'Corporate Scenarios: Drawing Lessons from History' by Madison Condon in (2025) 48 Seattle University Law Review 277 comments
As corporations are increasingly pressed to reveal information about their exposure to climate-related risks, they are often asked to undertake and disclose the outcome of “scenario analysis.” In this exercise, corpora- tions, including financial institutions, examine how their business would fare under different pathways the future may take. One oft-used scenario, for example, is the International Energy Agency’s “Net-Zero by 2050: A Roadmap for the Energy Sector.” This Essay presents a history of the use of scenarios as a corporate planning tool, particularly in the oil industry, arguing that it is key for understanding our present moment and the role of today’s scenarios in corporate governance. Scenarios are a useful tool, but who makes them matters.
While it has been used as a corporate planning tool throughout the past five decades, the golden age of scenario analysis was in the 1970s. Royal Dutch Shell famously adopted scenario analysis as a means for navigating geopolitical risk, arguably helping it outperform peers through shocks like the 1973 oil crisis. By the end of the decade, most of the largest U.S. and multinational corporations employed scenario analysis, especially those in capital intensive businesses with long-term horizons, like the extractive industries. The adoption of scenario analysis represented a shift away from quantification—it was a technique for addressing unprecedented events and discontinuities that were challenging to capture with data. Planning through scenarios also represented an acceptance of the contingency of the future.
In the era of climate change, scenario analysis, as a method for planning, has reemerged with a force, particularly in the financial sector. While initially pushed as a voluntary risk management tool by investors, assessment of climate risk via scenario analysis has now become a standard requirement of financial regulators around the world. In the United States, Treasury regulators ask large banks to undertake climate scenario analysis. The Federal Reserve unveiled its first climate scenario exercise in 2023. Large banks, in turn, have established Climate Scenario Design teams.
Recently, the most widely used financial climate scenarios have come under attack for a host of methodological reasons, including their gross underestimation of climate damages. These critiques often focus on the quantification assumptions underlying the scenarios, as well as the influence and predominance of neoclassical economics at the expense of other disciplinary expertise, including climate science. This Essay joins the growing number of voices calling for scenario analysis to go back to its narrative and interdisciplinary roots. Some initial projects in this vein have started to appear, with expert roundtables producing alterative story-lines given snappy titles like “Meltdown” and “Green Phoenix,” resembling those of the 1970s.
Scenario analysis is useful today for the same reasons it was initially developed: as an approach to planning under deep uncertainty, a way to synthesize expert knowledge across disparate fields, and a means of overcoming the limits of quantification. This Essay agrees that it will be an invaluable tool in the chaotic climate years to come. But the history outlined in this Essay also highlights how the act of predicting the future can work to shape it. Scenarios are political — not just technological or natural — projections of the future. What counts as “expert knowledge” and which experts are invited to participate in scenario building are fundamental first steps that drive scenario outcomes.Further, scenarios are performative in that the act of predicting the future can work to shape it.
The Essay proceeds as follows. Part I presents a short history of scenario analysis as a corporate planning tool, a story more bizarre than most corporate histories. It then explains how corporate scenarios came to shape, rather than predict, global environmental governance. Part III turns to the proliferation of climate scenarios in the financial world and seeks to offer some lessons from their corporate history. Part IV concludes.
