Scientific Climate Scenarios

Climate Scenario Analysis with Probabilistic Climate Models

Scientific Climate Scenarios is an advanced climate scenario framework developed by the EDHEC Climate Institute to support forward-looking climate risk analysis and investment decision-making. Building on existing NGFS climate scenarios, the framework extends benchmark scenarios through three key innovations: probability-weighted climate pathways, enhanced country and sector granularity, and expanded climate scenario coverage. While most climate scenarios describe what could happen, Scientific Climate Scenarios estimates the likelihood of alternative climate futures and translates them into actionable insights for investors.

The main users of these probability-aware scenarios will be:

• policy makers, who can focus on the climate outcomes of greater likelihood, while keeping 'tail events' in sight;
• investors, who need the probabilities to compute the expectations of discounted cashflows that are at the heart of all assets-pricing models;
• asset owners; who want to understand the vulnerability of the climate-sensitive asset underlying their financial instruments, either as collateral (eg, for mortgages) or cash-generators (eg, infratruscture); and
• concerned citizens, who need to know where the real climate dangers really lie.

How SSP, NGFS, and Scientific Climate Scenarios (SCS) relate

Why Assign Probabilities to Climate Scenarios?

Climate scenarios are designed to describe what could happen.

They do not indicate which outcomes are more likely to occur.

International benchmark frameworks such as the IPCC and NGFS provide scientifically robust climate scenarios that explore a range of plausible futures. However, they intentionally avoid assigning probabilities to individual pathways. As a result, scenarios with very different levels of plausibility are often treated equally.

The Scientific Climate Scenarios programme addresses this limitation by assigning probability distributions to climate pathways. This enables investors, policymakers and researchers to move beyond analysing individual scenarios in isolation and estimate the expected impacts of the most likely climate futures.

The EDHEC Scientific Climate Scenarios Innovations

The NGFS climate scenarios provide an internationally recognised reference framework for climate scenario analysis. However, they are designed as benchmark reference scenarios and do not assign probabilities to alternative climate futures. While the framework covers a broad range of transition pathways, its representation of higher physical risk outcomes remains limited.

To address these limitations, the EDHEC Climate Institute extends the NGFS framework through two additional climate scenarios: Climate Destabilisation (CD) and Climate Breakdown (CB).

These higher-warming scenarios project approximately 3.6°C and 4.4°C of warming by the end of the century, respectively. The extended framework also incorporates additional assumptions relating to physical damages, inflation, GDP, emissions and other macroeconomic variables.

The programme further enhances the NGFS framework by introducing country × sector climate pathways. While NGFS provides climate scenarios across approximately 50 countries and regions, Scientific Climate Scenarios currently covers around 20 sectors per country, with the long-term objective of expanding to approximately 50 sectors.

The programme is a joint collaboration between the EDHEC Climate Institute, Scientific Portfolio, and Scientific Climate Ratings, and is closely linked to the Institute's Physical Risks research programme.

Bridging Climate Physics and Financial Economics:

EDHEC EXCITE EMULATOR