Category: financial disclosure

Climate change adaptation is the “biggest investment opportunity of this generation,” says new UNEP FI report

Climate change adaptation is the “biggest investment opportunity of this generation,” says new UNEP FI report

By Will Bugler

The UNEP Finance Initiative launched last month a technical background paper on adaptation finance which identifies barriers and opportunities for scaling up financing for climate change adaptation and resilience building. The paper, ‘Driving Finance Today for the Climate Resilient Society of Tomorrow’ refers to adaptation as “the biggest investment opportunity of this generation” with huge investment needs to build social and economic resilience.

The report was authored by an expert team led by Stacy Swann and Alan Miller of Climate Finance Advisors, with contributions from a review panel that included Acclimatise CTO Dr Richenda Connell and CEO John Firth who were joined by other experts from banking, investment, insurance, academia and government.

The release of this paper is a prelude to the first flagship report of the Global Commission on Adaptation (GCA), which is due to be presented on the 23rd September. Launched last year, the GCA aims to accelerate adaptation action, raising it up the political agenda and encouraging bold solutions such as smarter investments, new technologies and better planning.

The ‘Driving Finance Today’ paper identifies the barriers to scaling up financing for adaptation which include weak policies and conventions in the financial industry and a low technical capacity for climate risk management amongst others. It reflects the fact that despite a great deal of demand for climate adaptation finance, with UN estimates suggesting that by 2030 it will take $140 to 300 billion of investment per year to strengthen the resilience of societies and economies to climate change, progress to mobilise funding has been slow.

The paper also identifies a range of opportunities to accelerate the investment required to prepare the planet for climate change, though these face additional barriers such as the perceived lack of private benefits and the immaturity of business models. It presents six recommendations, with illustrative case studies, to promote resilience investment:

  1. Accelerate and promote climate-relevant financial policies;
  2. Develop, adopt, and employ climate risk management practices;
  3. Develop and adopt adaptation metrics and standards;
  4. Build capacity among all financial actors;
  5. Highlight and promote investment opportunities; and
  6. Use public institutions to accelerate adaptation investment.

Collectively, these recommendations provide the outline of a program that is ambitious, actionable, and can directly impact how finance can be unlocked for adaptation and resilience.

Download the UNEP FI / GCA background paper on adaptation finance here.

Listen to the webinar held for the launch of the paper here.

Using Earth Observation data in climate risk assessment for financial institutions

Using Earth Observation data in climate risk assessment for financial institutions

By Robin Hamaker-Taylor and Jennifer Steeves

Working with financial institutions to understand analyse and disclose physical climate risks and opportunities to loans, investments and across portfolios demands the application of the most up-to-date climate data and information. By deploying data from historic climate observations, modelled projections of future climate and various social, environmental and economic datasets it is possible to begin to build a picture of risk exposure to financial institutions. In recent years, Acclimatise has also been working with new data sources such as Earth Observation (EO) data, which offer the potential to develop our understanding of real-time risk exposure, especially in areas where other data is sparse.

Acclimatise worked with leading programmes, such as the European Space Agency’s Earth Observation for Sustainable Development Climate Resilience (EO4SD CR) cluster, to demonstrate the potential of EO data to build climate resilience. The potential of EO data is enormous, and the developments in the temporal and spatial resolution of satellite data is a powerful tool of analysis. In recognition of this, Acclimatise this month became an Associate Member of Group on Earth Observations (GEO). The GEO is an intergovernmental partnership that improves the availability, access and use of EOs for a sustainable planet.

What is EO and EO data?

EO is the collection, analysis and presentation of information about the Earth’s physical, chemical and biological systems and has the capability to do so across remote and inaccessible terrain. It involves monitoring and assessing the status of and changes in the natural and man-made environment. There are now thousands of data buoys operating in the world’s oceans, hundreds of thousands of land-based environmental monitoring stations, tens of thousands of observations from aircraft platforms and numerous environmental satellites orbiting the globe, according to GEOSS and other academic research.

EO satellites can collect real-time data on a wide range of indicators such as water distribution, land use, water cycles, atmospheric profiles, heat mapping, sea surface evaluations, and global-regional energy exchanges. EO data provide large quantities of timely and accurate environmental information, which, when combined with other datasets, can give unique insights into managing climate risks.

Of the 50 Global Climate Observing System (GCOS) essential climate variables, roughly half can only be observed from space, making EO an irreplaceable component of climate monitoring. EO datasets are critical in regions where insufficient information is available from weather stations (which is often the case), and its consistency facilitates coordination of information sharing. It is also very useful where on-the-ground assessments of infrastructure are not possible, for example, due to safety concerns.

Why is EO data useful for financial institutions?

Financial institutions (FIs) are accustomed to integrating data from various sources into their risk screening processes. As FIs become increasingly aware of the need to consider physical climate risks in their assessments, EO data offers enormous potential. FIs often lend or invest in diverse geographies with varying levels of available climate hazard data.

EO datasets can complement data held by FIs on their borrowers or investments including data on physical assets, on-site operations, supply chains, markets and logistics. High-quality data on climate parameters combined with other critical investment-relevant information helps investors and asset managers understand current and future risks to their investments across sectors. EO data is often used for post-disaster damage assessment. EO data can also be integrated into existing tools platforms and analyses used by FIs.

Evidence from current uses of EO data by financial institutions

To date, EO data has been used in the context of climate risk primarily by development finance institutions (DFIs), which indicates how commercial FIs could eventually use this type of data. The EO4SD Climate Resilience Cluster provides EO-based products and services to DFIs that have investments in developing countries to support climate resilience. DFIs and other agencies supported through the project include the World Bank, Asian Development Bank (ADB), Inter-American Development Bank (IDB), African Risk Capacity (ARC), Multilateral Investment Guarantee Agency (MIGA) and the International Finance Corporation (IFC).

For example, the EO4SD project is collaborating with a World Bank urban development initiative in Greater Monrovia, Liberia to provide EO-based products and services. An example of this is a coastal erosion service involving 41km of shoreline evolution monitored through a 34-year satellite series, which has been acquired through analysis of satellite images from Landsat, Sentinel 2 and Worldview 3. The analysis estimates that the land loss area from 1984 to 2019 in the 50 km coastline of Greater Monrovia is 0.8 km2. This can be overlaid with data on population and critical infrastructure to aid investment planning.

Flood mapping is also benefiting from EO-based services as EO data provides consistent historical information on floods. The 34-year high-resolution sea-level rise data was also used to identify coastal and inland flood risk areas in parts of Monrovia. The model integrates sea level rise projections to 2030, mapped against a digital terrain model to identify high flood risk areas. These flood maps help the World Bank and local authorities identify the most effective flood management actions and enable better planning decisions to avoid unnecessary development in risky areas.

The direction of travel: What next for EO?

EO data can help banks and lenders around the world understand and prepare for climate change impacts, accounting for future climate risks and opportunities in investment and lending decisions. As EO data gets easier to extract and apply, its use in climate risk assessments will continue to unfold.

One exciting potential application of EO data is in the context of trend analysis where past events are correlated to experienced losses to help paint a picture of risk. There is also potential to develop statistical information using EO data for certain climate hazards such as flooding. Processed climate data will soon be available on flood return periods, for example, as will statistics on flood extent and flood duration. Acclimatise are now gearing up for phase 2 of the EO4SD project, which will build the capacity of DFIs and partner agencies in the practical application of EO data.


Stay in touch with how this project unfolds and how we are using EO to build climate resilience here.

Australian corporate regulator updates guidance on climate-related disclosure

Australian corporate regulator updates guidance on climate-related disclosure

Earlier this month the Australian corporate regulator, ASIC published updates to clarify the application of its existing regulatory guidance to the disclosure of climate change-related risks and opportunities.

ASIC reviewed its guidance following the recommendations of a Senate Economics References Committee report on Carbon Risk and the Government’s response which encouraged ASIC to consider whether its high-level guidance on disclosure remained appropriate.

While ASIC’s review found that its existing, principles-based regulatory guidance remains fit for purpose, to help stakeholders to comply with their disclosure obligations, the organisation has updated its guidance to, amongst other things:

  • incorporate the types of climate change risk developed by the G20 Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures (TCFD) into its list of examples of common risks that may need to be disclosed;
  • highlight climate change as a systemic risk that could impact an entity’s financial prospects for future years and that may need to be disclosed in an operating and financial review (OFR);
  • reinforce that disclosures made outside the OFR (such as under the voluntary TCFD framework or in a sustainability report) should not be inconsistent with disclosures made in the OFR; and
  • make a minor update to INFO 203: Impairment of non-financial assets: Materials for directors to highlight climate change and other risks that may be relevant in determining key assumptions that underly impairment calculations.

The guidance has also been updated to make clear that in ASIC’s view, the risk of directors being found liable for a misleading or deceptive forward-looking statement in an OFR is minimal provided the statements are based on the best available evidence at the time, have a reasonable basis and there is ongoing compliance with the continuous disclosure obligations when events overtake the relevant statement made in the OFR.

ASIC’s review of regulatory guidance follows last year’s publication of ASIC Report 593: Climate Risk Disclosure by Australia’s Listed Companies targeting listed companies, their directors and advisors. High-level recommendations set out in REP 593 included to:

  • adopt a probative and proactive approach to emerging risks, including climate risk;
  • develop and maintain strong and effective corporate governance which helps in identifying, assessing and managing risk;
  • comply with the law where it requires disclosure of material risks; and
  • disclose meaningful and useful climate risk-related information to investors –the voluntary framework developed by the TCFD has emerged as the preferred standard in this regard and ASIC strongly encourages listed companies with material exposure to climate change to consider reporting voluntarily under the TCFD framework.

ASIC commissioner John Price said, ‘Climate change is an area which ASIC continues to focus on. The updates to our regulatory guidance, together with the publication last year of Report 593, round out ASIC’s response to the Senate Report on Carbon Risk. Our updates will help stakeholders to comply with their disclosure obligations in prospectuses and the operating and financial review for listed companies’.

ASIC welcomes the continuing emergence of the TCFD framework as the preferred market standard, both here in Australia and internationally, for voluntary climate change-related disclosures. ASIC considers this to be a positive development and we again strongly encourage listed companies with material exposure to climate change to consider reporting voluntarily under the TCFD framework.

‘While disclosure is critical, it is but one aspect of prudent corporate governance practices in connection with the mitigation of legal risks. Directors should be able to demonstrate that they have met their legal obligations in consideringmanaging and disclosing all material risks that may affect their companies. This includes any risks arising from climate change, be they physical or transitional risks.’ Mr Price said.

In the coming year, ASIC will conduct surveillances of climate change-related disclosure practices by selected listed companies. ASIC will also continue to participate in the Council of Financial Regulators’ working group on climate risk and participate in discussions with industry and other stakeholders on these issues.


Read ASICS updated regulations here:

Second TCFD status report suggests there is room for improvement, despite growth in climate disclosures

Second TCFD status report suggests there is room for improvement, despite growth in climate disclosures

By Robin Hamaker-Taylor

The Task Force on Climate-related Financial Disclosures (TCFD), has issued a new status report, available here. The report provides an overview of current disclosure practices as they relate to the Task Force’s recommendations, highlights key challenges associated with implementing the recommendations, and outlines the efforts the Task Force will undertake in coming months to help address some of the implementation challenges.

Using artificial intelligence technology to screen reports for over 1,100 large companies from 142 countries in multiple sectors over a three-year period, the analysis was augmented by a survey to assess companies’ efforts to implement the TCFD recommendations as well as users’ views on the usefulness of disclosures. Unsurprisingly, the demand for decision-useful, climate-related financial information by financial institutions, especially investors, has continued to grow. Among the potential drivers for this demand are regulators’ sustained and growing interest in climate disclosures. Growing interest from central banks, regulators and supervisors are reflected in the recommendations provided in the newly released Network for Greening the Financial System (NGFS), which calls for the development of robust and internationally consistent climate and environment-related disclosures and which “encourages all companies issuing public debt or equity as well as financial sector institutions to disclose in line with the TCFD recommendations.”

The results of the review are encouraging and survey results suggest that progress is underway; but much work still remains. Companies and financial institutions have started to report climate-related information in their annual reports and sustainability reports and recognize the materiality of climate related financial risks. However, many organisations have highlighted the challenges of implementing the recommendations, in particular the lack of standardized industry metrics and concerns about confidentiality of information. There are also still several key ways through which companies could still improve in their disclosures. First, the Task Force found that not enough companies are disclosing decision-useful climate-related financial information. The review also indicates that more clarity is needed on the potential financial impact of climate-related issues on companies and that disclosures relating to resilience is often left out of climate-related risk strategies.

The status report indicates that further support in the implementation of the recommendations is needed. To that end, the Task Force plans to prepare another status report for the Financial Stability Board in September 2020, following a continued period of support and monitoring recommendation uptake. In addition, the Task Force is considering additional work in the following areas:

  • Clarifying elements of the Task Force’s supplemental guidance contained in the annex to its 2017 report (Implementing the Recommendations of the TCFD),
  • Developing process guidance around how to introduce and conduct climate-related scenario analysis, and
  • Identifying business-relevant and accessible climate-related scenarios.

Cover photo by Brendan Church on Unsplash.
Acclimatise becomes an official signatory of TCFD

Acclimatise becomes an official signatory of TCFD

Acclimatise today became an official signatory of the Financial Sustainability Board’s (FSB) Taskforce on Climate-Related Financial Disclosure (TCFD). The initiative, established by Mark Carney and Michael Bloomberg, has been central in providing momentum for climate change action in the financial services industry.

Acclimatise has worked with UNEP FI and the world’s leading banks to help consider how they might implement the TCFD recommendations. Through its work, Acclimatise has helped develop methodologies for assessing physical climate risk to loan portfolios and is a leading advisor on climate risk and opportunity to the financial services industry.

The company’s supporting statement under the TCFD reads:

“Aligning strategies to stabilise our financial and climatic systems is vital. Corporate and financial institutions have a significant role to play in this. The incorporation of TCFD recommendations in their governance systems and decision-making processes is in fact key if we are to ensure a sustainable and climate compatible future, particularly in light of unmet governmental climate targets. We are proud to support this initiative and we will continue to excel at developing methodologies and metrics to help corporates and financial services organisations to identify, quantify, and disclose physical climate risks and opportunities.”


For more information about Acclimatise’s work on climate risk and financial services click here.


Image: World Economic Forum: Mark Carney, Governor of the Bank of England. World Economic Forum, Davos, Switzerland. CC by 2.0.

UK regulators host first meeting of Climate Financial Risk Forum

UK regulators host first meeting of Climate Financial Risk Forum

By Will Bugler

On Friday 8 March, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) hosted the first meeting of the Climate Financial Risk Forum (CFRF). The objective of the CFRF is to build capacity and share best practice across financial regulators and industry to advance financial sector responses to the financial risks from climate change.

The event brought together senior representatives from across the financial sector, including banks, insurers, and asset managers and will meet three times a year to discuss climate risks to the financial system. The event recognises that climate change and society’s response to it presents financial risks that are relevant to the PRA’s and FCA’s objectives.

‘The first forum meeting today was an important step in tackling a major threat to the future stability of the financial system’ said Andrew Bailey, Chief Executive of the FCA, ‘The Climate Financial Risk Forum will seek to encourage approaches in the financial sector, managing the financial risks from climate change as well as supporting innovation in green finance.’

The financial services sector is becoming increasingly concerned with both physical and transition risks. The recommendations of the Financial Stability Board’s (FSB) Taskforce on Climate-Related Financial Disclosure (TCFD) have spurred the industry to take action. Recently, UNEP FI and Acclimatise worked with 16 major banks to pilot methodologies  for assessing climate risks to loan portfolios and investments.

Firms are enhancing their approaches to managing these risks, but barriers remain to implement the strategic approach necessary to minimise the risks. The CFRF aims to reduce these barriers by developing practical tools and approaches to address climate-related financial risks.


‘The challenge we face in mitigating [climate] risks is unprecedented, and we need to begin to act now if we are to ensure an orderly transition to a low-carbon economy,’ said Sam Woods, Deputy Governor and CEO of the PRA.

At its first meeting, the forum decided to set up four working groups to focus on risk management, scenario analysis, disclosure, and innovation. Each working group will be chaired by a member of the forum and will meet more frequently than the CFRF, reporting back at each CFRF meeting. The aim is to produce practical guidance on each of the four focus areas. The final outputs will be shared with industry more widely. Membership of the working groups will be wider than the forum to allow them to draw on expertise as necessary, such as from academia and industry.


Cover photo by M.B.M. on Unsplash.

Update to landmark legal opinion highlights growing climate liability of company directors

Update to landmark legal opinion highlights growing climate liability of company directors

By Robin Hamaker-Taylor and Nadine Coudel

An update to the landmark 2016 Hutley opinion has been released by the Centre for Policy Development (CPD) on 29th March, 2019. The 2016 opinion set out the ways that company directors who do not properly manage climate risk could be held liable for breaching their legal duty of due care and diligence.

The supplementary opinion, provided again by Noel Hutley SC and Sebastian Hartford Davison on instruction from Sarah Barker, reinforces and strengthens the original opinion by highlighting the financial and economic significance of climate change and the resulting risks, which should be considered at board-level. It puts an emphasis on five key developments since 2016 that have built up the need for directors to take climate risks and opportunities into account and reinforced the urgency of improved governance of this issue. While the 2019 opinion is rooted in the Australian context, just as the 2016 opinion, it has much wider applicability, as much of the developments discussed in the update have been simultaneously happening in jurisdictions outside of Australia.

The five areas of development covered in the 2019 supplementary opinion include:

  1. Progress by financial supervisors: The 2019 opinion suggests statements made by Australian supervisory organisations such as the Australian Prudential Regulation Authority (APRA), Australian Securities and Investments Commission (ASIC) and the Reserve Bank indicate they now all see the financial and economic significance of climate change. Similar realisations have been happening among supervisory organisations in the UK, with the Prudential Regulation Authority (PRA) due to imminently release a supervisory statement on banks’ and insurers’ approaches to managing the financial risks from climate change, following a public consultation on the matter in late 2018 / early 2019. At the European level, the wider sustainability of the financial system is under review with the European Commission rolling out its Action Plan for Financing Sustainable Growth;
  • New reporting frameworks: Three new reporting frameworks have emerged since 2016. The most broadly applicable is The Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. In June 2017, the TCFD, a task force set up by the Financial Stability Board in 2015, published its final recommendations to help companies disclose climate-related risks and opportunities. The Principles for Responsible Investing (PRI) and CPD frameworks have now both aligned their climate-reporting frameworks with the TCFD recommendations. The other two reporting frameworks mentioned in the 2019 supplementary opinion are more relevant for the Australian context, and include the new recommendations on assessing climate risk materiality from the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB), as well as the updated guidance from the ASX Corporate Governance Council;
  • Mounting investor and community pressure: Investors and community groups are increasing voicing concern around climate risks;
  • Development of the scientific knowledge: The UN Intergovernmental Panel on Climate Change (IPCC) published a special report on the impacts of 1.5 °C warming in 2018. The opinion recognises this as a “notable development in the state of scientific knowledge” that affects the gravity and probability of climate risks which directors need to consider; and     
  • Advances in attribution science: Important developments in attribution science have now made it easier to identify the link between climate change and individual extreme weather events.

The opinion suggests management of climate risks will require engagement with company directors in certain sectors in particular. These include banking, insurance, asset ownership/management, energy, transport, material/buildings, agriculture, food and forest product industries.

CPD CEO Travers McLeod, explains the implications of this supplementary opinion for company directors, stating “the updated opinion makes it clear that the significant risks and opportunities associated with climate change will be regarded as material and foreseeable by the courts. Boards and directors who are not investing in their climate-related capabilities are exposing themselves and their companies to serious risks”, according to a press statement.

Mr Hutley and Mr Hartford Davis write “the regulatory environment has profoundly changed since our 2016 Memorandum, even if the legislative and policy responses have not” […]“These developments are indicative of a rapidly developing benchmark against which a director’s conduct would be measured in any proceedings alleging negligence against him or her.”

The 2019 update to the 2016 landmark Hutley opinion also provides ample evidence as to why company directors all over the world not only need to be aware of their firms’ contribution to climate change – it is just as important to assess and disclose their potential climate risks in a transparent manner. It is therefore vital to ensure that future business plans are in line with the Paris Agreement and to also anticipate and prepare for climate change impacts, both in terms of risks and opportunities. The voluntary TCFD recommendations provide a framework for both corporates and financial institutions for assessing and disclosing climate risks and opportunities, and mandated disclosures are on the horizon. 


Acclimatise – experts in physical risk assessment and disclosures

Acclimatise has worked on physical climate risk and adaptation with corporates and financial institutions for over a decade, helping them identify and respond to physical risks and to take advantage of emerging opportunities generated by a changing climate. We have witnessed the corporate, societal and environmental benefits stemming from the promotion of resilience-building strategies.

To discuss how your organisation can meet TCFD or other disclosure requirements, please contact Laura Canevari: L.Canevari(a)acclimatise.uk.com

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PRI makes TCFD-style climate disclosures mandatory in 2020 reporting cycle

PRI makes TCFD-style climate disclosures mandatory in 2020 reporting cycle

By Robin Hamaker-Taylor

In February 2019, the Principles for Responsible Investing (PRI) initiative, announced it will make several of its climate risk indicators mandatory for PRI signatories. PRI requires signatories to annually report various environmental, social, and governance (ESG) metrics via the PRI reporting tool. In 2018, the PRI introduced TCFD-aligned indicators to its Reporting Framework, including reporting on four indicators of climate risks: governance, strategy, risk management, and metrics and targets. Until now, this reporting has been voluntary and disclose.  

Which indicators will be mandatory?

Starting in 2020, the PRI’s strategy and governance (SG) indicators will be mandatory to report, though it will remain voluntary to disclose responses publicly. These indicators include:

  • SG 01 CC: outline overall approach to climate-related risks;
  • SG 07 CC: provide overview of those in the organisation that have oversight, accountability and/or management responsibilities for climate-related issues; and
  • SG 13 CC: outline how strategic risks and opportunities are analysed.

PRI may require further climate risk reporting in the future

PRI currently has over 2,300 signatories, includingasset owners, investment managers, and service providers that collectively manage over $83 trillion in assets. This change in their reporting framework will greatly increase the amount of climate-related reporting within in its framework by signatories. This move also indicates the direction of travel regarding reporting on climate risks: the PRI has indicated that the remaining PRI climate risk indicators will stay voluntary with a view to becoming mandatory as good practice develops.

The climate change indicators of the overall Reporting Framework can be found here [pdf].

What is the PRI?

The PRI is a non-profit independent organisation that works to understand the investment implications of environmental, social and governance (ESG) factors. The PRI supports its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The organisation acts in the long-term interests of its signatories, of the financial markets and economies in which they operate and ultimately of the environment and society as a whole.

What are the Principles for Responsible Investment?

The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice:

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles. Principle 6: We will each report on our activities and progress towards implementing the Principles


Photo by Sean Pollock 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

PRA and FCA establish a joint Climate Financial Risk Forum

PRA and FCA establish a joint Climate Financial Risk Forum

By Robin Hamaker-Taylor

The Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) of the Bank of England have established the Climate Financial Risk Forum (CFRF) in early March 2019. The Forum is comprised of firms from across the financial system. The fill list of 17 current members is as follows:

  • Banks: BNP Paribas; HSBC; JP Morgan; RBS; Yorkshire Building Society
  • Insurers: Aviva; Legal & General; Lloyd’s of London; RSA Insurance Group; Zurich
  • Asset Managers: Blackrock; Hermes; Invesco; Schroders; Standard Life Aberdeen
  • Others: Greening Finance Initiative; London Stock Exchange Group

Four working groups have been set up, which will develop guidance in each of the following areas: risk management, scenario analysis, disclosure, and innovation. Working groups will allow wider membership, including academics and other members of industry, in order to allow them to draw on expertise as necessary.  

Bank of England Governor, Mark Carney, explained the reasoning behind the establishment of the CFRF during his 21st March speech at the European Commission High-Level Conference. The Prudential regulation Authority (PRA) and the Financial Conduct Authority (FCA) established the Forum as it recognised the need for capacity building within the finance industry and need to develop best practices.

Regulators understand that despite the progress of firms toward climate-related risk management, there is still work to do with regards to their strategic approach to minimise these risks, including scenario analysis. The Forum aims to allow progress in this area by “developing practical tools and approaches to address climate-related financial risks,” according to a statement to the press. The Forum will meet three times per year and will report back to executives of both the PRA and FCA. Each of the four working groups will be chaired by a member of the Forum and will meet more frequently than the CFRF, reporting back at each CFRF meeting.


Photo by Colton Jones on Unsplash