Climate scenarios and consumer business

Climate change represents the defining challenge of the 21st Century, for business and wider society. This is especially true for consumer businesses, which are vulnerable on two fronts.

Firstly, physical assets and supply chains are exposed to a changing climate. Second, because consumer businesses are responsible for over 25% of global emissions, transformation of the sector is integral to the successful decarbonisation of the global economy.

Consumer businesses face a complex web of climate-related risks and opportunities. This report uses a series of plausible future climate scenarios to untangle some of this complexity and illustrate how scenario analysis can aid effective decision-making.

Using climate scenarios for decision-making

Scenarios describe what the future could look like, and are created to challenge conventional wisdom and drive better decisions. Learn more about the futures that each of our four climate change scenarios describe and the science they are founded on.

Climate scenario A: Fossil-fuelled global growth

Under this scenario, the world continues to prioritise short-term economic growth. Faith is placed in innovation and a collaborative, global economy as the path to sustainable development.

By 2050, the world is on course for global warming of up to 4ºC by 2100, with a more rapidly changing climate resulting in widespread economic disruption. The deployment of hard adaptive measures to protect the world’s population is becoming a heavy burden on the economy.

Scenario A ‘Winners’

Global companies operating efficient, just-in-time global supply chains with in-built resilience to cope with extreme climate and economic shocks.

Scenario A ‘Losers’

Organisations that are invested in infrastructure or assets in locations disrupted by climate change.

Climate scenario B: An unequal world

Under this scenario, substantive transition to a low carbon economy is delayed until the 2030s and lacks international co-ordination. By 2050, wealthier nations have transitioned to a low carbon world but there is a disproportionate number of people in less developed countries who now face a more precarious future.

This painful transition has significantly limited global warming - by 2100 it is anticipated that the world will have warmed by 2.5°C

Scenario B ‘Winners’

Well-established global brands with the financial resilience to survive a disorderly transition.

Scenario B ‘Losers’

Mass market brands with inefficient supply chains will see their fixed costs rising whilst demand from the ‘squeezed middle’ shrinks.

Climate scenario C: Regional rivalry

Under this scenario, rivalry between large industrial powers intensifies as they try to maintain relative economic competitiveness, which dilutes a global political ambition on climate change. Responses are disparate and reactive, with limited international co-operation to tackle climate change and develop technological solutions.

This means that by 2050, the world is on a trajectory of global warming of around 3°C by the end of the century.

Scenario C ‘Winners’

Well-established regional brands with the financial resilience to survive a disorderly transition.

Scenario C ‘Losers’

Global companies with complex supply chains that are unable to manage the increasingly complex regulations in different countries.

Climate scenario D: Steady path to sustainability

Under this scenario, the world gradually shifts away from valuing economic growth towards a broader definition of prosperity and wellbeing. Consumer behaviour changes dramatically to reflect this shift in values - consumerism and the “throwaway culture” of the early 21st Century decline significantly.

By 2050, the world is on track to limit global warming to 1.5°C by 2100. While some climate change has occurred, the dangerous consequences of higher levels of warming have been avoided.

Scenario D ‘Winners’

Brands associated with sustainability who can actively prove their low-carbon credentials.

Brands that proactively manage the transition from consumption of products to offering relevant services.

Scenario D ‘Losers’

Companies which fail to demonstrate significant progress on decarbonising their activities. These companies will struggle to attract investors and obtain credit from banks.

Get ahead with scenario analysis

Undertaking scenario analysis can help companies to understand risk and build resilience. Scenario analysis can take a number of forms, but even the most basic assessment of an organisation’s unique risk and opportunity profile under different scenarios will be an illuminating exercise. The insights gained can inform:

• Value at risk and future valuation
• Capex and strategic decision-making
• Future business model
• Innovation and efficiencies
• Stakeholder communications