Climate Scenario Analysis: A Rigorous Framework for Managing Climate Financial Risks and Opportunities

Climate change is one of the defining issues of our age. Its physical manifestations are negatively affecting ecosystems, human health, and economic infrastructure. And even if the world is able to keep global temperature increases to 1.5° above pre-industrial levels, much more disruptive outcomes are coming.

Meanwhile, energy systems and patterns of economic activity are being profoundly changed by the growing array of policy initiatives, private-sector commitments and technology advances that aim to constrain greenhouse-gas emissions and limit climate change.

It is vital that investors understand how physical climate change and the energy transition affect the investment returns of the companies and markets in which they invest. We believe that doing so will enable us to build more resilient portfolios and generate better long-term returns for clients. Asset owners and regulators are also increasingly demanding this.

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