SSP and RCP Difference: Using Data to Enhance Corporate Climate Risk Assessment

How can companies better assess climate risks systematically and meet regulatory requirements? The answer lies in using Representative Concentration Pathways (RCPs) and Shared Socioeconomic Pathways (SSPs). These scenario frameworks, developed by the Intergovernmental Panel on Climate Change (IPCC), help organisations understand future greenhouse gas concentrations, socio-economic developments, and their implications for business resilience.

Key Takeaways:

• RCP scenarios map how greenhouse gas emissions and radiative forcing levels can affect global warming trajectories (e.g., RCP 1.9 for limiting warming to <1.5°C)

• SSP scenarios describe socio-economic pathways including economic growth, technological development, and policy choices that influence both mitigation and adaptation capacity

• Regulatory integration: The CSRD has embedded TCFD scenario analysis requirements into ESRS E1, making RCP and SSP data essential for compliance

• Current trajectory: Real-world emissions track between RCP 4.5 and SSP2-4.5 ("Middle of the Road"), projecting 2.7°C warming by 2100 under existing climate policies

3 Steps for Implementation:

1. Select scenarios: Combine RCP and SSP data tailored to your industry, geographical exposure, and risk appetite—at minimum one Paris-aligned and one higher-emissions scenario

2. Meet regulatory standards: Integrate requirements from CSRD, EU Taxonomy physical risk criteria, and TCFD-based frameworks

3. Embed in risk management: Analyse both physical and transition risks across short (2030), medium (2040), and long-term (2050+) horizons

Companies like Nestlé Germany use climate scenarios to adapt supply chains, optimise ESG strategies, and stress-test assets against extreme climate impacts. Small and medium-sized enterprises can leverage scenarios effectively through strategic climate risk assessments that combine regional climate projections with sector-specific socio-economic assumptions.

Understanding the Scenario Framework: RCPs and SSPs

What Representative Concentration Pathways (RCPs) Measure

Representative Concentration Pathways describe future greenhouse gas concentrations through the lens of radiative forcing—the change in energy balance in the atmosphere measured in watts per square metre (W/m²). The Intergovernmental Panel on Climate Change uses these pathways in climate models to project future climate change impacts.

Here's an overview of the primary RCP scenarios featured in the IPCC's Sixth Assessment Report:

Critical 2025 Update: While RCP 8.5 was historically considered a plausible worst-case scenario, climate scientists increasingly view it as unlikely due to accelerating renewable energy deployment and declining coal use globally. However, it remains essential for stress-testing physical risks such as flooding, heat extremes, and sea-level rise under extreme conditions.

For German companies specifically, the Climate Service Center (GERICS) provides detailed regional climate projections based on these RCP scenarios for all 401 German districts, enabling site-specific risk assessments.

How Shared Socioeconomic Pathways (SSPs) Work

Shared Socioeconomic Pathways (SSPs) complement RCPs by describing alternative futures for global society, including economic development, technological trends, population growth, and governance structures. Assumptions about global population growth—including fertility, mortality, and migration—are central to SSP narratives and influence projections of future economic growth and development. The Intergovernmental Panel on Climate Change developed five baseline SSP scenarios:

Understanding the Integration: When climate researchers combine SSPs with RCPs, they create integrated assessment models that project not only future climate impacts but also how policy, technology, and social factors interact with those impacts. For instance, SSP2-4.5 represents a “middle of the road” scenario where current socio-economic trends continue alongside moderate climate action.

The distinction between RCPs and SSPs is crucial: RCPs focus on radiative forcing levels and physical climate outcomes, whilst SSPs describe the socio-economic context that determines both future emissions and society’s capacity to adapt. This combination enables climate scenario analysis that captures both physical and transition risks.

The Regulatory Imperative: Why 2025 Marks a Turning Point

CSRD Integration of TCFD Scenario Analysis

The Corporate Sustainability Reporting Directive (CSRD) has fundamentally transformed climate risk disclosure from a voluntary best practice into a legal requirement for thousands of European companies. Under ESRS E1 (Climate Change), companies must conduct scenario-based climate risk assessments following these principles:

Mandatory Requirements:

• At least two scenarios: One Paris-aligned pathway (typically RCP 1.9 or 2.6) and one higher-emissions scenario (RCP 4.5 or 8.5)

• Multiple time horizons: Short-term (to 2030), medium-term (to 2040), and long-term (to 2050 and beyond)

• Dual risk assessment: Both physical climate risks (floods, droughts, extreme heat) and transition risks (carbon pricing, policy shifts, technological disruption)

• Double materiality: Assessment of how climate change affects the company AND how the company impacts climate change

The integration of TCFD principles into CSRD means that scenario analysis using climate models and Representative Concentration Pathways RCPs is no longer optional—it's a compliance requirement. Companies must document their methodology, assumptions, and findings transparently in their CSRD sustainability reports.

EU Taxonomy Physical Risk Criteria

To qualify for EU Taxonomy alignment—critical for accessing sustainable finance and meeting investor expectations—economic activities must demonstrate resilience to physical climate risks using the best available climate science. This explicitly means using IPCC scenarios and climate model projections.

The EU Taxonomy technical screening criteria require companies to:

1. Conduct climate risk assessments across relevant physical hazards (temperature extremes, flooding, drought, sea-level rise, etc.)

2. Use appropriate scenarios: Typically a high-emissions pathway (RCP 8.5) to test asset resilience under severe conditions

3. Implement adaptation solutions: Demonstrate that identified risks are addressed through concrete measures

4. Document compliance: Provide evidence that assets can withstand future climate impacts

This creates a direct link between scenario analysis using RCPs and SSPs and access to sustainable finance. Companies that cannot demonstrate climate resilience through robust scenario analysis face both compliance risks and reduced access to green capital.

Financial Sector Requirements: EBA Guidelines

The European Banking Authority (EBA) released final guidelines in 2025 mandating that financial institutions use environmental scenario analysis for stress testing. These guidelines explicitly reference the Network for Greening the Financial System (NGFS) climate scenarios, which are built on SSP-RCP combinations.

For banks, insurers, and asset managers, this means:

• Portfolio-level scenario analysis across different RCP scenarios

• Assessment of transition risks to financed emissions under various climate policies

• Physical risk exposure of loan portfolios and investments across different warming pathways

This regulatory cascade means that even companies not directly covered by CSRD will face scenario analysis requirements from their financiers and investors.

Practical Implementation: A Strategic Framework

Step 1: Scenario Selection Strategy

Selecting appropriate scenarios requires balancing scientific rigour with business relevance. Based on the latest IPCC Sixth Assessment Report and regulatory guidance, here are recommended combinations:

Strategic Considerations:

Industry-Specific Selection:

• Energy sector: Focus on SSP5-8.5 (fossil-fueled development) vs SSP1-1.9 (rapid technological progress towards renewables) to capture stranded asset risks

• Manufacturing: Prioritise physical risk scenarios (RCP 8.5) for supply chain resilience and moderate transition scenarios (RCP 4.5) for carbon pricing impacts

• Real estate: Must use RCP 8.5 for EU Taxonomy compliance to demonstrate flood and heat resilience

• Financial services: Require broad range of scenarios for portfolio stress testing and client advisory

Geographical Considerations:

For companies operating in Germany, regional climate scenarios from the German Weather Service (DWD) and Climate Service Center show:

• Alpine regions: Warming above global average; increased avalanche and landslide risks

• Northern Germany: Rising sea levels and storm surge risks in coastal areas

• Rhine Valley: Significant increase in hot days, tropical nights, and drought periods

• Urban centres: Urban heat island effects compounding with rising temperatures

The CSRD climate risk quick check tool can help companies identify which scenarios are most relevant to their specific exposure profile.

Step 2: Data Sources and Tools

Global Data and Tools:

IPCC Resources:

• Interactive Atlas: High-resolution climate model projections for physical risks including temperature, precipitation, and sea-level changes across all RCP scenarios

• Assessment Report Working Group Reports: Detailed scientific basis for greenhouse gas concentrations, radiative forcing, and climate impacts

• Special Reports: Focused analyses on limiting warming to 1.5°C (SR15) and climate impacts

SSP Database (IIASA): The International Institute for Applied Systems Analysis maintains the authoritative SSP database with detailed projections for:

• Population growth and urbanisation

• Economic development and GDP trajectories

• Energy system transitions and technological trends

• Land-use changes and agricultural development

• Educational and health investments

NGFS Climate Scenarios: The Network for Greening the Financial System provides integrated scenarios combining climate models with macroeconomic modelling, specifically designed for financial risk assessment. These scenarios explicitly link SSPs with economic variables including:

• Carbon prices under different climate policies

• GDP impacts from physical and transition risks

• Sector-specific emission pathways

• Regional economic development trajectories

German-Specific Tools:

For companies operating in Germany or German-speaking markets, these resources provide crucial localised data:

Regional Climate Atlas Germany (DWD):

• 120 localised scenarios covering all RCP pathways

• Temperature and precipitation projections for all 401 German districts

• Extreme weather event frequencies (heat waves, heavy rainfall, drought)

• Available for multiple time periods (2031-2060, 2071-2100)

Climate Impact Explorer:

• Sector-specific impact assessments from 1.5°C warming upwards

• Infrastructure vulnerability analysis

• Agricultural and forestry risk assessments

• Water availability projections

KliVO Portal:

• Adaptation-focused decision support

• Municipal-level climate data

• Practical guidance for implementing adaptation measures

• Connection to regional climate services

These tools enable comprehensive climate risk assessments that meet both regulatory requirements and strategic planning needs.

Step 3: Integration into Risk Management

Qualitative Risk Assessment:

Begin with qualitative analysis to identify and prioritise risks:

1. Value chain mapping: Identify exposure points across operations, supply chain, and distribution networks

2. Stakeholder workshops: Engage cross-functional teams (operations, finance, procurement, sustainability) to identify blind spots

3. Materiality screening: Determine which physical and transition risks are material under different scenarios

4. Regional vulnerability analysis: Assess site-specific exposures using localised climate model projections

The CSRD materiality screening tool can help structure this qualitative assessment systematically.

Quantitative Impact Modelling:

Develop quantitative estimates of financial exposure:

Physical Risk Quantification:

• Asset-level exposure: Map facilities and infrastructure to flood zones, heat stress areas, and water scarcity regions under RCP 8.5

• Supply chain disruption costs: Model production losses from extreme weather events affecting key suppliers

• Insurance implications: Assess premium increases and coverage gaps for assets exposed to increasing climate hazards

Transition Risk Quantification:

• Carbon pricing exposure: Calculate cost increases under different carbon price trajectories linked to SSP scenarios

• Stranded asset risk: Assess proportion of assets that become economically unviable under rapid technological progress scenarios (SSP1-1.9)

• Market transition impacts: Model revenue exposure from shifting customer preferences and regulatory requirements

Practical Example: Under SSP2-4.5, a manufacturing company with high energy intensity might face:

• EU ETS carbon prices reaching €130-150/tCO2 by 2030

• 15-30% increase in energy costs

• Supply chain disruptions averaging 3-5 additional events per year by 2040

• Water availability constraints during summer months in southern German facilities

Action Planning and Strategic Response:

Develop concrete response strategies across three categories:

No-Regret Actions (robust across all scenarios):

• Energy efficiency improvements that reduce costs and emissions

• Water recycling systems that address both scarcity and cost

• Supplier diversification to reduce concentration risks

• Employee training on climate adaptation

Adaptive Strategies (triggered by scenario-specific thresholds):

• Facility relocation if flooding frequency exceeds defined limits

• Technology switching based on carbon price levels

• Market repositioning as customer preferences shift

• Insurance strategy adjustments based on physical risk evolution

Contingency Plans (for high-impact, lower-probability events):

• Emergency response protocols for extreme weather

• Alternative sourcing arrangements for climate-vulnerable inputs

• Financial reserves for adaptation investments

• Stakeholder communication plans for climate-related disruptions

This structured approach ensures that scenario analysis translates into actionable risk management rather than remaining a compliance exercise. For detailed guidance on integrating climate risks into financial planning, companies should consider both quantitative modelling and qualitative strategic assessment.

Sector-Specific Applications and Challenges

Energy Sector: Navigating the Energy Transition

The globally connected energy sector faces particularly complex scenario implications as different SSP pathways envision radically different futures for energy systems.

Both SSP5-8.5 and SSP1-1.9 represent relatively optimistic trends in human development and economic growth, albeit driven by different models of sustainability and technological advancement.

SSP5-8.5 (Fossil-Fueled Development):

• Continued reliance on abundant fossil fuel resources

• Stranded asset risks for coal and gas infrastructure

• Carbon capture and storage becoming economically necessary

• Regulatory pressure intensifying despite continued fossil fuel use

SSP1-1.9 (Rapid Technological Progress):

• Accelerated renewable deployment creating grid stability challenges

• Massive investment requirements for storage and grid infrastructure

• Declining revenues from conventional generation assets

• Opportunities in flexibility services and green hydrogen

Strategic Implications: Energy companies must plan for a broad range of futures, with many now using “dual pathways” that maintain flexibility to pivot between scenarios as policy and technology trajectories become clearer. The risk lies in over-investing in either direction—maintaining fossil assets that become stranded or prematurely retiring profitable assets.

Manufacturing: Physical and Transition Risk Convergence

Manufacturing faces the dual challenge of physical disruption and transition pressures, with significant variations based on energy intensity and supply chain complexity.

Physical Risks (RCP 8.5 scenario):

• Production facility exposure to flooding, extreme heat, and water scarcity

• Supply chain disruptions from climate impacts on raw material sourcing

• Labour productivity losses during extreme heat events

• Transportation infrastructure vulnerability affecting logistics

Transition Risks (SSP1-2.6 rapid decarbonisation):

• Carbon pricing adding 15-30% to energy costs by 2030

• Scope 3 accounting requirements creating pressure on supplier emissions

• Customer requirements for low-carbon products accelerating

• Competitive disadvantage if competitors decarbonise faster

Case Example: A German automotive supplier analysing scenarios might find:

• Under SSP2-4.5: Manageable adaptation costs but growing carbon pricing pressure requiring €50-100m investment in energy efficiency by 2030

• Under RCP 8.5: 15% of European production capacity at risk from flooding by 2050, requiring facility relocation or flood defences

• Under SSP1-1.9: Rapid customer transition to EVs requiring complete retooling, but also access to green financing at favourable terms

The hidden climate risks in supply chains often represent the greatest exposure for manufacturing companies.

Real Estate: EU Taxonomy Compliance Requirements

The real estate sector faces explicit regulatory requirements to demonstrate climate resilience using scenario analysis as part of EU Taxonomy compliance. Qualifying assets must also demonstrate that development respects perceived environmental boundaries to promote inclusive and environmentally conscious growth.

Mandatory Scenario Analysis:

• Buildings must demonstrate flood resilience under RCP 8.5 to qualify as sustainable investments

• Heat stress adaptation required for locations experiencing significant temperature increases

• Energy efficiency standards increasingly linked to decarbonisation scenarios

Physical Risk Assessment Priorities:

• Flood zone mapping using worst-case sea-level rise and precipitation scenarios

• Heat island effect analysis for urban properties

• Water availability for properties with high consumption

• Insurance availability and premium trajectories

Investment Implications: Properties that cannot demonstrate climate resilience through robust scenario analysis face:

• Difficulty accessing green financing

• Lower valuations due to climate risk premiums

• Higher insurance costs or unavailability of coverage

• Regulatory restrictions on development in high-risk areas

Real estate investors increasingly require detailed climate risk assessments using RCPs and SSPs as part of due diligence, making scenario analysis a prerequisite for transactions.

Financial Services: Portfolio-Level Scenario Analysis

Banks, insurers, and asset managers face unique challenges in applying scenarios across diverse portfolios.

Key Applications:

• Credit risk assessment: Evaluating borrower resilience across scenarios

• Investment portfolio stress testing: Understanding exposure to physical and transition risks

• Insurance underwriting: Pricing climate risks into premiums and coverage decisions

• Client advisory: Helping clients understand their own scenario-based risks

Regulatory Requirements:

• EBA guidelines mandate NGFS scenario use for stress testing

• CSRD applies to financial institutions' own operations

• Client disclosure requirements under various sustainability regulations

• Fiduciary duty considerations for climate risk management

Financial institutions increasingly recognise that inadequate scenario analysis creates systemic risks, as climate impacts cascade through interconnected financial systems. The combination of baseline SSP scenarios with financial modelling enables forward-looking risk assessment that traditional backward-looking approaches cannot provide.

Common Pitfalls and Best Practices

Critical Mistakes to Avoid

1. Treating Scenarios as Forecasts

Perhaps the most fundamental misunderstanding: RCP scenarios are not predictions of the future but rather "what if" explorations. Climate researchers design them to span plausible futures, not to predict which future will occur.

Why this matters:

• Scenarios should inform strategy without creating false precision

• Flexibility and adaptation capacity become more important than optimising for one scenario

• Communication with stakeholders must emphasise uncertainty and ranges

2. Cherry-Picking Optimistic Pathways

Some companies select only Paris-aligned scenarios (RCP 1.9 or 2.6) whilst ignoring higher-emissions possibilities, despite regulatory guidance requiring stress-testing.

The problem:

• Underestimates tail risks and extreme events

• Fails to build resilience for physical climate impacts

• Creates regulatory compliance gaps

• Misleads investors about true risk exposure

Best practice: Always include at least one high-emissions scenario (RCP 8.5) specifically for physical risk stress-testing, even if deemed unlikely.

3. Ignoring Shared Socioeconomic Pathways

Many companies focus exclusively on RCPs whilst neglecting the SSP component, missing critical transition risks.

What gets missed:

• Policy and regulatory trajectory uncertainties

• Technological trends affecting competitive positioning

• Market transition dynamics and customer preference shifts

• Social and political factors influencing climate action

Solution: Use combined SSP-RCP scenarios (e.g., SSP2-4.5) rather than RCPs alone to capture both physical and socio-economic dimensions.

4. Static Analysis Without Updates

Climate science advances rapidly, with new research improving both climate models and our understanding of greenhouse gas emissions trajectories.

Risks of outdated analysis:

• Using superseded IPCC reports (e.g., Fifth Assessment Report instead of Sixth Assessment Report)

• Missing regulatory requirement changes

• Failing to update as company's risk profile evolves

• Not incorporating new regional climate data

Recommendation: Update scenario analysis every 2-3 years minimum, or after major policy shifts, acquisitions, or changes in operations.

5. Insufficient Documentation

CSRD and EU Taxonomy requirements demand transparency about assumptions, methodologies, and limitations.

Required documentation:

• Data sources and climate models used

• Rationale for scenario selection

• Assumptions about sensitivity and exposure

• Limitations and uncertainties in the analysis

• How results influenced decision-making

Poor documentation creates audit risks and reduces the strategic value of scenario analysis.

Best Practice Framework

Cross-Functional Engagement

Scenario analysis requires input from across the organisation:

• Finance: Quantifying financial impacts and capital allocation

• Operations: Identifying physical vulnerabilities and adaptation options

• Procurement: Assessing supply chain exposure and supplier resilience

• Strategy: Integrating findings into long-term planning

• Sustainability: Ensuring regulatory compliance and stakeholder communication

• Risk Management: Embedding scenarios into enterprise risk management

Hybrid Methodology

The most effective scenario analyses combine:

• Quantitative modelling: Financial impact assessments using climate model projections and economic data

• Qualitative narrative: Strategic storytelling about how scenarios unfold and organisational responses

• Expert judgment: Input from climate scientists, sector experts, and local knowledge holders

• Stakeholder input: External perspectives from investors, regulators, and communities

Transparent Communication

When communicating scenario analysis results:

• Clearly distinguish between scenarios (plausible futures) and forecasts (expected outcomes)

• Present ranges and uncertainties rather than point estimates

• Explain assumptions and limitations candidly

• Link scenario analysis to strategic decisions and actions

• Update stakeholders as analysis evolves

Actionable Outputs

Scenario analysis should result in:

• Specific risk metrics tracked over time

• Clear decision triggers based on scenario evolution

• Adaptation investments prioritised by cost-benefit analysis

• Governance processes for ongoing monitoring

• Integration with financial planning and capital allocation

Companies that treat scenario analysis as a strategic tool rather than a compliance exercise gain competitive advantage through better-informed decision-making and greater organisational resilience.

The 2025 Reality Check: Current Trajectory and Strategic Implications

Where Are Global Emissions Heading?

Current greenhouse gas emissions and climate policies suggest we are tracking between SSP2-4.5 and SSP2-6.0, commonly described as the "Middle of the Road" scenario. This translates to approximately 2.4-2.7°C warming by 2100 under existing policies, according to the latest climate model projections.

What This Means for Different Pathways:

Below 1.5°C (SSP1-1.9):

• Requires immediate and sustained emissions reductions

• Global emissions must peak before 2025 and reach net-zero by ~2050

• Current trajectory makes this increasingly unlikely without transformative policy shifts

• Nevertheless, remains essential planning scenario for alignment with Paris Agreement

2°C Pathway (SSP1-2.6):

• Still achievable with strengthened climate policies this decade

• Requires doubling or tripling of current climate action commitments

• Would avoid most catastrophic physical impacts whilst creating significant transition pressures

• Represents ambitious but feasible pathway if policy momentum builds

Current Policy Trajectory (SSP2-4.5):

• Most consistent with existing national climate commitments and trends

• Involves moderate global cooperation and gradual technological development

• Creates substantial but manageable physical risks and transition pressures

• Likely baseline for corporate planning given political and economic realities

High-Emissions Scenarios (RCP 6.0-8.5):

• Increasingly unlikely as global economy shifts away from coal

• Rapid technological progress in renewables and falling costs reduce probability

• Still essential for stress-testing given high-impact consequences if policies fail

• Physical risk planning should account for possibility of policy inertia

Regional Implications for German Companies

Germany and Central Europe face specific climate impacts even under moderate warming scenarios:

Physical Climate Trends Under SSP2-4.5:

• Temperature: 2-3°C warming by mid-century, concentrated in summer months

• Precipitation: Increased winter rainfall and heavy precipitation events; more frequent summer droughts

• Extreme events: Doubling of hot days (>30°C) and tropical nights (>20°C) in many regions

• Water availability: Significant summer water stress in southern and eastern Germany

Transition Pressures:

• EU carbon prices projected at €130-150/tCO2 by 2030 under current ETS trajectory

• Industrial transformation requirements for energy-intensive sectors

• Supply chain decarbonisation pressure through Scope 3 accounting

• Green financing advantages for companies demonstrating climate resilience

These regional conflicts and tensions within the European climate policy landscape create both risks and opportunities for companies with clear scenario-based strategies.

Strategic Positioning for Uncertainty

Given trajectory uncertainty, effective strategies share common characteristics:

Flexible and Adaptive:

• Avoid irreversible commitments to single-scenario assumptions

• Build optionality into major investments

• Create decision triggers that respond to unfolding reality

• Maintain capacity to pivot as scenarios clarify

Portfolio Approach:

• Invest across scenarios rather than betting on single outcome

• Balance short-term efficiency with long-term resilience

• Diversify geographically to spread climate risks

• Mix no-regret actions with scenario-specific responses

Resilience Focus:

• Prioritise actions that create value across multiple scenarios

• Build organisational learning capacity for climate adaptation

• Develop deep understanding of value chain vulnerabilities

• Cultivate relationships with climate experts and scenario planners

Active Monitoring:

• Track indicators showing which scenario pathway is emerging

• Update analysis as climate science and policy landscape evolve

• Engage with regulatory developments affecting scenario requirements

• Participate in industry scenario planning initiatives

Companies that treat 2025 as a strategic inflection point—moving from reactive compliance to proactive scenario-based planning—will be better positioned for the climate-affected markets ahead. The integration of RCP and SSP data into core business strategy, rather than isolated sustainability initiatives, marks this transition.

Frequently Asked Questions

What does RCP mean in climate scenarios?

RCP stands for Representative Concentration Pathways, which describe future greenhouse gas concentrations and radiative forcing levels. The Intergovernmental Panel on Climate Change uses RCPs in climate models to project how different emission trajectories affect global warming. Each RCP is defined by its radiative forcing value in watts per square metre (W/m²) at year 2100.

Which RCP corresponds to SSP2?

SSP2 (Middle of the Road) is most commonly combined with RCP 4.5 to create the SSP2-4.5 scenario. This combination represents moderate climate policies alongside continuation of historical patterns in economic growth and technological development. It projects approximately 2.4-2.7°C warming by 2100 and currently aligns closest with real-world emissions trajectories.

What are the RCPs and SSPs based on the IPCC?

The IPCC's climate scenarios combine:

• RCPs (Representative Concentration Pathways): Four main pathways (1.9, 2.6, 4.5, 8.5) describing greenhouse gas emissions and radiative forcing

• SSPs (Shared Socioeconomic Pathways): Five narratives (SSP1-5) describing socio-economic futures including population growth, economic development, technological trends, and policy choices

The Sixth Assessment Report features these scenarios working together—for example, SSP1-1.9 represents a sustainable world limiting warming to 1.5°C, whilst SSP5-8.5 depicts fossil-fueled development with high emissions.

What does SSP mean in climate change?

SSP stands for Shared Socioeconomic Pathways, which describe different possible futures for global society, including economic growth, technological development, population dynamics, and governance structures. SSPs help climate researchers and policymakers understand how socio-economic factors influence both greenhouse gas emissions and society's ability to adapt to future climate change. They complement RCPs by adding the human dimension to physical climate projections.

How do companies choose between different RCP scenarios?

Companies should select at least two scenarios representing different plausible futures:

1. Paris-aligned pathway (RCP 1.9 or 2.6) for transition risk assessment

2. Higher emissions scenario (RCP 4.5 or 8.5) for physical risk stress-testing

Selection criteria include:

• Industry-specific vulnerabilities (e.g., real estate requires RCP 8.5 for EU Taxonomy)

• Geographical exposure to physical climate hazards

• Sensitivity to carbon pricing and climate policies

• Regulatory requirements (CSRD mandates multiple scenarios)

• Stakeholder expectations from investors and customers

What tools are available for German companies conducting scenario analysis?

German companies have access to world-class localised data:

• Regional Climate Atlas Germany: 120 scenarios for all 401 German districts

• Climate Impact Explorer: Sector-specific impact assessments

• KliVO Portal: Adaptation-focused decision support

• IIASA SSP Database: Detailed socio-economic projections

• NGFS Climate Scenarios: Financial risk modelling tools

For comprehensive support, companies can utilise Fiegenbaum Solutions' climate risk assessment services to translate these data sources into actionable business insights.

How often should scenario analysis be updated?

Best practice suggests updating scenario analysis:

• Every 2-3 years minimum to incorporate new climate science

• After major policy shifts (e.g., new EU regulations, carbon pricing changes)

• When business operations change significantly (acquisitions, new markets, facility changes)

• Following extreme climate events that test assumptions

• Before major capital allocation decisions

Regular updates ensure analysis remains current with the latest IPCC findings and regulatory requirements, particularly as CSRD reporting obligations evolve.

How do SSP narratives affect financial planning?

SSP scenarios influence multiple financial planning variables:

SSP1 (Sustainability):

• Lower carbon prices due to early climate action

• Higher green technology investment requirements

• Reduced physical damage costs

• Access to favourable green financing

SSP2 (Middle of the Road):

• Moderate carbon prices increasing gradually

• Balanced investment in mitigation and adaptation

• Some physical damage costs materialising

• Mixed access to sustainable finance

SSP5 (Fossil-Fueled Development):

• Very high late-century carbon prices

• Major adaptation investment requirements

• Substantial physical damage costs

• Stranded asset risks for high-carbon activities

Financial planning should model revenue, costs, and capital requirements across multiple SSP scenarios to build resilient strategies.

What makes a scenario analysis compliant with CSRD requirements?

CSRD-compliant scenario analysis must include:

Methodological Requirements:

• At least two scenarios with different climate outcomes

• Short (2030), medium (2040), and long-term (2050+) time horizons

• Both physical and transition risk assessment

• Paris-aligned scenario (RCP 1.9 or 2.6) plus higher-emissions pathway

Documentation Standards:

• Clear description of scenarios selected and rationale

• Data sources and climate model projections used

• Assumptions about sensitivity and exposure

• Quantitative and qualitative impact assessments

• Explanation of how results influenced strategy

Strategic Integration:

• Link between scenario findings and business decisions

• Adaptation and mitigation measures planned

• Governance processes for ongoing monitoring

• Connection to financial planning and capital allocation

Companies can use the CSRD compliance framework to structure their scenario analysis appropriately.

How do scenarios inform ESG strategy and investor relations?

Robust scenario analysis enhances ESG positioning by:

For Investors:

• Demonstrates sophisticated climate risk management

• Provides transparency about potential financial impacts

• Shows strategic foresight and adaptation capacity

• Reduces perceived investment risk

For ESG Strategy:

• Identifies material climate-related risks and opportunities

• Prioritises investments in adaptation and mitigation

• Guides target-setting for emissions reductions

• Informs disclosure strategy for ratings and rankings

For Stakeholder Communication:

• Creates compelling narrative about climate resilience

• Supports engagement with regulators and policymakers

• Builds trust through transparent risk communication

• Differentiates company from less sophisticated peers

Scenario analysis moves ESG from compliance exercise to strategic differentiator, particularly valuable for companies seeking sustainable financing or improved ESG ratings.

Conclusion: From Compliance to Strategic Advantage

The integration of Representative Concentration Pathways (RCPs) and Shared Socioeconomic Pathways (SSPs) into corporate planning has evolved from academic exercise to regulatory requirement to strategic imperative. Companies that master scenario-based climate risk assessment gain advantages across multiple dimensions:

Regulatory Resilience:

• Full compliance with CSRD scenario analysis requirements under ESRS E1

• Meeting EU Taxonomy physical risk criteria for sustainable investments

• Alignment with TCFD-based disclosure frameworks

• Preparedness for evolving regulatory expectations

Financial Performance:

• Better-informed capital allocation avoiding climate-vulnerable assets

• Access to sustainable finance at favourable terms

• Reduced insurance costs through demonstrated risk management

• Protection of enterprise value through proactive adaptation

Strategic Positioning:

• Competitive advantage through climate-resilient operations

• Market opportunities from early positioning for transition

• Enhanced stakeholder trust and reputation

• Organisational capability to navigate uncertainty

Operational Excellence:

• Supply chain resilience against physical disruptions

• Energy and resource efficiency reducing costs and emissions

• Innovation driven by understanding future market needs

• Talent attraction through sophisticated climate leadership

2025: The Inflection Point

This year marks a critical juncture as the first wave of comprehensive CSRD reports becomes due, EU Taxonomy criteria fully operationalise, and the physical impacts of climate change become increasingly visible across European business operations. Companies still treating scenario analysis as a compliance checkbox are falling behind competitors who have embedded RCP and SSP data into core strategy.

The climate scenarios developed by the Intergovernmental Panel on Climate Change provide the scientific foundation, but translating climate model projections into business strategy requires expertise spanning climate science, regulatory requirements, financial analysis, and sector-specific knowledge.

Next Steps for Organisations

Immediate Actions:

1. Conduct a CSRD climate risk quick check to assess current readiness

2. Select appropriate RCP-SSP scenario combinations for your industry and geography

3. Identify critical data sources including regional climate projections

4. Establish cross-functional team for scenario analysis project

Medium-Term Development:

1. Complete scenario-based risk assessment covering physical and transition dimensions

2. Integrate findings into 2025 CSRD sustainability reporting

3. Update enterprise risk management with climate scenario insights

4. Communicate scenario analysis results to investors and stakeholders

Strategic Integration:

1. Embed scenario planning into capital allocation processes

2. Develop monitoring framework tracking scenario evolution

3. Build organisational capacity for ongoing scenario analysis

4. Link climate resilience to core business strategy and competitive positioning

Professional Support

Translating IPCC scenarios into actionable business strategy requires navigating complex climate science, regulatory requirements, and strategic implications. Fiegenbaum Solutions specialises in helping companies across sectors—from startups to established enterprises—develop robust scenario-based climate risk assessments that meet regulatory requirements whilst informing strategic decision-making.

Services include:

• Scenario analysis methodology development tailored to your sector and geography

• CSRD-compliant climate risk reporting under ESRS E1 standards

• EU Taxonomy alignment including physical risk assessments

• Strategic planning integration connecting scenarios to business decisions

• Stakeholder communication translating technical analysis into compelling narratives

The companies that thrive in the climate-affected economy ahead will be those that move beyond compliance to strategic advantage—using Representative Concentration Pathways and Shared Socioeconomic Pathways not just to meet regulatory requirements but to build genuinely resilient and adaptive organisations.

Sources and Further Reading

1. Intergovernmental Panel on Climate Change (IPCC). (2021). Climate Change 2021: The Physical Science Basis. Sixth Assessment Report.

2. European Financial Reporting Advisory Group (EFRAG). (2023). ESRS E1 Climate Change. European Sustainability Reporting Standards.

3. Network for Greening the Financial System (NGFS). (2024). NGFS Climate Scenarios for Financial Risk Assessment.

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Introduction to Climate Science

Climate science is the study of the Earth’s climate system and the complex interactions between the atmosphere, oceans, land surfaces, and living organisms. This multidisciplinary field draws on physics, chemistry, biology, and earth sciences to understand how natural processes and human activities influence the global climate. As concerns about climate change and its far-reaching impacts grow, a solid grasp of climate science has become essential for addressing environmental concerns and shaping effective climate policies.

A central institution in this field is the Intergovernmental Panel on Climate Change (IPCC), which synthesizes the latest scientific research to inform policymakers and guide international climate action. The IPCC’s assessment reports provide authoritative insights into the causes and consequences of climate change, as well as the effectiveness of various climate mitigation strategies.

At the heart of climate science are climate models—sophisticated computer simulations that replicate the Earth’s climate system. These models, such as those developed for the Coupled Model Intercomparison Project (CMIP), allow scientists to project future climate change by accounting for factors like greenhouse gas concentrations, radiative forcing, and feedback mechanisms. By incorporating socioeconomic factors such as population growth, economic development, and technological progress, climate models help researchers and decision-makers evaluate how different policy choices and technological advancements could shape the future climate.

Understanding these scientific foundations is crucial for businesses and governments alike, as it enables informed decision-making in the face of evolving climate risks and opportunities.

Future Climate Projections

Future climate projections are built on scenario frameworks that explore how different pathways of greenhouse gas emissions, socioeconomic development, and climate policies could shape the world’s climate in the decades ahead. Two of the most widely used frameworks are the Representative Concentration Pathways (RCPs) and Shared Socioeconomic Pathways (SSPs).

Representative Concentration Pathways (RCPs) describe a range of possible futures based on varying levels of greenhouse gas concentrations and radiative forcing—the measure of how much energy is trapped in the Earth’s atmosphere due to greenhouse gases. Each RCP represents a different trajectory for future climate change, from aggressive mitigation and low emissions to scenarios with continued high emissions and significant global warming.

Shared Socioeconomic Pathways (SSPs), on the other hand, outline alternative narratives for global society, focusing on factors such as population growth, economic development, technological progress, and the degree to which societies address environmental boundaries. These pathways help climate researchers understand how socioeconomic factors and policy choices influence both greenhouse gas emissions and the capacity to adapt to climate change.

By combining RCPs and SSPs, climate scientists create integrated scenarios that capture both the physical and human dimensions of future climate. For example, pairing SSP1—which envisions a world prioritizing sustainable development and respecting perceived environmental boundaries—with RCP 2.6 allows researchers to explore a future characterized by low greenhouse gas emissions and rapid technological progress. In contrast, combining SSP5, which assumes rapid and unconstrained economic growth fueled by abundant fossil fuel resources, with RCP 8.5, projects a high-emissions future with severe global warming.

These comprehensive scenarios enable policymakers and business leaders to assess the potential impacts of climate change, evaluate the implications of different climate policies, and develop robust strategies for mitigation and adaptation. By understanding the broad range of possible futures, organizations can better prepare for the challenges and opportunities that lie ahead in a changing climate.