Author: Brad Potter
The problem
Firms are now expected to say something about climate risk. New standards push companies to assess how different climate futures might affect their business and to disclose that information.
But there’s a real risk that climate reporting becomes another compliance exercise. If firms just produce the reports because they have to, rather than something that actually shapes decisions, the value of the information to investors would be limited.
The idea
This paper looks at a simple question: do investors care whether firms do climate scenario analysis? More importantly, do they care how it is used?
Scenario analysis is meant to be forward-looking. It asks firms to think through different climate pathways and what those might mean for strategy, operations, and performance. The key point is that it only becomes meaningful if it feeds into decisions.
That’s where the governance angle comes in. If firms use scenario analysis to guide strategy, it becomes part of how risk is actually managed, not just reported.
What we do
We use data from U.S. firms that voluntarily disclose climate information through CDP between 2018 and 2022.
The focus is on three things: whether firms do scenario analysis at all, whether they use it to inform strategy, and whether they rely on qualitative or quantitative approaches.
What we find
Two things stand out.
First, firms that conduct scenario analysis are valued more highly. That effect is stronger when the analysis is actually used to inform strategy.
Second, the way firms do it matters. More rigorous, quantitative approaches tend to be viewed more favourably, but only when firms have the capability to use them properly.
So, investors are not just reacting to disclosure. They are reacting to whether the firm seems to be taking climate risk seriously. Firms that integrate scenario analysis into strategy signal that they are thinking about long-term risk in a structured way. Firms that treat it as exploratory, or as a low priority, do not get the same response.
This is a governance point: the tool itself is not the issue; instead, it’s whether it is used.
Beyond compliance
Taken together, the results suggest that scenario analysis is not just symbolic.
When it is done properly, it helps firms think through risk and adjust strategy. And it gives investors a signal about whether that process is actually happening.
That shifts the role of disclosure. It’s not just about reporting—it’s about whether firms are using information to make better decisions.
Why it matters
For policymakers, this points to a familiar tension. Mandating disclosure is one thing; getting firms to use it meaningfully is another.
For firms, the message is more straightforward. Doing the analysis is not enough. What matters is whether it shows up in how decisions are made.
The bottom line
Scenario analysis only matters if it changes something.
When it does, it becomes part of governance—how firms identify risk, think about the future, and make decisions under uncertainty.
Ding, T., Jona, J., Potter, B., & Soderstrom, N. (2025). Are climate scenario analysis disclosures valued by investors?. Journal of Accounting and Public Policy, 51, 107313.
DOI: 10.1016/j.jaccpubpol.2025.107313
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