Yes, we provide both historical risk assessment and forward-looking scenario analysis.

 

For many use cases, such as Expected Loss modeling and Sustainability Due Diligence and Climate Stress Testing, the forward looking scenario analysis is the default setting. Three key scenarios are explained here in Table 2.

 

Table 2. Descriptions of the standard scenarios. 

Other possible choices can be: RCP 1.9, RCP 6.0, RCP 7.0. So far, only few models run with these scenarios.

Who defines these scenarios? 

 

The IPCC is a group of experts reviewing the achievements in climate science. They don't create models, but they formalise the definitions of climate scenarios. All climate models run with the IPCC scenarios. The technical names of these scenarios are RCP2.6, RCP4.5 and RCP8.5. In financial literature, the human-readable names for these scenarios are 'orderly,' 'disorderly,' and the 'hot house world'. 

 

Proper terminology for the physical climate risk assessment:

<< forecasts >>  (predictions)  vs  << projections >>

 

The forward-looking scenario analysis for flood and wildfire is not a forecast; it’s a statistical (probabilistic) evaluation based on projected climate data years into the future. Climate scientists produce scenario analyses to evaluate the frequencies and probabilities of extreme events under different GHG emission scenarios. Scenarios allow to evaluate and quantify how weather-related exposure may change, but they do not indicate when exactly a specific event should occur.

 

Forward-looking climate risk assessment provides the range of possible and likely outcomes. This knowledge should be used for strategic planning years ahead, investment decisions, quantitative expected loss modeling, insurance repricing and climate stress testing rather than year-by-year prediction.

 

When interpreting forward-looking scenario analysis over horizons longer than a weather forecast, we’re talking about projections.