Climate-related scenario analysis is a new concept for most entities in NZ, official says
The Financial Markets Authority (FMA) has published a scenario analysis information sheet to inform climate-reporting entities (CREs) about FMA’s expectations for scenario analysis disclosures made under the climate-related disclosures (CRD) regime.
Under the regime, around 200 CREs, including registered banks, credit unions, and building societies with total assets over $1 billion, are required to conduct scenario analysis and disclose the process undertaken in their annual climate statements.
Part of the requirements under the CRD framework, scenario analysis is a strategic tool for understanding and exploring how the future may develop under conditions of uncertainty. It involves constructing plausible pathways leading to different future worlds (i.e. scenarios); then analysing how resilient an entity’s current business model and strategy would be if placed within these scenarios.
Jenika Phipps (pictured above), FMA climate-related disclosures manager, said climate-related scenario analysis is a new concept for most entities in New Zealand.
“This information sheet explains scenario analysis as an important tool to develop an exploratory approach for considering significant uncertainties, about the scale and speed of physical and transitional climate-related impacts, that are likely to play out in the future,” Phipps said.
“Using climate-related scenario analysis will enable entities to better understand the inter-related dynamics of climate change, prepare for an uncertain future, and ultimately consider how to improve their long-term resilience.”
Aside from scenario analysis, the other strategy pillars of the CRD reporting regime are risk management, governance, and metrics and data.
Click here to download the Scenario analysis information sheet PDF. For more information about the CRD legislation, visit FMA’s website.
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