Category: climate risk

The European Investment Bank is launching a project to increase the Climate Resilience of their Investment Projects

The European Investment Bank is launching a project to increase the Climate Resilience of their Investment Projects

The European Investment Bank (EIB), the bank of the European Union and a leader among international finance institutions in the climate change realm, has commissioned Willis Tower Watson, together with AFRY, the Finnish Meteorological Institute and adelphi to undertake a project titled “Climate Resilience in Investment Projects”. This project aims to build resilience to climate change for EIB projects and increase support for investment in adaptation.

More precisely, the project aims to increase the knowledge, skills and tools required to make projects more resilient to climate change and to identify a larger portfolio of adaptation opportunities in support of the EIB Climate Strategy and the Paris Agreement.

The project has two components:

Component 1: capacity building on climate resilience, and;

Component 2: climate risk management in investment projects.

The project began in May 2021 and will last for two years. The first component will develop the EIB’s capacity on climate resilience and support climate risk assessments at the project level. The second component will support the assessment of physical climate risks and the identification of adaptation measures at the project level.

For more information, please contact Cinzia Losenno at c.losenno@eib.org


Cover photo by Brad Knight on Unsplash.
Expectations for corporates and financial institutions on climate risk analysis and disclosure continue to evolve and grow

Expectations for corporates and financial institutions on climate risk analysis and disclosure continue to evolve and grow

By Robin Hamaker-Taylor


Despite the grave conditions many economies are facing due to 2020’s rolling COVID-19-induced lockdowns, expectations for corporates and financial institutions on climate risk analysis and disclosure have not slowed. In fact, climate risk and reporting mandates only appear to be increasing.

2021 will see a continued focus on climate risk analysis in the private sector, in the lead up to the 26th Conference of the Parties to the UN Framework Convention on Climate Change (UNFCCC). COP 26 will be held here in the UK and is set to have a strong focus on private sector finance. Mark Carney, special finance advisor to the UK Prime Minister has made clear that the objective for the private finance work for COP 26, is to “ensure that every financial decision takes climate change into account”. Finance is also one of five campaigns of the UK COP 26 presidency.

As 2020 comes to a close, this article summarises major developments expectations for corporates and financial institutions on climate risk analysis and disclosure in the last quarter of this year. Other reviews of progress in this space – and there has been a lot – are available here and here.

US Federal Reserve, Treasury Department, and the Securities and Exchange Commission have all indicated in various ways that they are on-board with their counterparts in other countries, who have long since been making progress toward mandating climate risk analysis and disclosure. (e.g., the dozen or more central banks and supervisors around the world who are undertaking climate-related stress testing.). This is no doubt in part due to President-Elect Joe Biden, who has made climate one of four priority areas in his Administration. The US is also set to re-join the Paris Agreement, and the expectation is that the US Federal Reserve will soon join the Network (of Central Banks and Supervisors) on Greening the Financial System (NGFS) (more information is available here and here.)

Importantly, there is ample evidence that President Biden and his Administration may not need congressional approval for any further climate-related laws or regulations, which would not be likely, given the Republican stronghold on the US Senate. There is, however, a growing call by some Republicans to take climate action, which represents an important shift.

There are now 75 central banks covering 60% of global emissions who are members of the NGFS. Members are already taking action, with central banks now requiring climate stress testing, e.g., Bank of England.

To celebrate its three year anniversary in December 2020, the NGFS published two reports on 15th December:

  • A progress report on sustainable and responsible investment practices by central banks; and
  • The findings of a survey on monetary policy operations and climate change.

Both are available here

The guide explains how the ECB expects banks to prudently manage and transparently disclose such risks under current prudential rules. The ECB will now follow up with banks in two concrete steps. In early 2021 it will ask banks to conduct a self-assessment in light of the supervisory expectations outlined in the guide and to draw up action plans on that basis. The ECB will then benchmark the banks’ self-assessments and plans, and challenge them in the supervisory dialogue. In 2022 it will conduct a full supervisory review of banks’ practices and take concrete follow-up measures where needed.

A new alliance between 30 international asset managers with $9tn in assets under management (AUM) has formed, setting net-zero emissions targets. The group of asset managers pledges to support investing aligned with net-zero emissions target by 2050 or sooner. More asset managers are due to join in the coming months. More information is available here.

This new initiative complements the Net-Zero Asset Owner Alliance, an international group of 33 institutional investors delivering on a bold commitment to transition investment portfolios to net-zero GHG emissions by 2050. More information is available here.

  • The International Financial Reporting Standards (IFRS) Foundation released a Consultation Paper on global sustainability standards, including climate risk reporting, open for public comment until 31 December 2020. More information is available here.
  • The TCFD is holding a public consultation on decision-useful, forward-looking metrics to be disclosed by financial institutions. The Task Force’s 90-day public consultation solicits input on forward-looking climate-related metrics for the financial sector. The consultation asks questions about the usefulness and challenges of such metrics and what may be necessary to enhance their comparability, transparency, and rigour. The consultation is open for public comment until 27 January 2021. More information is available here.
  • The UK’s Financial Conduct Authority (FCA) announced that it is going to be consulting on rules in early 2021, which would introduce TCFD obligations for asset managers, life insurers and pension providers by 2022. These extended rules would build the FCA’s new requirement that by 1 January 2021, premium listed companies will be required to disclose how climate change affects their business, consistent with TCFD, or explain why not.
  • The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation on the use of climate change risk scenarios in the Own Risk and Solvency Assessment (ORSA) in the form of a draft supervisory Opinion. EIOPA invites stakeholders to provide their views on the consultation paper by filling in the survey by 5 January 2021. More information is available here.

Many banks, asset managers, asset owners, insurers, and at very least listed companies are already getting out ahead of the curve of emerging climate risk reporting. Acclimatise has now been acquired by WillisTowersWatson, where we offer joined up services on both physical and transition risk-related analysis. Please contact Robin Hamaker-Taylor (r.hamaker-taylor at acclimatise.uk.com).

Climate Financial Risk Forum releases ground-breaking guide for financial firms

Climate Financial Risk Forum releases ground-breaking guide for financial firms

By Robin Hamaker-Taylor and Georgina Wade

On 29 June 2020, the UK’s Climate Financial Risk Forum (CFRF), co-chaired by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), published their guide to climate-related financial risk management. The guide draws on good practice examples from industry as well as guidelines set by relevant and respected industry bodies, including the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD).

The new CFRF guide aims to help financial firms understand the risks and opportunities that arise from climate change and provides support for how to integrate them into their risk, strategy and decision-making processes. As part of this, the guide considers how firms can plan for the impact of climate policies over different time horizons and assess their exposure to climate-related financial risks so that they can adapt their businesses in response.

Written by industry, for industry, this guide is based on CFRF discussions that have been convened and facilitated by the PRA and the FCA. The forum, similar to the Task force on Climate-related Financial Disclosures (TCFD), has brought together expertise from both financial firms and corporates to develop this guidance. Over the course of 2019 and 2020, the forum’s four working groups (Disclosures, Innovation, Scenario Analysis and Risk Management) have shared good practice and analysis to advance thinking on how firms can better manage the risks posed by climate change and support the transition to a net-zero carbon economy.

Each of the four working groups wrote a chapter of the final guide, and a summary document was co-produced by the FCA and PRA. The PRA and FCA have convened and facilitated CFRF discussions but the views expressed in this guide do not necessarily represent the view of the regulators and does not constitute regulatory guidance.

Access the individual chapters of the guide here:

Acclimatise is proud to be featured in the Risk Management Annex: list of data and tools providers. We are a specialist advisory and analytics company, providing world-class expertise in climate change adaptation and resilience. With experience in more than 90 countries, our work plays an important role in shaping the international adaptation agenda. We work closely with corporates and financial institutions on their physical climate risk analysis, by interpreting climate science and information in the context of their own strategies, processes, capacities.

Click here for more information on Acclimatise’s TCFD-aligned disclosure services.

Click here to learn more about Acclimatise’s corporate climate risk and adaptation services.


New York’s poor and ethnic minority neighbourhoods to be hit hardest by climate change finds NYC Panel on Climate Change

New York’s poor and ethnic minority neighbourhoods to be hit hardest by climate change finds NYC Panel on Climate Change

By Will Bugler

The New York City Panel on Climate Change (NYCPCC), released last month, its 2019 report on the science of climate change and its implications for New York City. The report finds that climate change is affecting everyday life in New York today, and that climate impacts will continue to increase over the coming decades, hitting the poorest neighbourhoods hardest.

The NYCPCC, which has been helping NYC prepare for climate change since 2008, found that extreme weather events are becoming more pronounced, high temperatures in summer are rising, and heavy downpours are increasing. The report finds that areas with lower incomes and the highest percentages of African American and Hispanic residents are consistently more likely to suffer the impacts of climate change. The panel advises that community engagement is critical for more effective and flexible adaptation efforts in the most at-risk communities.

The report serves as a “further wakeup call on the need to move urgently and take action on climate change” according to New York’s mayor Bill de Blasio. “This [report] shows what New Yorkers learned acutely during Sandy – climate change is real and an existential threat,” he said.

Records show that maximum daily summer temperatures have been rising at rates of 0.5°F per decade at JFK Airport and 0.7°F per decade at LaGuardia Airport since 1970. Sea level recorded at The Battery in lower Manhattan continues to rise at a rate of 0.11 inches per year since 1850. These changes are broadly in line with the climate change projections made by the NPCC in 2015.

The report also emphasises that climate change is already affecting the daily life of NYC residents, especially for those who live in coastal communities where nuisance flooding is becoming more frequent and for those who operate and use the city’s critical infrastructure during heatwaves and heavy downpours. Economic losses from hurricanes and floods have significantly increased in past decades and are likely to increase further in the future from more intense hurricanes and higher sea level rise.

“Recent scientific advances have allowed the NPCC to better detail climate vulnerabilities in the city, such as where nuisance floods might occur more frequently,” says William Solecki, co-chair of the NPCC. “This improved knowledge has, in turn, helped the panel craft new sets of tools and methods, such as a prototype system for tracking these risks and the effectiveness of corresponding climate strategies.”

One of those tools is the Antarctic Rapid Ice Melt Scenario, which the NPCC created to model the effects of melting ice sheets on sea level rise around NYC. The model predicts that under a high-end scenario, monthly tidal flooding will begin to affect many neighbourhoods around Jamaica Bay by the 2050s and other coastal areas throughout the city by the 2080s.

“The NPCC 2019 report tracks increasing risks for the city and region due to climate change,” says Cynthia Rosenzweig, co-chair of the NPCC and senior research scientist at Columbia University’s Earth Institute. “This report, the third by the NPCC in ten years, continues to lay the science foundation for development of flexible adaptation pathways for changing climate conditions.”

To help manage the dynamic climate and public policy contexts, the NPCC 2019 report recommends that the city put in place a coordinated indicator and monitoring system to enable the city and its communities to better monitor climate change trends, impacts, vulnerability, and adaptation measures. The report also notes that property insurance can be a catalyst for infrastructure resilience by encouraging investment in adaptation measures prior to a disaster through a reduction in premiums.

Other NPCC recommendations include:

  • continuing broad assessments of climate change across the metropolitan region with federal, state, and regional partners (for example, NOAA’s Consortium for Climate Risk in the Urban Northeast);
  • using updated methods for the next set of NPCC climate change projections; and
  • hosting a NYC Climate Summit once during every mayoral term.

Photo by Tommaso Ripani on Unsplash

Comparing existing tools for assessing physical climate risks in the finance sector: Recent outputs from the ClimINVEST Research Project

Comparing existing tools for assessing physical climate risks in the finance sector: Recent outputs from the ClimINVEST Research Project

By Laura Canevari

Understanding the implications of physical climate risk to financial institutions is a complex challenge. The ClimINVEST initiative aims to facilitate improved financial decision-making in the face of climate change by offering tailored indicators, tools and maps for financial institutions. As part of the project, the Institute for Climate Economics (I4CE) has undertaken a useful review of existing tools and approaches, that can assist financial actors assessing their own physical climate risks.  

Physical climate impacts can increase risk for the financial sector and the economy in several ways. However, the translation from physical risk to financial impacts is not always straightforward. As noted in I4CE’s review, very few service providers have developed approaches to analyse how climate risks can impact counterparties’ financial statements (e.g. in their balance sheets and profit and loss calculations) and how they affect the operation of financial activities. The review therefore focusses on assessing the functions, target uses and outputs of the tools currently available in the market, including those developed by Acclimatise and other service providers. The review summarises several key differences.

Firstly, the target use and target users for each approach differ: from those designed to be used as pre-screening tools by project managers to those carrying more comprehensive assessments target to risk managers. Similarly, the level of analysis also varies, from tools focusing on risks at the project level, to those operating at counterparties level, upstream/downstream value chains, on sovereign counterparties; or even incorporating the larger socio-economic environment. Equally, the methodologies incorporated in the tools can tackle the assessment of different types of impacts, with some focusing only on economic impacts and others also incorporating an assessment of financial implications.

Another important difference found between the tools is their use of climate change scenarios, and the sources of information these scenarios build on. Some of the tools have built their scenarios using trend analysis and thus are based on past and observed weather records. Contrastingly, other tools use an exploratory approach, based on either IPCC data or outputs from Integrated Assessment Models (IAMs). Generally, the time horizon chosen determines the type of climate scenario used: It is common, for example, to find the use of trend analysis on short term horizons, whilst long term analyses tend to be more exploratory in nature.

The tools reviewed in the report also differ in their mechanisms to deal with uncertainty. In some cases, the approaches developed have dealt with uncertainty by considering the worst-case future climate scenario (a conservative approach); others have used multi-model approaches for climate projections. In the case of the Acclimatise Aware tool, the Global Climate Model agreement was used as indicator for uncertainty; this indicator is then integrated when weighting the exposure to location- specific climate hazard data.

Output formats provided by the different tools and approaches were also found to be very diverse, ranging from qualitative analysis using scoring systems, to quantitative assessments providing financial estimates. Results are also aggregated differently by each instrument: they can be aggregated according, to scenario, type of impact, time horizon, counterparty, or hazard type.

Key conclusions and remarks

Whilst service providers are developing sophisticated methodologies to help financial actors assess physical climate risks, they still face barriers to exploit their full potential. Data availability remains an important challenge, especially access to data on corporate counterparties. Information is still needed at macro and sectoral scales in order to better characterise financial implications caused by changing business environments; but it is also needed at the counterparty or asset scale in order to define exposure, sensitivity and adaptive capacity to a diverse range of climate impacts.

There is no “one-size-fits all” approach, and financial actors will have to choose what type of tool is better suited to their assessments needs and which can be better integrated into their existing risk management approaches. Existing tools can nonetheless be further refined to better fit user needs and new approaches can also be developed to match emerging assessment and disclosure demands. Close collaboration between financial actors and service providers will be a key factor determining the successful refinement and application of tools and approaches. Acclimatise, will continue to work closely with financial institutions in order to keep advancing the development of suitable tools and approaches able to support financial actors identifying and dealing with physical climate risks.


Photo by Chris Liverani on Unsplash

This New Climate – Episode 3: OASIS & the democratisation of climate data

This New Climate – Episode 3: OASIS & the democratisation of climate data

In the third episode of This New Climate, host Will Bugler explores how the OASIS group of companies are seeking to transform our ability to understand climate risk through a commitment to open source data. Climate data and information is at the very heart of efforts for insurance companies to price risk and respond to extreme events like hurricanes and droughts. Steve Bowen, Director of the Catastrophe Insight team at insurance giant Aon, explains why data was central to Aon’s response to hurricanes Harvey, Irma and Maria helping us understand why OASIS’s mission is an important puzzle piece to managing the global climate crisis.

Episode guests: Steve Bowen from Aon, Dickie Whitaker and Tracy Irvine from OASIS.

This New Climate is an Acclimatise production.

OASIS is an EIT Climate-KIC supported innovation initiative.

Further information:

OASIS Hub

OASIS Loss Modelling Framework

OASIS Palm Tree

AON

Climate-KIC