Acclimatise’s special guidance report “Understanding Physical Climate Risks and Opportunities” is designed to help investors assess physical climate risk assessments to their portfolios.
Developed with the Institutional Investors Group on Climate Change (IIGCC), the guidance collates good practice for physical risk assessments across the stages of a typical risk assessment process. The guidance was published in June 2020. It was developed in close conjunction with IIGCC staff, leading investors, and Dr Rory Sullivan of Chronos Sustainability.
In this video, report author and Acclimatise consultant Robin Hamaker-Taylor talks through what the report covers.
The guidance helps investors
understand physical climate risks and how they are measured. It also provides
investors with practical guidance on how they can begin to analyse, assess and
manage the risks and opportunities presented by physical climate hazards.
Written specifically with investors in mind, the guidance can be used without prior climate expertise. Examples of how peers have conducted physical risk assessments and processes are included throughout, and investors are provided with 20 key questions to help them to plan their assessments or sense-check what they have already done.
Why does physical climate risk matter to investors?
The Earth’s climate has already warmed by approximately 1.0°C above pre-industrial levels, according to the IPCC. Current trajectories show temperatures are expected to rise by 3.2°C by the end of the century, even if all current unconditional commitments under the Paris Agreement are implemented, according to the UN Environment Programme.
frequent and more extreme weather and climate events, as well as gradual shifts
in rainfall patterns, temperature, sea levels, sea ice and glacial retreat, are
some of the changes already underway. Physical risks are here now and will
continue to unfold, with financial implications throughout the investment
owners and managers recognise climate change as one of the largest systemic
risks to their investment portfolios. To date, however, relatively little attention has been paid to how institutional
investors might assess and report on the physical risks and opportunities
arising from climate change. This
is despite a growing evidence base demonstrating the economic consequences of
increasingly severe climate change.
“As a changing climate alters the fabric of economies,
societies and environments across the world, it pays to be prepared,” said John
Firth, CEO, Acclimatise. “The investors that can act now to both manage
physical climate risks and grasp the opportunities to invest in resilience
stand to be in the most secure position in the long-term. This guidance acts as
a first step to achieving this.”
What does the report cover?
The newly published guidance will help investors to:
Better understand the investment implications –
both risks and opportunities – resulting from the physical impacts of climate
Take practical steps to identify, assess and
manage climate-related physical risks across their portfolios, through the
approaches covered in the guidance.
Identify ways to invest in solutions that support
greater resilience to climate change as well protecting investments from
physical-climate related risks. Both approaches are key to strengthening
broader societal adaptation to climate change.
Draw on additional available tools and data sources in identifying and assessing
specific risks, and opportunities, across different asset classes.
The guidance document provides a
comprehensive overview of physical climate risk assessment and management,
including the following chapters:
Review of physical climate risks and how are
Chapters which follow the steps of a physical
An upcoming webinar, led by the Institutional Investors Group on Climate Change (IIGCC) with Acclimatise and Chronos Sustainability, will launch guidance for investors to help them get started in understanding, assessing and managing physical climate-related risks. The webinar, ‘Understanding Physical Climate Risk for Investors’ will be held on May 26th 2020 at 14:00 BST/15:00 CEST/ 9:00 EDT.
As the impacts of climate change become more apparent, the
physical risks by this new climate reality has significant implications for
performance of investment portfolios. A changing climate is impacting
portfolios now and can impair value over time. This places a growing urgency on
the need for investors to understand, assess and report on physical-related
climate risks and opportunities. Acclimatise led the development of the new
guidance document, available immediately after the webinar, with input from
Chronos Sustainability and IIGCC members and staff.
In this webinar, participants will hear from keynote speaker Emma Howard-Boyd, Chair of the Environment Agency, on the growing impacts from physical climate risks that investors need to manage. John Firth, CEO and Co-Founder of Acclimatise, will present the guidance developed for investors, outlining the key steps in a risk assessment and management process to help investors begin to understand and assess the risks to their portfolios. There will also be a panel discussion and Q&A with three investors who have taken steps to address physical risks and identify opportunities to demonstrate how investors can get stared and key issues to consider.
During the first ever London Climate Action Week, members of the Institutional Investors Group on Climate Change (IIGCC) came together for a roundtable focusing on physical climate risks for investors. Part of a wider IIGCC initiative launched this spring, the roundtable aimed to support investors in their identification assessment and management of the physical risks associated with a changing climate. Opportunities for investment in resilience have also emerged as an important part of physical climate risk management. The wider IIGCC initiative will produce a guidance document on understanding physical climate risks, due out this Autumn.
Facilitated by Acclimatise
and Chronos Sustainability, the roundtable was a well-attended event, gathering
a wide range of stakeholders from the investment industry, from infrastructure
to impact investors. The event enabled participants to share insights into
their progress to date on physical climate analysis and to discuss proposed guiding
elements to undertake such work. Investors expressed the difficulty they faced
to rely on current corporate disclosures, and how the guidance document could
help them fill knowledge gaps regarding the key issues to consider when climate
messages on physical risk were presented by Acclimatise, which are crucial for
investors to consider when looking at physical climate impacts. Among these,
the team framed the difference between transition and physical-related risks as
well as acute and chronic climate risks. Delving deeper, we stressed the need
to look at previous impacts and the usefulness of conducting analysis that
correlates weather and climate hazards with impacts on counterparties. This
will be particularly useful for those looking to determine climate impacts over
the next 10-20 year period, given the current locked-in levels of climate
change. The need to design scenarios that consider a 4°C world was also
highlighted, for those interested in assessing risks in the longer term. The
discussion also included the importance of identifying climate-related
thresholds for assets, and consideration of indirect climate effects at the macro-economic
level, beyond damage to fixed assets.
The IIGCC guidance for investors on physical climate risks will be finalised this summer and undergo peer review from IIGCC members before its publication in autumn this year.
Institutional Investors Group on Climate Change (IIGCC) has launched a new
project to develop guidance for investors on how they integrate the risks and
opportunities presented by the physical risks of climate change in their
investment research and decision-making processes.
The project will develop an IIGCC
investor guide focusing on physical climate risk analysis with technical input
from the specialist advisory firms Acclimatise and Chronos Sustainability, in
collaboration with IIGCC members.
leading the initiative with the support of the Universities Superannuation
Scheme (USS), one of the UK’s largest pension funds. Stephanie Pfeifer, CEO,
Institutional Investors Group on Climate Change, explains: “In many ways, adaptation is the missing issue in the
climate change debate. IIGCC’s new initiative will help investors to understand
its importance and act on adaptation to climate change as an investment issue.
This includes ensuring investors have the practical tools to account for the
physical risks of climate change and are able to act on the opportunities found
in addressing the issue, across both investment decisions and company
Russell, Head of Responsible Investment at USS, adds: “One of the key contributions of this project
will be to focus on the risk posed by climate change across a range of
asset classes. This will include sectors that are both dependent on access to
water and other environmental resources, and those potentially impacted by a
The new guidance will include an introduction to the investment implications of physical climate hazards, and will collate information on tools and data sources needed to manage physical climate risks. Available later this summer, the guidance also aims to propose a process that investors can go through to identify, assess, manage and disclose climate-related physical risks and opportunities across their portfolios.
The United Nations Environment Programme has shown that the cost of necessary adaptation to climate change is between $140 to $300 billion per year across the global economy by 2030 alone, and point to a major gap in adaptation finance[. This offers potential new investment opportunities, in which investors can help build broader climate resilience, while also mitigating future losses otherwise incurred. This initiative will help investors better understand the nature of this opportunity.
The initiative is delivered as part of IIGCC’s ‘Investor Practices’ programme, which helps asset owners and managers better assess and manage both climate risk and opportunity, and to report on their actions more effectively.