and solutions that other financial institutions can learn from:

Data Architecture Requirements: Banks needed to integrate climate data from multiple sources:

• Internal: Loan-level location data, collateral characteristics, counterparty financial statements
• External: Climate hazard data (temperature, precipitation, sea level, hurricanes), socioeconomic data (GDP, population), carbon price projections

Most banks lacked data architectures capable of linking these disparate datasets at the granularity required for portfolio-level analysis. Solutions included:

• Building centralised climate data platforms
• Engaging third-party climate data providers (Jupiter Intelligence, S&P Global Climanomics, ClimateAi)
• Developing APIs to push climate data to risk management systems

Modelling Methodology Choices: Banks approached the translation from climate scenarios to credit risk differently:

• Top-down approach: Start with macroeconomic variables (GDP, unemployment), model sectoral impacts, then estimate default rate adjustments
• Bottom-up approach: Start with asset-level physical exposures, aggregate to counterparty level, then estimate credit impacts
• Hybrid approach: Combine top-down for transition risks with bottom-up for physical risks

No single approach emerged as clearly superior; banks continue refining methodologies based on portfolio composition and data availability.

Capacity Building Lessons: Banks invested heavily in cross-functional teams:

• Climate scientists to interpret scenario data and translate to relevant business metrics
• Credit risk modellers to adjust existing models for climate variables
• Portfolio managers to incorporate climate insights in origination and portfolio management
• Data engineers to build necessary infrastructure

Smaller financial institutions can leverage industry collaborations, consultant support, and technology platforms to achieve similar capabilities without building everything internally.

Corporate Climate Transition Plans: Leading US Examples

Levi Strauss & Co.: Water-Constrained Supply Chain Resilience

Levi's climate transition plan explicitly addresses water stress as a material physical risk intersecting with transition strategies:

Scenario Application:

• Used regional water stress projections under RCP 4.5 and 8.5 to identify high-risk supplier locations
• Assessed transition risks from water pricing policies in water-stressed regions (India, Bangladesh, China)
• Modelled combined impacts of reduced water availability and increased water costs on supplier viability

Strategic Responses:

• Established water stewardship programmes requiring Tier 1 & 2 suppliers to implement water reduction technologies
• Diversified supplier base to reduce concentration in single water basins
• Invested in water recycling and zero-liquid-discharge technologies at key facilities
• Set science-based targets including water-specific goals for high-risk locations

Measurable Outcomes (2023):

• 97% renewable electricity in owned-and-operated facilities
• SBTi-approved net zero target
• Water stress management integrated in supplier scorecards affecting procurement decisions

Unilever: Multi-Hazard Climate Resilience Strategy

Unilever's Climate Transition Action Plan addresses both transition and physical risks across its global operations:

Scenario Application:

• Evaluated resilience of agricultural supply chains (tea, palm oil, cocoa) under SSP2-4.5 and SSP3-7.0
• Assessed transition risks from carbon pricing policies affecting energy-intensive manufacturing
• Modelled combined impacts on product costs and market demand

Strategic Responses:

• €150M investment in manufacturing decarbonisation focused on renewable energy and energy efficiency
• Regenerative agriculture programmes engaging suppliers on climate adaptation
• Portfolio shifts favouring products with lower climate impact and resilience to price volatility

Measurable Outcomes:

• 74% emissions reduction in operations since 2015
• Science-based targets for 2030 and net zero 2039 commitment
• Climate considerations integrated in brand strategy and innovation pipelines

H&M Group: Circular Economy as Climate Resilience Strategy

H&M's climate transition plan explicitly links circular economy investments to climate scenario resilience:

Scenario Application:

• Evaluated vulnerability of linear "take-make-dispose" model under carbon pricing scenarios
• Assessed material cost volatility under supply chain disruption scenarios
• Modelled competitive positioning advantages from circular models under ambitious climate policies

Strategic Responses:

• Investments in garment collection and recycling technologies
• Business model innovation (rental, resale, repair services)
• Supplier engagement programmes on renewable energy and water efficiency

Measurable Outcomes (2023):

• 20%+ GHG reduction versus 2019 baseline
• SBTi-validated net zero 2040 commitment
• Circular business models representing growing revenue share

Sector-Specific Scenario Applications

Real Estate & Construction: Adaptation ROI Analysis

A US manufacturing company in the Southeast provides a case study in adaptation investment justification through scenario analysis:

Context: Facilities located in hurricane-prone coastal areas faced increasing physical risk exposure under RCP 4.5 and 6.0 scenarios projecting higher hurricane intensity and frequency.

Scenario-Driven Investment:

• Elevated electrical substations above projected flood levels
• Constructed protective berms around critical infrastructure
• Installed backup power systems with extended duration capability
• Total investment: $2.5M

Hurricane Helene 2024 Outcomes:

• 85% less damage compared to similar facilities without adaptation investments
• Operational resumption 4 days faster than industry average
• Downtime savings valued at $15M
• Competitive advantage in fulfilling time-sensitive orders: $120M additional contracts secured due to reliability reputation

ROI Calculation: 6:1 return on adaptation investment within first major event; ongoing competitiveness benefits compound over time.

Manufacturing: Heat Stress Productivity Protection

Nike's investments in Indian supplier facilities demonstrate climate scenario-driven operational improvements:

Context: Heat stress projections under RCP 4.5 and 6.0 showed increasing worker productivity impacts and health risks in facilities without adequate cooling.

Scenario-Driven Investment:

• Cooling canopies and ventilation improvements
• Cool rooms for worker breaks
• Hydration programmes and heat stress monitoring
• Total investment: $1.9M across multiple facilities

Measurable Outcomes:

• Productivity gains offsetting investment within 18 months
• Reduced absenteeism from heat-related illness
• Improved worker safety and retention
• Enhanced supplier reliability and quality metrics

Utilities & Water-Intensive Industries: Zero-Water Production Systems

Danone South Africa illustrates scenario-driven water resilience investments:

Context: Water stress projections under RCP 6.0 and 8.5 scenarios showed increasing production disruption risks from water scarcity and competing demands.

Scenario-Driven Investment:

• €13.7M micro-grid and zero-water-discharge system
• On-site renewable energy reducing water-intensive grid electricity
• Closed-loop water recycling achieving 100% process water recovery

Outcomes:

• 100% production water security regardless of regional water availability
• 30% lower water costs despite regional price increases
• Three production shutdowns avoided (valued at €112M based on lost revenue and customer penalties)
• Regulatory compliance certainty as water allocation policies tighten

Implementation Challenges and Practical Solutions

Research across multiple sectors identifies recurring challenges and emerging best practices:

Challenge 1: Downscaling Global Scenarios to Asset-Level Granularity

Global climate models operate at 50-200km resolution; business decisions require asset-specific insights. Solutions include:

• Statistical downscaling techniques translating regional projections to specific coordinates
• High-resolution climate services (NOAA, Copernicus, national meteorological agencies)
• Third-party platforms combining multiple data sources for location-specific risk profiles

Challenge 2: Long Time Horizons Exceeding Traditional Planning Cycles

Climate scenarios extend to 2100; most business planning focuses on 3-10 years. Solutions include:

• Translate long-term scenarios into near-term decision drivers (e.g., "by 2030, physical risks reach X threshold requiring Y investment")
• Use scenarios to inform long-lived asset decisions (real estate, infrastructure) whilst maintaining traditional horizons for shorter-cycle decisions
• Establish trigger points for strategy revisions based on interim observations

Challenge 3: Incomplete Scope 3 Data

40% of companies cite Scope 3 data gaps as primary climate disclosure obstacles. Solutions include:

• Begin with spend-based emission estimates using industry averages
• Progressively improve data through supplier engagement programmes
• Utilise emerging AI/ML tools for Scope 3 estimation from unstructured data sources
• For detailed guidance on Scope 3 challenges and solutions, see our Scope 3 emissions quick check tool

Challenge 4: Integration Across Organisational Silos

Climate scenario analysis requires coordination across strategy, risk management, operations, finance, sustainability, and investor relations functions. Solutions include:

• Establish cross-functional climate risk steering committees with executive sponsorship
• Integrate climate metrics into performance management and compensation structures
• Develop shared data platforms accessible across functions
• Provide training on climate science basics to non-specialist decision-makers

Challenge 5: Communicating Uncertainty to Stakeholders

Scenario analysis produces ranges of possible outcomes, not single forecasts. Effective communication requires:

• Framing scenarios as "what if" explorations, not predictions
• Presenting multiple scenarios simultaneously to illustrate sensitivity to assumptions
• Translating uncertainty into decision-relevant terms ("under all scenarios, this investment is justified; under only pessimistic scenarios, this risk emerges")
• Documenting assumptions and limitations transparently

Tools & Frameworks for Climate Scenario Analysis

Climate Risk Assessment Platforms for US Companies

EarthScan provides CSRD/TCFD/ISSB-aligned reporting with comprehensive global coverage at 90-metre resolution. The platform offers scenarios from 1970-2100 based on IPCC data, enabling historical validation alongside forward-looking analysis. Primary users include asset managers, real estate firms, and infrastructure operators requiring precise location-based risk quantification.

ClimateAi specialises in agricultural supply chains and food/beverage sectors. The platform's FICE model integrates weather data, transaction data, and climate scenarios to produce adaptation playbooks for specific crops and geographies. Companies like General Mills and Unilever use ClimateAi for procurement risk management and supplier resilience programmes.

EY Climate Analytics Platform (CAP) offers IPCC-based scenarios aligned with TCFD, CDP, and EU Taxonomy requirements. High-resolution spatial modelling extends to 2100 with sectoral specialisation for energy, manufacturing, and financial services. The platform integrates with existing enterprise risk management systems for seamless workflow incorporation.

Jupiter Intelligence ClimateScore provides peer-reviewed, asset-level physical risk assessment focused on financial services applications. The platform translates climate hazards into financial metrics (expected annual loss, value at risk, credit rating impacts) using proprietary damage functions calibrated to historical event data.

S&P Global Climanomics evaluates ten key climate hazards with geo-specific insights at census tract resolution in the US. TCFD-aligned scenario outputs include sector-specific risk scoring, supply chain vulnerability analysis, and climate-adjusted credit risk models.

Framework Selection by Use Case

Regulatory Compliance: For California SB 253/261, TCFD, or ISSB reporting, prioritise platforms offering pre-built reporting templates aligned with those frameworks. EarthScan and EY CAP excel in structured disclosure production.

Portfolio Stress Testing: Financial institutions conducting climate scenario stress testing should utilise NGFS scenarios as the foundation, supplemented by regional physical risk data from providers like Jupiter Intelligence or S&P Global Climanomics. The combination enables both transition and physical risk quantification at portfolio level.

Transition Planning: Companies setting science-based targets benefit from platforms that translate climate scenarios into sectoral decarbonisation pathways. ClimateAi's adaptation playbooks and EY CAP's sectoral models provide actionable insights for capital allocation and operational adjustments.

Supply Chain Risk Management: Organisations with geographically dispersed supply chains require location-based physical risk assessment combined with supplier engagement platforms. ClimateAi for agriculture-heavy supply chains or EarthScan for broader industrial applications provide the necessary granularity.

For comprehensive guidance on ESG data management strategies that enable effective climate scenario analysis, see our article on mastering ESG data management: strategies, challenges, and compliance in 2024.

Open-Source and Public Data Resources

NGFS Climate Scenarios Data Portal: The Network for Greening the Financial System publishes scenario data freely, including:

• Macroeconomic variables (GDP, inflation, energy prices) by region and scenario
• Carbon price trajectories
• Energy system transition pathways
• Physical risk hazard indicators

Available at: ngfs.net/ngfs-scenarios-portal

IPCC Data Distribution Centre: The IPCC provides direct access to climate model outputs underlying RCP and SSP scenarios, including:

• Temperature and precipitation projections at global and regional scales
• Sea level rise estimates
• Extreme event frequency and intensity data

Useful for organisations with in-house climate science expertise seeking to customise analyses.

Copernicus Climate Data Store: The EU's Copernicus programme offers free access to historical climate data and future projections from multiple climate models, enabling validation of third-party platforms or development of proprietary models.

For detailed guidance on leveraging open-source climate data sources, see our article on open-source climate data for risk management, EU Taxonomy, and CSRD compliance.

Implementing Climate Scenario Analysis: Practical Step-by-Step Framework

Phase 1: Scoping and Governance (Months 1-2)

Establish Cross-Functional Steering Committee: Climate scenario analysis requires coordination across strategy, risk management, operations, finance, sustainability, and investor relations. Designate executive sponsors (ideally CFO and Chief Risk Officer) and working-level representatives from each function.

Define Objectives and Materiality Boundaries: Clarify whether the primary driver is regulatory compliance, investor communications, strategic planning, or operational risk management. This determines scenario selection, time horizons, and output formats. Conduct preliminary materiality assessment identifying:

• Geographic exposure concentrations (coastal areas, water-stressed regions, extreme heat zones)
• Sectoral transition risk exposures (fossil fuel dependencies, energy-intensive processes, emission-heavy supply chains)
• Asset types requiring long-term resilience (facilities, infrastructure, long-lived equipment)

Use our CSRD materiality screening tool to systematically identify relevant climate risks for your organisation.

Select Appropriate Scenarios: Based on materiality assessment, choose 2-3 scenarios balancing analytical feasibility with coverage of key risks:

• Standard Recommendation: SSP1-2.6 (Paris-aligned, high transition risk), SSP2-4.5 (baseline, moderate risks), SSP5-8.5 (high physical risk, low transition risk)
• Financial Institutions: Adopt NGFS scenarios for consistency with regulatory expectations
• Real Estate/Infrastructure: Emphasise physical risk scenarios (SSP3-7.0, SSP5-8.5)
• Energy/Industrials: Emphasise transition risk scenarios (SSP1-2.6, SSP1-1.9)

Define Time Horizons: Align with business planning cycles and asset lifecycles:

• Short-term (2025-2030): Inform capital budgeting, supplier contracts, insurance renewals
• Medium-term (2030-2050): Guide strategic planning, facility siting, major capital investments
• Long-term (2050-2100): Evaluate existential risks to long-lived assets, inform R&D priorities

Phase 2: Data Acquisition and Analysis (Months 3-6)

Compile Internal Data: Aggregate organisation-specific information required for impact assessment:

• Facility locations (coordinates, addresses, elevations)
• Asset characteristics (age, construction type, flood protection, energy sources)
• Supply chain nodes (key suppliers, distribution centres, logistics routes)
• Revenue and cost breakdowns by geography and product line
• Customer concentrations by region and sector

Integrate Climate Scenario Data: Acquire external data matching selected scenarios and time horizons:

• Temperature and precipitation projections for facility locations
• Extreme weather frequency estimates (hurricanes, floods, droughts, wildfires)
• Sea level rise projections for coastal assets
• Carbon price trajectories by jurisdiction
• Energy price projections by scenario
• Macroeconomic variables (GDP, employment, sector growth rates)

Third-party platforms like ClimateAi, EarthScan, or S&P Global Climanomics streamline this process by providing pre-integrated datasets.

Conduct Exposure Analysis: Systematically map climate variables to operational vulnerabilities:

• Physical risk: Which facilities face flood exposure? Heat stress impacts on productivity? Water scarcity affecting operations?
• Transition risk: What carbon price levels threaten profitability? Which products face demand shifts under aggressive climate policy? Where does competition from low-carbon alternatives intensify?

Quantify Financial Impacts: Translate exposures into financial metrics using sector-specific approaches:

• Asset damage: Use historical loss data, engineering assessments, or catastrophe models to estimate expected annual losses under different scenarios
• Operational disruptions: Estimate production downtime, revenue losses, and cost increases from climate impacts
• Market shifts: Model demand changes, competitive dynamics, and pricing power under transition scenarios
• Regulatory costs: Calculate carbon pricing impacts, compliance costs, or stranded asset write-downs

For detailed methodologies on translating climate risks into financial impacts, see our climate risk analysis for companies service.

Phase 3: Strategy Assessment and Adaptation Planning (Months 7-9)

Evaluate Current Strategy Resilience: Test existing strategic plans against each scenario:

• Does planned capital allocation remain optimal under aggressive carbon pricing?
• Are planned facility expansions viable under high physical risk scenarios?
• Does product portfolio strategy succeed if consumer preferences shift rapidly toward sustainable alternatives?

Identify "no-regret" actions that make sense across all scenarios and "contingent" actions that depend on which scenario unfolds.

Develop Adaptation Options: For material risks identified in scenario analysis, develop response options:

• Physical risk adaptations: Facility hardening, relocation, backup systems, supply chain diversification
• Transition risk responses: Portfolio shifts, R&D investments, strategic partnerships, policy advocacy

Estimate costs, implementation timelines, and effectiveness for each option under different scenarios.

Prioritise Actions: Use scenario insights to inform prioritisation:

• High confidence, near-term risks: Invest in adaptations immediately (e.g., flood protection for facilities in high-risk zones)
• Scenario-dependent risks: Establish triggers and monitor signals to determine when contingent actions become necessary
• Low-probability, high-impact risks: Develop contingency plans and risk transfer mechanisms (insurance, hedging)

Phase 4: Disclosure and Communication (Months 10-12)

Prepare TCFD-Aligned Disclosure: Structure scenario analysis results following TCFD's four pillars:

• Governance: Describe board and management oversight of climate scenario process
• Strategy: Summarise scenarios used, time horizons, key findings, and strategic implications
• Risk Management: Explain how scenario analysis integrates with enterprise risk management
• Metrics & Targets: Present climate-related metrics tracked and targets established based on scenario insights

Tailor Communications by Audience:

• Investors: Emphasise financial materiality, quantified impacts, and strategic responses
• Regulators: Demonstrate compliance with California SB 253/261 or other jurisdictional requirements
• Customers: Highlight supply chain resilience and product sustainability improvements informed by scenarios
• Employees: Communicate organisational preparedness and resilience investments

Establish Ongoing Monitoring: Climate scenarios require periodic refresh as climate science advances, policy landscapes evolve, and organisational circumstances change. Establish annual or biennial review cycles incorporating:

• Updated climate projections (IPCC reports, NGFS scenario updates)
• Observed climate trends compared to scenario projections
• Changes in business operations, asset portfolio, or market conditions
• Lessons learned from climate events experienced

Frequently Asked Questions

Q: With the SEC climate disclosure rules suspended, do US companies still need to conduct scenario analysis?

Yes, for three primary reasons: (1) California climate laws (SB 253 & SB 261) require scenario-based risk reporting from companies over $500M-$1B revenue operating in California; (2) Institutional investors expect climate scenario disclosure regardless of federal mandates—82% of US companies already report TCFD-aligned information voluntarily; (3) Material climate risks require disclosure under existing US GAAP standards (MD&A, contingencies, asset impairments) even without climate-specific rules. Scenario analysis provides the analytical foundation for defensible materiality determinations.

Q: Should we use RCP or SSP scenarios for business planning?

Use SSP scenarios, which provide richer context for business decision-making. SSP scenarios combine emissions trajectories (like RCPs) with socioeconomic narratives describing how those emissions arise—critical for understanding transition risks. For example, SSP1-2.6 and SSP5-8.5 both exist, but tell vastly different stories about policy development, technology costs, and market transformation timelines. These narrative differences translate directly into varying strategic implications for your business.

Q: What's the practical difference between RCP 8.5 and SSP5-8.5 for financial modelling?

Whilst both target 8.5 W/m² radiative forcing by 2100, SSP5-8.5 provides the socioeconomic context essential for transition risk modelling: economic growth rates, technology development pathways, policy implementation scenarios. Additionally, SSP5-8.5 has higher CO₂ but lower methane emissions than RCP 8.5, affecting warming rates and regional climate impacts. For physical risk modelling, these compositional differences matter for precipitation patterns and extreme weather frequencies. For transition risk modelling, SSP5-8.5's narrative of delayed policy action followed by abrupt transitions enables more realistic carbon price shock scenarios.

Q: How many scenarios should we analyse to satisfy TCFD recommendations?

TCFD recommends at least two scenarios—typically a Paris-aligned pathway (2°C or below) to assess transition risks, and a higher emissions scenario (3°C+) to stress-test physical risks. Many organisations use three scenarios to capture a broader range: SSP1-2.6 (aggressive mitigation, high transition risk), SSP2-4.5 (moderate trajectory, balanced risks), and SSP5-8.5 (minimal mitigation, severe physical risks). Financial institutions following NGFS guidance typically use more scenarios to cover orderly, disorderly, and hot house world pathways.

Q: What time horizons should our scenario analysis cover?

Align time horizons with your asset lifecycles and planning cycles. Most organisations use: Short-term (2025-2030) for operational planning and capital budgeting; Medium-term (2030-2050) for strategic planning and major capital investments; Long-term (2050-2100) for infrastructure, real estate, and existential risk assessment. If your business operates primarily on 3-5 year planning cycles, focus analytical detail on near- and medium-term impacts whilst conducting qualitative assessment of long-term risks.

Q: Our company has limited climate expertise. Can we outsource scenario analysis?

Yes, many organisations engage consultants or utilise climate risk platforms (ClimateAi, EarthScan, EY Climate Analytics Platform) to conduct initial scenario analysis. However, retain strategic decision-making internally—consultants provide data and modelling, but you must interpret results and determine strategic responses. Consider hybrid approaches: use consultants to establish methodologies and initial analyses, then build internal capabilities to maintain and update assessments over time. For organisations seeking expert guidance, our climate risk analysis service provides customised scenario analysis with strategic interpretation.

Q: How do we translate climate scenarios into financial statement impacts for US GAAP reporting?

Climate scenarios inform existing US GAAP requirements rather than creating new accounting standards. Key applications include: (1) ASC 450 Contingencies: Scenario analysis revealing probable, estimable climate-related losses triggers contingent liability disclosure; (2) ASC 360 Impairment: Assets facing climate risks may require impairment testing, with scenario analysis informing fair value estimates and remaining useful life assessments; (3) MD&A: Material climate risks identified through scenario analysis require Management Discussion & Analysis disclosure as known trends affecting future operations. Engage accounting advisors to translate scenario findings into appropriate GAAP disclosures.

Q: California's climate laws require third-party verification of emissions data. Does scenario analysis also require verification?

SB 253 specifically mandates third-party assurance of GHG emissions reports, but SB 261 (climate risk disclosure) does not explicitly require third-party verification of scenario analysis. However, best practice includes internal audit or external assurance of scenario methodology and key assumptions, particularly if disclosed to investors or regulators. Verification enhances credibility but focus initially on methodology robustness over formal assurance.

Q: Our scenario analysis shows material risks, but we're uncertain how to respond strategically. What's the typical next step?

Conduct a strategic resilience assessment comparing your current strategy's performance across scenarios. Identify: (1) No-regret actions: Investments that improve outcomes across all scenarios (e.g., energy efficiency, supply chain diversification); (2) Robust actions: Strategies that perform adequately across most scenarios even if not optimal in any; (3) Contingent actions: Responses that depend on which scenario unfolds, requiring monitoring and trigger-point identification. Begin with no-regret and robust actions whilst establishing monitoring systems for contingent risks. Our climate risk integration consulting helps organisations translate scenario insights into actionable strategies.

Q: How often should we update our climate scenario analysis?

Established best practice suggests biennial updates align with IPCC report cycles and NGFS scenario releases. However, update more frequently if: (1) Major climate events affect your operations or industry; (2) Significant policy changes alter transition risk landscape (e.g., new carbon pricing programmes); (3) Material business changes occur (acquisitions, divestitures, geographic expansions); (4) New climate science substantially revises regional projections relevant to your operations. Between formal updates, conduct annual reviews assessing whether previous scenario assumptions remain valid.

Strategic Recommendations: Positioning for Climate Resilience in 2026

The regulatory uncertainty surrounding federal climate disclosure rules obscures a fundamental truth: climate scenario analysis has evolved from a compliance exercise to a strategic imperative. US companies face material climate risks requiring systematic assessment regardless of SEC rule status. Organisations that master scenario analysis gain competitive advantages in multiple dimensions.

Investor Differentiation: The 92% of US companies failing to demonstrate robust scenario resilience analysis create an opportunity for the 8% who do. Investors increasingly use climate scenario disclosure quality as a proxy for management sophistication and strategic foresight. Companies articulating clear, scenario-informed strategies signal operational maturity that translates to valuation premiums.

Operational Resilience: Climate scenarios enable proactive identification of supply chain vulnerabilities, facility exposure concentrations, and operational dependencies requiring hardening. The ROI on climate adaptation investments—demonstrated by cases achieving 6:1 returns on resilience spending—justifies scenario-driven capital allocation even absent regulatory mandates.

Strategic Optionality: Scenario analysis reveals strategic optionalities invisible in single-future planning. Understanding how your business performs under SSP1-2.6 versus SSP5-8.5 illuminates which strategic bets depend critically on policy trajectories versus which succeed regardless of climate futures. This insight guides portfolio diversification, R&D prioritisation, and M&A strategy.

Regulatory Preparedness: California's climate laws foreshadow broader state-level action. New York, Illinois, and Washington are considering similar legislation. Early scenario analysis builds capabilities that scale efficiently when additional jurisdictions mandate climate disclosure. The Federal Reserve's pilot exercise signals that financial regulators expect climate scenario stress testing even without formal capital requirements.

Talent Attraction and Retention: Employees increasingly evaluate employers' climate preparedness and ethical positioning. Organisations demonstrating sophisticated scenario planning and proactive climate strategy attract talent valuing long-term thinking and resilience, whilst competitors focused solely on short-term compliance minimums face recruiting challenges.

The transition from RCP to SSP scenarios reflects climate science's evolution toward decision-relevant frameworks. SSP narratives enable the transition risk modelling essential for strategic planning in a decarbonising economy. Organisations treating climate scenarios as mere compliance artefacts miss their strategic value. Organisations integrating scenario insights into capital allocation, facility planning, and portfolio strategy position themselves to thrive regardless of which climate future unfolds.

For US companies navigating this landscape, the path forward is clear: conduct rigorous scenario analysis using SSP frameworks, translate findings into strategic responses, communicate insights transparently to investors, and build organisational capabilities for ongoing climate risk management. The alternative—reactive crisis management when climate impacts or policy shifts force sudden adaptations—invariably proves more costly than proactive scenario-informed strategy.

Related Resources and Further Reading

Internal Fiegenbaum Solutions Resources:

• Choosing the Right RCP Scenario for Climate-Resilient Business Planning – Detailed guidance on RCP scenario selection methodology
• Using RCP and SSP Data for Corporate Climate Risk Assessment – Practical data integration techniques
• Climate Risk Analysis for Companies – Professional climate risk assessment services
• CSRD Materiality Screening Tool – Identify relevant climate risks systematically
• Scope 3 Emissions Quick Check – Assess supply chain emissions exposure
• Mastering ESG Data Management – Data infrastructure for climate reporting
• Open-Source Climate Data for Risk Management – Leverage public climate data sources
• Carbon Stress Tests for Business Resilience – Assess carbon price sensitivity
• CSRD Climate Risk Reporting Guide – EU climate disclosure requirements
• Sustainability Consulting Services – Expert support for climate strategy development

External Framework Resources:

• TCFD Knowledge Hub (tcfdhub.org) – Official TCFD implementation guidance and case studies
• NGFS Climate Scenarios Portal (ngfs.net) – Downloadable scenario data for financial institutions
• ISSB IFRS S2 (ifrs.org) – International climate disclosure standards
• California Air Resources Board – Implementation guidance for SB 253 and SB 261
• IPCC Data Distribution Centre – Access to climate model outputs underlying scenarios

Ready to develop a robust climate scenario analysis for your organisation? Contact Fiegenbaum Solutions for expert guidance on scenario selection, data integration, financial modelling, and strategic interpretation aligned with US GAAP, TCFD, and California climate disclosure requirements.