Introduction to Climate-Related Scenarios

This paper is the second of a series of papers that will be developed, aimed at creating awareness and promoting actuarial approaches in climate-related risk management and reporting. The first paper - Importance of Climate-Related Risks for Actuaries – was released in September 2020.

This second paper aims to provide background covering the principles and outlining the processes for developing climate-related scenarios. It focuses on climate-related financial risks but does not cover the scientific basis of climate change beyond what is necessary for understanding its impacts. It aims to help actuaries and risk managers to acquire the basic vocabulary of climate science. It particularly serves those less familiar with the details of climate research who wish to develop or use climate-related scenarios.

The paper provides helpful insights into the requirements for good scenario analysis, components from which scenarios can be assembled, and considers some of the tools available to actuaries. It reviews the challenges and barriers that need to be considered in the development or use of workable climate-related scenarios and how those barriers may impact planning and implementation of adaptation actions and building resilience.