Integrating Nature and Climate: The role of scenario analysis in a resilient business strategy
Barnabas Harrison
Nature and Biodiversity Lead. Principal Director - Accenture Strategy
This article was jointly authored by Sarah Colbert , Barnabas Harrison , Bex Paffard , Ben Mayer , Lucy Hamnett , Rebekah Middleton and Luis Casa?as .
Scenario analysis has emerged as a powerful tool to explore risks and opportunities and inform forward-looking strategy in an increasingly volatile world. It has become a key tool in corporate strategic planning and sustainability-related risk management.
In this article, we will follow the evolution of environmental scenario analysis, from the first climate risk models to the latest methods of integrating nature-related risks and opportunities.
Key insights include:
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Let’s get on the same page - what is scenario analysis?
Scenario analysis enables critical thinking about risks, opportunities, and the robustness of long-term business strategies. Businesses are accustomed to analysing possible futures through a climate lens, however, there has been a growing momentum towards use of nature scenarios as well. In this section we discuss the progression of climate and nature scenario analysis.
Businesses can use climate scenario analysis to investigate risks under plausible and diverse futures, typically where temperatures rise by different extents causing physical changes to the environment, and where there are differing impacts of societal attempts to mitigate climate change. It allows critical consideration of strategies over long timeframes, and identification of potential weak points in a business’ operations.
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Climate scenario analysis has evolved over the past 35 years
The Intergovernmental Panel on Climate Change (IPCC) first introduced the concept of long-term climate scenarios in 1990. Over the following decade, these scenarios were refined, culminating in the development of a new set which were published in 2000 in the IPCC's Special Report on Emissions Scenarios. When the Paris Agreement was adopted at the UN Climate Change Conference (COP21) in 2015, it set a series of climate objectives for governments and non-state actors alike, including limiting global warming to “well below” 2°C above pre-industrial levels.
The Task Force on Climate-related Financial Disclosures (TCFD), launched at COP21 in Paris, was established to help financial market participants understand their climate-related risks and opportunities. Its recommendations were published in 2017 and emphasised using temperature-aligned scenarios to test the resilience of business strategies. The Task Force’s highlighted challenge of doing this was clear – climate change is “one of the most significant, and perhaps misunderstood” risks that businesses face. However, the guidance was also clear – businesses should test the resilience of their strategies using temperature-aligned pathways, including a 2°C scenario, aligned with the Paris agreement. Moreover, they suggested a focus on two risk categories:
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Sophisticated methodologies are informing better risk management
Climate scenario analysis has become widely adopted across all sectors since the TCFD recommendations were released, with CDP showcasing in their 2023 State of Play report a 39% increase in organisations stating they have conducted climate scenario analysis (from roughly 3,348 in 2022, to over 4,640 in 2023). This is, in part, supported by greater access to climate scenario models, such as the publicly available Network for Greening the Financial System (NGFS) and the International Energy Agency (IEA), and TCFD being made mandatory in a number of jurisdictions.
The modelling approaches and structures have become more complex over time, integrating climate and macro-economic data, global policy commitments, and assumptions about technology. The most recent release (version 5.0) of NGFS’s scenarios includes an updated damage function for physical risk modelling which helps contextualise the economic impacts of global warming in a growing economy. We feel a word of caution is merited here – economic equilibrium models like those used by the NGFS struggle to consider the economy like an ecosystem and exclude tipping points. Outputs thus need to be used with prudence and should be paired with additional analysis, particularly when using scenarios to identify short-term impacts, and opportunities.?
Regulatory drivers are also advancing the adoption of climate scenario analysis. For example, the EU’s Corporate Sustainability Reporting Directive (CSRD), effective this year, mandates climate-related scenario analysis for companies in scope. While initial adoption may focus on compliance, companies engaging with the requirements in a meaningful way stand to benefit by future-proofing their operations in the face of the growing climate crisis.
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Nature scenario analysis is relatively new, and location-specific
Years of research and numerous iterations of climate scenario models have laid a strong foundation for a broader view of environmental risks and opportunities. Nature scenario analysis was first discussed in a paper by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) in 2016. However, when the Recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD) were released in September 2023 following the initiative’s formation in 2021, it was uncommon to find many corporates conducting nature-related scenario analyses.
Unsurprisingly, there are still only a few examples of businesses undertaking nature scenario analysis. This is due, in part, to there being a notable difference between climate and nature-related risks and opportunities – unlike climate impacts, nature impacts are location-specific. For example, a tonne of carbon dioxide becomes dispersed throughout the atmosphere leading to impacts on areas far wider than the location it is emitted from. However, interfaces with nature are inherently local – land and freshwater use, for example, occur in a very specific place and the impact of the associated ecosystem disruption is not typically felt at a global scale (at least not immediately). This location specificity is a challenge for many businesses across all sectors, who struggle with value chain traceability, especially in their upstream supply chains and in the downstream – where their products or services are used.
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Monitoring and measurement have some way to go
Whereas action to address climate change can unite around the goal of limiting temperature increases from carbon dioxide and equivalents (CO?e), indicators for the state of nature and biodiversity are much more varied, which adds complexity. The global disclosure metrics recommended by the TNFD are organised around 14 core global indicators, with this number increasing when considering sector-specific guidance. Despite the TNFD’s work, there is no current global consensus on the monitoring and measurement framework which should be used to track the planet’s progress towards a nature-positive future. Accenture’s nature specialists who attended the recent United Nations Biodiversity Conference (CBD COP16) in Colombia discussed this and more in another recent article. Overall, this complexity and lack of alignment presents barriers to many businesses conducting their own nature-related scenario analyses.
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Nature frameworks are ready for implementation
Despite these challenges, there are positive moves forward – the TNFD has recently released a framework of archetypal nature scenarios that provides the building blocks for organisations to develop and conduct scenario analysis. It is flexible – allowing organisations to focus on the risks most relevant to them, and it is user friendly – supported by a wealth of guidance including the TNFD’s ‘scenario toolkit’.
Additionally, where biodiversity and ecosystems are deemed to be a material topic for a business via their double materiality assessment, CSRD reporting requirements call for environmental analysis to be completed. Engaging with the environmental topics of the ESRS will likely unearth the relationship between a business’s activities and the five main drivers of nature and biodiversity loss (land- freshwater- and sea-use change, direct exploitation, climate change, pollution, and invasive alien species). This requirement sends a clear market signal to companies that nature considerations need to be central to their sustainability strategy from now on.
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Now is the time to integrate climate and nature analysis
Integrated approaches to climate and nature risk and opportunity assessment can reveal compounding factors that would not otherwise be identified. For example, pollinator decline and drought can both impact crop yields; by considering both together we can understand combinatorial factors such as the disruption of pollinator-plant relationships, all of which can have impacts upon procurement costs. Moreover, integrated approaches can also reduce the resources, and associated costs, required for climate and nature assessments.
With disclosure regulations such as CSRD expected to rapidly evolve (to – we expect – a future where integrated climate and nature assessment is required), adopting a siloed approach to these assessments today will not help businesses properly prepare. Instead, it is crucial for businesses to integrate their approaches to these assessments from now onwards, allowing for generation of deeper insights including much improved understanding of business resilience to the future state of the physical environment.
Since the adoption of the Global Biodiversity Framework in 2022, several organisations have been working to design a combined nature and climate scenario analysis framework. In 2022, the NGFS established a Taskforce on Biodiversity Loss and Nature-related Risks, to include these risks in their climate scenarios. By September 2023, they released a Conceptual Framework for Nature-related Financial Risks and a technical document titled ‘Recommendations toward the development of scenarios for assessing nature-related economic and financial risks’. NGFS Chair Ravi Menon emphasised the importance of addressing both climate and nature crises together in a press release, saying “we hope it will quickly pave the way towards macroeconomic models sensitive to nature-related risks, then fully-fledged scenarios and, in time, other nature-related milestones like stress tests”.
2022 also saw the kickstart of the development of the NatureFinance Framework through collaboration between the Potsdam Institute for Climate Impact Research (PIK), the European Central Bank (ECB), The University of Minnesota, and NatureFinance. An interim report was released in February 2024 for feedback, followed by the final report in November. Building upon existing NGFS climate scenarios, the framework incorporates feedback loops between climate and nature, with intuitive naming conventions for easier understanding.
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Charting the Way Forward
The adoption of integrated scenarios is still in its early stages, which limits peer-to-peer learning and benchmarking of maturity. However, we expect this area to evolve quickly as the maturity curve on addressing nature loss will likely rise much more sharply than we have seen for climate change. As businesses increasingly engage with nature-related risks, we foresee a shift from isolated climate actions to more integrated strategies that address both environmental challenges.
At Accenture, we partner with clients across industries to conduct comprehensive climate and nature assessments, including scenario analyses, aligned with emerging global regulatory frameworks and best practices. These assessments help businesses understand the interconnectedness of climate and nature, guiding them toward actionable strategies which address both.
We encourage clients to take a holistic approach to risk and opportunity identification, recognising the strong links between climate and nature. Climate policies and temperature pathways will significantly influence nature scenarios, and nature-related risks, such as biodiversity loss, can impact climate targets and stability. The combined NatureFinance scenarios offer an intuitive framework for businesses to assess both climate and nature risks, providing clarity on how each affects the other.
This integrated approach sets a foundation for our clients to embed climate and nature into their core strategies, adopt more robust risk management, and deliver accurate disclosures that reflect real-world interdependencies. By addressing the climate and nature crises together, we can drive more effective and sustainable solutions across industries.
If this article has interested you to find out more about better integrating your nature and climate efforts, please do drop us a line. We’d be thrilled to work with you to make this happen!