A fragile Earth, a fragile economy: Action-oriented climate scenario analyses for managing economic uncertainties

History does not repeat itself, but certain moments do return in a different form. Just a few days ago, the Artemis II mission sent a new image of our planet back to Earth: the first photograph taken from this perspective in more than half a century. The ‘Blue Marble’ image from the Apollo 17 mission in 1972 had already become a symbol of planetary vulnerability and exposure, and the visual starting point for a new environmental consciousness.

Shortly afterwards, the 1973 oil crisis shook the Western industrialised nations and led to drastic measures, ranging from driving bans to speed limits. Today, as geopolitical conflicts once again put pressure on key energy routes such as the Strait of Hormuz, this realisation is returning with renewed urgency.

As early as the late 1980s, the sociologist Ulrich Beck, in his concept of the ‘risk society’, described a phenomenon that continues to shape our world today: dangers initially arise in secret, elude immediate perception, and then often emerge abruptly as permanent structural conditions. Climate change is arguably the most striking example of this. Anyone still hoping for the all-clear today is waiting in vain. This makes the question of how companies and organisations can respond to this growing vulnerability and the changing operating environment all the more urgent.

Climate risk analysis as a strategic compass

In times of multiple crises and far-reaching transformations, risk analyses are becoming increasingly important from a strategic perspective. Climate risk and climate scenario analyses, in particular, are increasingly taking centre stage in corporate decision-making processes. The framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) provides a suitable methodological toolkit for this purpose: a structured approach to systematically identifying and assessing climate risks and integrating them into operational and strategic decisions.

The TCFD framework distinguishes between two key risk categories: physical and transitional risks.

Physical risks arise from direct climate impacts, such as extreme weather events including heavy rain, flooding, heatwaves and storms, as well as from gradual changes such as rising sea levels or altered precipitation patterns. For businesses, this means growing vulnerability of sites, supply chains and infrastructure. The financial implications are immediate: business interruptions, rising insurance costs or the loss of critical suppliers.

Transitional risks, on the other hand, arise in the course of the transition to a low-carbon economy. They result from stricter regulations, CO₂ pricing, technological upheavals and changing market expectations. This can put business models under pressure within a short space of time, compounded by increasing reputational risks.

Cash flow in the spotlight of climate risk

What both risk categories have in common is their direct impact on companies’ financial performance – with consequences for creditworthiness, investment capacity and long-term stability. Physical risks lead to unexpected costs and disrupt revenue streams. Transitional risks increase operating expenses, for example through CO₂ levies, or lead to the devaluation of assets that can no longer be operated profitably under new regulatory conditions.

Financial market participants are increasingly responding to these developments: banks and investors are demanding robust climate risk analyses as a basis for their decisions. Business models with high CO₂ exposure are already facing rising refinancing costs.

A well-founded climate scenario analysis (for example, by comparing different development pathways between 1.5 °C and 4 °C scenarios) makes these effects tangible and quantifiable. It highlights which locations, stages of the value chain and business areas are particularly exposed under specific climate conditions, and enables adaptation measures to be prioritised strategically.

Climate risk analyses should therefore not be viewed as yet another bureaucratic exercise, but rather as a strategic management tool. They help companies and organisations to better understand the dynamics of a fragile world, to systematically navigate uncertainties and to build long-term resilience.

Those wishing to take the next step should use climate scenario analyses not merely as a benchmark, but as a strategic guide to secure investments, align strategies with impact objectives and develop concrete adaptation measures. We support companies in implementing these analyses in a practical manner and in establishing a reliable basis for decision-making; from data collection through to seamless integration into risk and financial management systems.