The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.
View the Supervisory Statement 5/25.

One of PRA’s expectations is for "The board to have a high-level understanding of the impacts of climate-related risks on the firm’s business model over various time horizons and under different climate scenarios”.

Most Board members, however, don’t have the time (or need) to become climate experts. Instead, they need focused, actionable knowledge on:

• Physical and transition risks
• Scenario analysis relevant to business and financial planning

How do Boards balance the need for depth with competing demands on their time? One approach is interactive simulation.

Learning climate risk through simulation

There are two ways to learn about climate change:

• Reviewing extensive technical reports and guidance
• Learning through simulation and experimentation

Simulation-based learning allows users to test assumptions, explore uncertainty, and observe outcomes dynamically.

En-ROADS, developed by a nonprofit Climate Interactive and MIT Sloan, is a global climate policy simulator that’s:

• Freely available and fully-documented
• Updated monthly with the latest science
• Capable of modeling both transition risks (e.g. carbon pricing, electrification) and physical risks (e.g. temperature rise, sea level rise)

Risk indicators in En-ROADS

En-ROADS allows users to visualise five key physical climate risk indicators, with data typically downscaled to approximately 22×22 km resolution:

• Sea-level rise
• Extreme heat days
• Extreme heat and humidity days
• Temperature increase
• Wildfire danger days
• Likelihood of prolonged drought

These indicators support qualitative scenario analysis by linking policy pathways to physical and systemic impacts. In addition to direct physical damage, the model also reflects broader global effects, including:

• GDP impacts
• Biodiversity loss
• Reduced agricultural yields
• Heat-related labour productivity losses

Transition risks that can be modelled in En-ROADS include:

• Energy transition policies
• Energy efficiency measures
• New technological innovations (e.g., green hydrogen)
• Improved agricultural practices

Thoughtful scenario analysis

Scenario analysis asks whether a business model is resilient to climate change and the energy transition. For example, how might demand for fuel change if electric vehicles exceed a quarter of new vehicle sales?

En-ROADS allows users to take a global view of physical and transition risks and is a great supplement to more granular models that assess company and sector-specific risks. With En-ROADS, you can:

• Build your own tailored scenarios
• Adjust key assumptions in real-time
• Focus on business-relevant insights

Here’s one example: a delayed transition scenario where the electricity grid decarbonizes, but nature-based solutions and non-CO₂ emissions are neglected. 

For those who prefer to start with established scenarios, En-ROADS can approximate widely used climate scenarios, including those developed by the Network for Greening the Financial System (NGFS). Our interpretation of the NGFS Below 2°C scenario in En-ROADS is here.  You can learn more about NGFS scenarios and how they compare to the En-ROADS baseline here.

Case study: HSBC uses En-ROADS

HSBC has used En-ROADS to improve understanding of the risks of climate change throughout the organisation, including at senior levels. To date, more than 2,600 HSBC employees and executives have experienced En-ROADS through workshops and as part of risk management training. 

“When the facilitator and participants are debriefing their En-ROADS session, there is a real feeling of possibility… En-ROADS has power!”

Want to learn more?

The simulator can be freely accessed at climateinteractive.org. The team is happy to answer technical questions at solutions@climateinteractive.org.