Regulators, investors, and boards are increasingly asking organizations to demonstrate how climate change could affect their operations and financial performance. The standard approach to answering that question is climate scenario analysis, a structured method for evaluating business exposure under different plausible climate futures. Rather than predicting a single outcome, climate scenario analysis explores a range of pathways, from aggressive emission reductions to a world where fossil fuel use continues unchecked.
Below, we break down the three major scenario frameworks (RCP, SSP, and NGFS), explain how they differ, and walk through a practical example of how organizations apply climate scenario analysis to real-world risk decisions.
What Is Climate Scenario Analysis?
Climate scenario analysis is a forward-looking method that tests how an organization’s assets, operations, or portfolio might perform under different climate conditions. Each scenario represents a plausible future, not a prediction, defined by assumptions about emissions trajectories, policy responses, technology adoption, and socioeconomic development.
The TCFD framework identifies scenario analysis as a core recommendation under its Strategy pillar. Organizations are expected to assess resilience under at least two scenarios: one aligned with the Paris Agreement (below 2 degrees Celsius) and one representing higher warming.
Banks, insurers, corporates, and asset managers all use climate scenario analysis, though for different purposes. Banks run supervisory stress tests mandated by central banks. Insurers evaluate underwriting exposure. Corporates assess supply chain vulnerability and facility-level risk. Asset managers screen portfolios for climate-exposed holdings. For a detailed look at what each disclosure framework requires for scenario analysis, including IFRS S2, CSRD, and CDP, see our framework requirements guide.
Climate Scenario Frameworks: RCP, SSP, and NGFS
Three major frameworks dominate climate scenario analysis today. Each was developed by a different community for a different purpose, but they share a common goal: providing structured, plausible futures that organizations can use for planning.
IPCC Scenarios: From RCP to SSP
The Intergovernmental Panel on Climate Change (IPCC) has published two generations of scenario frameworks.
Representative Concentration Pathways (RCPs) were introduced in the IPCC’s Fifth Assessment Report (AR5, 2014). RCPs define four emissions pathways based on radiative forcing levels by 2100:
- RCP2.6: Strong mitigation, warming limited to approximately 1.5 to 2 degrees Celsius
- RCP4.5: Moderate mitigation, warming of approximately 2.4 degrees Celsius
- RCP6.0: Higher emissions, warming of approximately 2.8 degrees Celsius
- RCP8.5: No mitigation, warming exceeding 4 degrees Celsius
Shared Socioeconomic Pathways (SSPs) replaced RCPs in the Sixth Assessment Report (AR6, 2021). SSPs add a critical dimension that RCPs lacked: socioeconomic narratives describing population growth, economic development, inequality, and technology adoption. The five SSP families are:
- SSP1-1.9 / SSP1-2.6: Sustainability-focused development, low emissions
- SSP2-4.5: Middle-of-the-road development, moderate emissions
- SSP3-7.0: Regional rivalry, high emissions
- SSP5-8.5: Fossil-fueled development, very high emissions
Most organizations conducting physical climate risk assessment now use SSP2-4.5 and SSP5-8.5 as their standard scenario pair, representing moderate and high-emissions futures.
NGFS Scenarios
The Network for Greening the Financial System (NGFS) developed its scenarios specifically for the financial sector. Unlike IPCC scenarios, NGFS scenarios model both physical and transition risk, making them particularly relevant for banks and insurers.
NGFS organizes its six scenarios into three categories:
- Orderly: Net Zero 2050 and Below 2 degrees Celsius, where early, gradual policy action limits both physical and transition risk
- Disorderly: Divergent Net Zero and Delayed Transition, where late or uncoordinated action creates sharp transition shocks
- Hot House World: Nationally Determined Contributions (NDCs) and Current Policies, where minimal action leads to severe physical risk
Central banks including the ECB, Bank of England, and Federal Reserve use NGFS scenarios for supervisory climate stress tests. The framework was updated to Phase 5 in November 2024 with revised NDC commitments and short-term scenario variants.
RCP vs NGFS: Key Differences
While both IPCC and NGFS scenarios support climate scenario analysis, they serve different audiences and answer different questions. The table below highlights the key distinctions.
| Dimension | RCP/SSP (IPCC) | NGFS |
|---|---|---|
| Developed by | IPCC (climate science community) | Central banks (financial sector) |
| Primary focus | Physical climate outcomes | Financial system impacts |
| Risk type | Physical risk | Physical + transition risk |
| Time horizon | To 2100+ | To 2050 (financial planning) |
| Number of scenarios | 4 RCPs or 5 SSPs | 6 scenarios in 3 categories |
| Used for | Climate projections, impact studies | Bank stress testing, portfolio analysis |
| Key users | Scientists, risk teams, TCFD reporters | Regulators, banks, insurers |
In practice, many organizations use both. IPCC SSP scenarios provide the physical risk baseline, while NGFS scenarios layer on transition risk and policy assumptions for financial modeling.
How to Conduct Climate Scenario Analysis in 5 Steps
Whether you are preparing a TCFD disclosure or running an internal risk review, the process follows a consistent structure.
Step 1: Define scope and objectives. Determine which assets, locations, or business units fall within scope. Clarify whether the analysis is for regulatory reporting, strategic planning, or both.
Step 2: Select relevant scenarios. Choose at least two contrasting scenarios. A common pairing is SSP2-4.5 (moderate emissions) and SSP5-8.5 (high emissions) for physical risk, or NGFS Net Zero 2050 and Current Policies for transition risk.
Step 3: Assess physical and transition risks. Map climate hazards to your locations and operations. Physical risks include flooding, heat stress, drought, and wildfire. Transition risks include policy changes, carbon pricing, and market shifts. If you need to select a platform for this work, review climate scenario analysis tools compared to understand your options. Automated climate risk platforms and climate data APIs can assess physical hazards across multiple scenarios simultaneously. Continuuiti’s Climate Risk reports, for example, compare SSP2-4.5 and SSP5-8.5 projections across 12 hazards for any location.
Step 4: Quantify financial exposure. Translate physical and transition impacts into financial terms: asset impairment, operational disruption costs, insurance premium changes, or revenue at risk. Climate risk analytics tools help standardize this translation across large portfolios. Organizations use climate risk models to translate scenario outputs into asset-level financial exposure estimates.
Step 5: Integrate into strategy and reporting. Feed scenario results into board-level decisions, capital allocation, and disclosure documents. Update the analysis periodically as new scenario data or regulatory guidance emerges.
Climate Scenario Analysis Example
Consider a logistics company with 50 distribution centers across Europe and Southeast Asia. The risk team runs climate scenario analysis to understand how flood exposure changes under different futures.
Under SSP2-4.5 (moderate emissions), the analysis flags 8 locations with elevated flood risk by 2040. Three facilities in river floodplains show a meaningful increase in extreme rainfall frequency, while five coastal locations face rising baseline flood levels.
Under SSP5-8.5 (high emissions), the picture worsens: 14 locations are flagged, and 3 reach extreme flood risk ratings. The gap between the two scenarios highlights which locations are most sensitive to the emissions trajectory, helping the company prioritize adaptation spending and adjust insurance coverage.
Frequently Asked Questions
What are the four climate scenarios?
The IPCC Fifth Assessment Report (AR5) used four Representative Concentration Pathways: RCP2.6 (strong mitigation), RCP4.5 (moderate mitigation), RCP6.0 (higher emissions), and RCP8.5 (no mitigation). These have been replaced by five Shared Socioeconomic Pathways (SSPs) in the IPCC Sixth Assessment Report.
What are NGFS and IPCC scenarios?
IPCC scenarios (RCP and SSP) model physical climate outcomes under different emission levels and are developed by the climate science community. NGFS scenarios model financial system impacts under different policy responses and are developed by central banks. IPCC scenarios focus on physical risk, while NGFS scenarios cover both physical and transition risk.
How many IPCC scenarios are there?
The current IPCC framework (AR6) uses five core scenarios: SSP1-1.9, SSP1-2.6, SSP2-4.5, SSP3-7.0, and SSP5-8.5. These replaced the four RCP pathways from the earlier AR5 report. Most organizations focus on SSP2-4.5 (moderate emissions) and SSP5-8.5 (high emissions) for practical risk assessment.
What is an example of a climate scenario?
SSP2-4.5 is a widely used climate scenario representing moderate emissions where global temperatures rise approximately 2.7 degrees Celsius by 2100. Under this scenario, flood frequency increases in many regions, heat waves become more intense, and sea levels rise 0.3 to 0.6 meters by 2100. Organizations compare this against SSP5-8.5 (high emissions) to understand the range of potential outcomes.
Key Takeaways
Climate scenario analysis gives organizations a structured way to evaluate climate-related risks and opportunities across plausible futures. Three frameworks dominate current practice: RCP (legacy IPCC), SSP (current IPCC standard), and NGFS (financial sector). For most organizations starting out, selecting two contrasting SSP scenarios and mapping physical hazards across key locations provides a solid foundation for both TCFD-aligned reporting and strategic decision-making.
