The challenge

ASSESS AND ANTICIPATE PHYSICAL RISKS COMING FROM CLIMATE CHANGE

Expected increase in economic
losses due to climate change

The number of climate hazards that have resulted in economic losses has more than tripled over the past 30 years.

These climate changes expose companies to many risks: increased costs, asset depreciation and lower revenues.

Beyond the direct risks for the company, its suppliers, its distributors and even the markets in which it operates could be significantly affected by climate change.

The last three hurricanes – Harvey, Irma and Maria – cost

more than $250 billion to society,

which is already higher than the total losses observed for 2016.

A risk now identified by financial players

The subject of adaptation and physical risks is becoming increasingly important in the financial sphere.

Mark Carney, Chairman of the Financial Stability Board, was one of the first to point out, in his speech on the 29th of September 2015, the importance of disclosing financial information relating to transition and physical risks.

More recently in 2016, the Task Force on Climate-related Financial Disclosures (TCFD), chaired by Michael Bloomberg, included reflections and recommendations on physical risks.

In France, Article 173 of the LTECV (Energy Transition for Green Growth Act) requires investors to disclose information regarding the level of exposure of their portfolios to climate change risks.

The lack of available methodologies
to fully assess physical risks

In the context of a risk analysis at the level of a financial portfolio, the large number of underlying assets to be studied and the lack of associated data bring about the necessity to conduct a comprehensive and pragmatic analysis.

 

It is therefore essential to develop a method that can assess the risk level of each asset with very little information.

 

To ensure that physical risks can be fully taken into account, the approach must also cover the main climate hazards that could affect the company’s assets as well as integrate its value chain.

Currently, no existing methods offer a service with this full range of features.
The CRIS project team has set itself the challenge to :

 

Develop a method to assess the physical risks associated with climate change for an asset portfolio.