Mitigation strategies focus on setting ambitious short- and long-term net-zero targets and defining a mitigation pathway. This strategic approach involves calculating the marginal abatement cost curve (MACC) in order to assess the financial viability of decarbonisation measures and develop a comprehensive implementation plan for the prioritised measures, ensuring a structured and effective transition.

Comprehensive climate strategies

In a dynamic and evolving climate-conscious economy, a holistic climate strategy is essential for companies to proactively manage risks, build resilience, and seize opportunities. At least three climate scenarios are necessary to explore potential 'what if' situations, consider different future market conditions, and analyse the 'so what' to assess the business impact and identify the company’s long-term viability.

By integrating mitigation, adaptation, and sustainability into their operations, businesses can future-proof their business models, drive innovation, and align themselves with global climate goals, all the while maintaining their relevance in the market. However, companies must balance the immediate costs of decarbonisation against the long-term risks and opportunities, and ensure that their strategies align with climate goals and stakeholder expectations.

Developing a climate strategy is not a one-off exercise but an ongoing activity that requires continuous monitoring and adjustment.

In order to effectively evaluate a company's resilience, it is essential to analyse the climate-related physical and transition risks and opportunities across the entire value chain. This involves identifying and examining these risks and opportunities, understanding their potential financial impact, and using these insights to develop mitigation and adaptation measures. The combined mitigation and adaptation strategy results in a holistic climate strategy.

Climate Scenario Analysis

Scientists use representative concentration pathways (RCPs) to model various concentrations of greenhouse gases in the atmosphere and build scenarios of the resulting climatic changes (e.g., temperature rise, extreme weather events). These climate scenarios can then be used by companies to plan for the future.

In its sixth and most recent assessment report (AR6), the Intergovernmental Panel on Climate Change (IPCC) published an updated set of RCPs, as well as a parallel set of Shared Socioeconomic Pathways (SSPs), to reflect the socioeconomic (e.g., regulatory and behavioral) characteristics projected to under the various RCP scenarios. Other organisations (e.g., NGFS and IEA) have developed complementary models to assess an even broader range of economic and production-related variables under different climate scenarios.

Standard setters have recommended that companies use multiple climate scenarios, typically three to four, that are most relevant to their circumstances, in order to assess their business resilience in the face of a variety of future outcomes.

High-emissions climate scenarios capture the physical hazards that may arise from climate change. To identify and assess physical risks, the EU Taxonomy requires undertakings to explain how and whether they have used high-emissions climate scenarios, such as the IPCC SSP5-8.5 scenario. 

Low-emissions climate scenarios capture the regulatory and economic consequences of a more rapid transition to a low-carbon society. When evaluating transition risks and opportunities, the CSRD requires undertakings to explain how and whether they have considered at least one scenario consistent with the Paris Agreement's goal of limiting climate change to 1.5°C.

The resilience pathways

By conducting a climate scenario analysis, companies can identify the physical and transition risks and opportunities that may affect their business. Then, these risks are then assessed to determine their current and anticipated financial effects across short-, medium-, and long-term horizons.

Aggregating of these financial effects results in a gross risk evaluation. This forms the basis for prioritizing risks and opportunities according to vulnerability, cost, and strategic relevance. Companies implement mitigation and/or adaptation measures for each identified effect and assess their effectiveness.

Following this evaluation, the financial impact is reassessed to determine the net risk – i.e., the remaining exposure after accounting for all measures. This refined view allows companies to allocate resources efficiently, strengthen resilience, and safeguard long-term value.

The Corporate Sustainability Reporting Directive (CSRD) requires companies to set long-term net-zero targets aligned with the Paris Agreement's 1.5°C goal. These targets must be backed by timelines, and interim milestones, and cover emissions across scope 1, 2, and 3. Compliance ensures alignment with global climate science.

A credible transition plan hinges on reliable data. Companies must provide qualitative descriptions and quantitative reports on decarbonisation strategies. Accurate emissions data helps identify hotspots and assess reduction potential, outlining the actions needed to decarbonise operations and the value chain.

The CSRD requires businesses to assess how their transition plan impacts the broader business model. This includes evaluating how decarbonisation affects operations, products, services, suppliers, and customers. Integrating climate considerations into overall strategy ensures compliance and strengthens the company's ability to thrive in a low-carbon world.

A credible transition plan must be supported by adequate resources. Companies must disclose capital (CapEx) and operational expenditures (OpEx) invested in their transition plans. Some may go beyond compliance by disclosing investments in technology, R&D, and human capital, signaling a commitment to long-term value creation.

A climate transition plan must be dynamic, regularly monitored, and adjusted as necessary. The CSRD expects companies to establish governance structures with clear roles at the board and management levels to oversee progress. Milestones should be reviewed regularly, with adjustments made when targets are missed, ensuring climate goals are treated as seriously as financial ones.