Push It to the Limit: Scenario Planning That Takes Sustainability Seriously

In this blog, we explore how to undertake scenario planning that better informs credible sustainability action. Interest in scenario planning is on the rise, largely spurred by guidance from the Task Force on Climate-Related Financial Disclosures (TCFD) that companies should use scenarios to better understand their climate-related risk. TCFD guidance has now been integrated into the new IFRS S1 and S2 standards. IFRS S2 includes a requirement for climate-related scenario analysis. The European Sustainability Reporting Standards (ESRS E1) also includes a requirement for scenario analysis. As a result, scenario analysis is here to stay.

But how do you ensure that your scenario planning work includes exploring the actions a company would need to undertake to credibly contribute to social and environmental resilience?

Our previous blog post Scenario Planning Made Simple: An 8-Step Method outlined the key steps in a scenario planning process. Here, we offer five suggestions to help you to create scenarios that explore not only the impacts on your company, but also what actions your company would need to take to operate within the limits of key environmental and social systems.

Understand the difference between scenario testing and scenario planning

Too often, what companies are really doing is scenario testing, not scenario planning. Instead of developing their own scenarios, they are applying scenarios developed by industry bodies or others to test what risks the scenarios pose to their company and whether their company will remain resilient under each scenario.

In contrast, scenario planning involves a company developing its own unique scenarios, evaluating them, and planning accordingly. It requires a significant investment of time and resources, but it allows you to understand and prioritise where your company could take action on key sustainability issues under each scenario. The second benefit is that it permits you to explore your role in maintaining systems resilience under different possible futures.

Understand social and environmental thresholds

To understand what role your company can play in contributing to a sustainable future, you will need a clear understanding of thresholds. A threshold is the point at which the resilience of an environmental, social, or economic system becomes compromised. This occurs when the total impacts imposed on the system exceed its capacity to assimilate those impacts. For example, to avoid breaching a “point of no return” threshold on climate change, the IPCC has proposed a limit of a maximum 1.5°C average global rise in temperature relative to pre-industrial levels. This is the point beyond which it may be impossible to avert the worst consequences of climate change.

Create scenarios that take thresholds into account

Once you understand the thresholds associated with the social and environmental systems in which you operate, you can develop scenarios that take these into account. For example, you could develop four different scenarios for the future, but each with the constraint of limiting the average global rise in temperature to 1.5oC. This can help to highlight the urgency with which your company needs to take credible climate action in any potential future.

Explore how your company’s actions impact resilience

Effective scenario planning goes beyond analysing how social, environmental, and economic issues may impact your company. Every business is embedded within a complex, intersecting network of environmental, social, and economic systems, and your company’s activities affect the resilience of these systems. Thinking in systems will allow you to better understand, anticipate, and prevent possible negative consequences from future decisions on the communities, environments, and economies in which your company operates.

Invite others to inform your scenario planning process

Rights holders and other groups that may be affected by your company’s actions – or by future risks and opportunities to your business – should be invited to help inform your scenario planning process. It can be especially important to include Indigenous Peoples and those from historically underserved and vulnerable communities in this process.

By acknowledging and including the important constraining effect of systems limits into your scenario planning process, you will be better equipped to identify the ways in which your strategy, decision-making, partnerships, products and services, and capital allocation may need to change to become a credibly sustainable organisation.

We hope these recommendations will help your company to better understand its role in supporting sustainable futures by operating within key systems limits. If you require any more specific support, be sure to get in touch.

Further Resources

To learn more about the scenario planning process, read our blog on Scenario Planning Made Simple: An 8-Step Method.

To dive deeper into scenario-planning, including who should be involved and how to manage common setbacks, read our interview with Dr. Nardia Haigh on How to Conduct Effective Scenario Planning.

To understand more about how your organisation can build its systems thinking capabilities check out our 5 Resources to Help You Think in Systems.

Or to learn more about social and environmental thresholds, take a look at the Planetary Boundaries framework, Kate Raworth’s Doughnut of Planetary Boundaries and Social Foundations, the Global Thresholds and Allocations Council, and our Embedded Strategies guide.