This post is the sixth in a series to do with scenario analysis and the proposed SEC Climate-disclosure rule. The background to the series is explained in the first post: SEC Climate Rule: Scenario Analysis - Part 1.
Scenario Analysis
The first four posts in this series evaluated the scenario analysis sections of the proposed rule. The fifth post looked at the TCFD guidance to do with scenario analysis. In the posts we quote the wording of the rule using the page numbers in the SEC’s document (The Enhancement and Standardization of Climate-Related Disclosures for Investors).
In this post we back up a little and consider the topic of scenario analysis.
Two Roads
Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler,. . . I took the one less traveled by,
And that has made all the difference.
One of the best-known poems in the English language is Robert Frost’s The Road Not Taken. Frost is traveling alone; he reaches a point where a road divides, so he has to make a choice. Which road will he follow? He knows that his choice will be irreversible. He says, “I doubted if I should ever come back.”
The First Road
In writing the proposed rule, the SEC realized that they also are at an intersection. The first road, (the one to the left in the image) takes us to a destination based on an assumption that life will continue with its present form and structure. The climate will get warmer, with ever more serious consequences, but nothing fundamental will change. Existing institutions — including the SEC itself — will continue to function more or less as they do now. On this road climate change is perceived to be a serious problem, but one for which there are solutions. If we take the action we will be able to maintain a lifestyle that is not a lot different from now.
The Second Road
By asking for scenario analyses, the SEC recognizes that there is a second road (the one on the right in the image). This road leads to a more uncertain destination. Once we start traveling down this road we have to accept that climate change is not a problem, it is a predicament. The difference between the two words can be stated as follows.
Problems have solutions, predicaments do not. When faced with a predicament we can respond and adapt, but we cannot make it go away.
On the second road, the consequences of climate change are so severe that life and society will be drastically transformed. Nor will there be sufficient time to take corrective action in the short amount of time available. Whereas the first road assumed that our political and financial systems will continue in more or less their present form, the second road says that those systems, possibly including the Securities and Exchange Commission itself, will have to be radically restructured. They may even disappear. The SEC does not venture far down this second road. But it is encouraging to see that it does at least start the journey, however tentatively, by encouraging the use of scenario analysis.
Overshoot / Collapse
An honest journey down the second road soon leads to discussions to do with overshoot and collapse. Our civilization is only one among many that have come and gone. There is no reason to believe that our civilization will endure. The reason that many civilizations collapsed is that they overshot their resource base and/or they polluted their environment. This is exactly what we seem to be doing now.
The seminal report Limits to Growth showed that, if we follow the Business as Usual case (which is what we are doing), we enter a period of steep decline starting in the early 2020s. There are many other books, reports and web pages on this theme. They include William Catton’s Overshoot (Catton, 1982), Bottleneck by the same author, The Uninhabitable Earth (David Wallace-Wells), Collapse (Jared Diamond), The Ecotechnic Future (John Michael Greer), and Deep Adaptation (Jem Bendell), The Long Emergency (James Kunstler), The End of the World Is Just Beginning (Peter Zeihan), The Seneca Effect (Ugo Bardi), and The Great Simplification (Nate Hagens).
Each of these publications has a different theme, and draws different conclusions as to where society is heading. But they all tend to share the same conclusion that society in its present form cannot last — radical change is in our future. In all cases, our industrial world, along with international trade basically comes to an end.
Earlier Posts in the Series