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In short, climate scenario analysis is an analytical process which is used to project how the world and the climate may develop in future. TCFD argues that organisations can use climate scenario analyses to assess the potential commercial, strategic and financial aspects of the climate-related risks and opportunities t...
ATP’s work on climate scenario analysis ATP has chosen to launch its own project to provide more insight into how climate scenario analysis can be used to inform investment decisions. This is a large and very complex task that requires insight into climate research and climate modelling, among other topics.
Carrying out a climate scenario analysis for specific investments, such as a forest, requires completing two separate analytical processes. First, a number of specific future scenarios for the global development must be defined, including population growth and climate policy, to determine the volume of greenhouse gas e...
As a result, the project spanned several phases, each with their own targets. First, ATP wanted to fully understand the four scenarios of the UN Intergovernmental Panel on Climate Change (IPCC or Climate Panel for short), and how they were selected. ATP therefore studied the scenarios and their underlying assumptions i...
3 Data from the international research programme ‘Coupled Model Intercomparison Project Phase 5’ (CMIP5) which was used by the UN Climate Panel in its Fifth Assessment Report (AR5).
Second, ATP delved into the large volumes of data from many of the climate models on which the Climate Panel has based its recent Assessment Report.3 A climate model is basically a computer model that can be used to project how the climate may change in the long term. The models are based on the laws of physics and rel...
ATP’s project has attempted to apply climate scenario analysis, including data from the climate models described, to specific forest investments, among other things. ATP owns five forests through its subsidiary ATP Timberland Invest K/S – four in the USA and one in Queensland, Australia. The project focuses on the aver...
The UN Climate Panel has developed four scenarios for future greenhouse gas concentrations ATP bases its climate analysis on the four scientifically recognised and developed scenarios for future greenhouse gas concentrations which were used by the UN Climate Panel in its recent Assessment Report (AR5). Around every sev...
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Responsibility 2018 also describes the four possible Representative Concentration Pathways (RCP), which set out four different scenarios for greenhouse gas concentrations. The four selected scenarios represent the breadth of academic research into greenhouse gas concentrations and range from virtually no climate effort...
Many factors have to be taken into account in order to understand climate change. Greenhouse gas emissions are the main cause of climate change, which has many direct and indirect components. These include contributory factors such as energy consumption, population growth, land use, regional economic development, techn...
It is important to emphasise that the four scenarios are not predictions, and that there are many different socio-eco-
CASE: ATP’s forest investments.
ATP has been investing in forests for a number of years. In addition to investments through ATP Timberland Invest K/S, which cover an area of approx. 1,400 square kilometres, ATP increased its forest investments in 2018 by acquiring a stake in Red Mountain Timberlands which owns eight forests in the south-eastern USA. ...
As a forest investor, it makes sense to include climate considerations in our investment decisions. Climate change can have a positive or negative impact on the economic conditions for a forest investment. Changed climatic conditions may for instance cause certain of types of wood to grow faster or make them more susce...
ATP includes climate considerations in its assessment of potential forest investments. It may seem difficult to predict whether a specific forest area will experience more droughts, higher temperatures etc. in the future, which is why climate considerations are also taken into account in other ways. One of the ways in ...
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Responsibility 2018 nomic pathways for a specific level of greenhouse gas concentrations. The RCP scenarios each represent one possible pathway for a specific concentration level.4.
Structure of climate models Modern climate models are highly complex and comprise an enormous variety of factors. This complexity is due to a desire to enable very accurate modelling of the Earth’s climate and be able to describe geographical variations in many different scenarios. The greenhouse effect is one of the m...
However, a climate model also has to include other impacts and factors to more accurately calculate changes in temperature. However, a climate model also has to include other impacts and factors such as cloudiness, snow and ice cover and a description of the global oceans to more accurately calculate changes in tempera...
The most commonly used climate models, known as general circulation models, cover all these factors as accurately as possible.
The climate models can be used to examine the implications of external influences. These may be man-made changes in the atmospheric content of greenhouse gases. Different scenarios, for example the four RCP scenarios, can be used as input and serve as a starting point for greenhouse gas concentrations. It can also be e...
4 The RCP scenarios are named after the level of radiative forcing that each scenario produces which is a measure of the total greenhouse effect in the scenario. Technically, radiative forcing describes how the balance between incoming solar energy and outgoing energy from Earth is altered. If radiative forcing is posi...
5 Data from the international research programme ‘Coupled Model Intercomparison Project Phase 5’ (CMIP5) which was used by the UN Climate Panel in its Fifth Assessment Report (AR5).
A more detailed description of the greenhouse effect and the modern climate models is provided in Appendix 3.
Future temperature increases in five of ATP’s forest investments.
Based on data from many of the climate models on which the Climate Panel has based its recent Assessment Report (AR5),5 ATP has examined temperature increases in five forestry investments in the four different RCP scenarios.
The temperature increases were determined by calculating the average of all available data from the climate models via the CMIP5 database. Appendix 3 contains a complete list of the model data used in the calculations. The appendix also shows an example of the method used (specifically the forest in Queensland in RCP8....
The table shows the temperature increases in the four different RCP scenarios in the geographical locations of ATP’s forest investments through ATP Timberland Invest K/S. Due to lack of historical data on forest temperatures, the temperature increase from 2006 to 2100 is shown and not for the period 1986-2005, which is...
The temperature increases show that the forests Northwoods, Wolf River and Upper Hudson are located in regions that are likely to see greater increases in temperature in the future and may even be more climate-sensitive regions than, say, the forest in Queensland, Australia. This confirms to ATP the relevance of includ...
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Responsibility 2018.
The average temperature increase for Earth as a whole from 2006 to 2100 in the RPC scenarios can also be seen from the table. However, the ability of the oceans to absorb energy hampers the average global temperature increase and, consequently, they heat up slower than land. They are therefore not the best point of ref...
PARIS AGREEMENT CAPITAL TRANSITION ASSESSMENT (PACTA)
Several organisations have chosen to launch various web-based tools that allow investors to perform climate scenario analyses. ATP fundamentally believes that scenario analyses can be useful for investors when assessing the robustness of their strategic plans. Scenario analyses can be based on a number of different ass...
Forest investments in Australia and the USA which are included in the climate scenario analysis.
RCP2.6 RCP4.5 RCP6.0 RCP8.5 Latitude Longitude.
Northwoods, Wisconsin, USA 1.4 2.9 3.9 6.2 45.8 269.0.
Ouachita, Louisiana, USA 1.0 2.2 3.1 4.9 32.9 268.0.
Hancock Queensland Plantations, Australia 0.8 1.9 2.5 4.5 -26.8 151.3.
Wolf River, Wisconsin, USA 1.3 2.9 3.9 6.1 45.2 271.2.
Upper Hudson, New York State, USA 1.4 2.7 3.7 6.0 44.0 285.6.
Earth as a whole 0.7 1.6 2.2 3.8.
Temperature increase from 2006 to 2100 in the RPC scenarios (C)
The temperature increases were determined by calculating the average of all available data from the climate models via the CMIP5 database. Appendix 3 contains a complete list of the model data used in the calculations. The appendix also shows an example of the method used (specifically the forest in Queensland in RCP8....
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Responsibility 2018 0
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Equity Market Portfolio Equity Market Portfolio Equity Market Portfolio Equity Market Portfolio.
Gas Production.
Oil Production.
Coal Production.
Renewables Capacity.
Hydro Capacity.
Nuclear Capacity.
Gas Capacity.
Coal Capacity.
Electric Vehicles.
Hydro Vehicles.
ICE Vehicles.
Oil & Gas Production Coal Production Power Capacity Automotive.
Percent.
PACTA analysis: Equity exposure to climate risks as a percentage of the portfolio relative to the benchmark 0
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Bond Market Portfolio Bond Market Portfolio Bond Market Portfolio BondMarket Portfolio.
Gas Production.
Oil Production.
Coal Production.
Renewables Capacity.
Hydro Capacity.
Nuclear Capacity.
Gas Capacity.
Coal Capacity.
Electric Vehicles.
Hydro Vehicles.
ICE Vehicles.
Oil & Gas Production Coal Production Power Capacity Automotive.
Percent.
PACTA analysis: Corporate bond exposure to climate risks as a percentage of the portfolio relative to the benchmark.
The above figures are reproduced from the original PACTA analysis, which can be found at atp.dk/responsibility under ‘Climate’.
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Responsibility 2018 which makes it difficult to determine how we can use the information in the ongoing portfolio management.
A concrete example of a web-based tool that was launched in the past year is the Paris Agreement Capital Transition Assessment (PACTA) which was developed by the 2 investing Initiative (2dii) and supported by PRI. Investors have the opportunity to upload their portfolio holdings (listed equities and corporate bonds). T...
The PACTA analysis focuses only on a small section of the total portfolio, primarily companies engaged in the recovery of fossil fuels, and the automotive and utility industries. The portfolio companies’ exposure to specific transition technologies is identified using data concerning the portfolio companies’ production...
The data used are prepared at aggregate portfolio level which makes it difficult to assess the quality at company level. The companies’ capabilities in relation to the green transformation are also excluded from the analysis. This means that it is not possible to identify the individual companies or to use the informat...
Finally, the PACTA analysis is based on assumptions about static portfolios and a five-year time period. ATPs quantitative investment strategy in global equities means that ATP regularly buys or sells equities in the underlying portfolio companies. Consequently, the assumptions do not match ATP’s investment strategy, a...