University of Exeter – New Scenario Narratives for Action on Climate Change

The introduction to the report highlights the need for a paradigm shift in climate scenario analysis. While long-term scenarios have been beneficial in identifying global systemic challenges of climate change, there is now a need for shorter-term scenarios to support the goal of achieving Net Zero greenhouse gas emissions by 2050. These shorter-term scenarios should focus on the vicissitudes of politics, markets, and extreme weather events rather than solely on climate change itself. Current official scenarios and methodologies are limited in capturing key aspects of the real world, such as physical risk, politics, finance, and complex feedback loops. As a result, these scenarios often underestimate the economic damage of climate change and the potential benefits of taking action. To address these gaps, the Real World Climate Scenarios (RWCS) initiative was launched, bringing together a network of practitioners and experts. The Universities Superannuation Scheme (USS), one of the largest pension schemes in the UK, also recognized the limitations of current reference scenarios and collaborated with the University of Exeter to develop a new approach. This approach, called 'Decision Useful Climate Scenarios,' aims to incorporate climate and transition considerations into investment and risk management processes. The report presents a set of four narrative global climate scenarios out to 2030, which consider both positive and negative tipping points. These scenarios consider various combinations of policy activism and market dynamism, ranging from optimistic decarbonization to a pessimistic scenario of political and market dysfunction. The aim is to provide a richer and more realistic range of developments for decision-making purposes. The report intends to stimulate a broader debate among practitioners, policymakers, and academic experts to integrate this practical approach to climate scenario analysis into transition planning and financial decision-making. Additionally, the report aims to explore the investment implications of these scenarios on macroeconomic variables and asset markets to inform strategic asset allocation and risk management.