Financial institutions, including banks, insurers, asset owners and managers, must act now to manage physical and transition risks and embed climate change into decisions to protect the value of their portfolios. This means understanding and managing climate risk exposure in line with regulatory, reporting and disclosure requirements. However, responding only to near-term exposure will be insufficient to protect the financial sector from systemic, economy-wide climate risks. Therefore, the entire industry must take a strategic approach to manage climate risk in the real economy, becoming active stewards of the transition to a net-zero, climate-resilient economy. Our comprehensive approach helps you identify and quantify climate risk exposure and implement the necessary changes to your organisation to align value with values.
“Like Covid-19, climate change is a far-reaching, system-wide risk that affects the whole economy, from which the financial system is not immune…the financial system cannot diversify its way out of this risk.”
Sarah Breeden | Bank of England
Facilitating stewardship of the whole-economy transition
Our Climate Quantified™ data and analytics, combined with our advisory and implementations services, help banks, pension funds, insurers and investors to take a strategic approach to manage climate risk. We offer solutions that cover the entire journey from understanding and measuring climate risk to implementing a strategic response:
Understand and Measure: We use Climate Quantified™ to help financial institutions identify and quantify climate physical and transition risk at the portfolio or asset level.
Manage and report: We help financial institutions to manage climate risk and comply with reporting requirements. For example, we work with banks to incorporate climate risk metrics into operational, credit risk and asset valuation models, closing the gap between transferable and retained risk probability of default.
Strategic response: We work with financial institutions to ensure that their plans are consistent with building climate resilience and net-zero alignment. This encompasses services relating to Environmental, Social and Governance (ESG), change management and communications, and employee engagement and compensation.
Our Climate and Resilience Solutions
We provide a wide range of climate risk and resilience solutions that can be tailored to your needs.
Physical climate risk identification
Understanding how and when climate risks manifest is a vital first step to manage their financial impacts. Climate Quantified™ helps you identify a comprehensive set of climate hazards at the portfolio or asset levels. Using our probabilistic catastrophe models, chronic climate impact models and macroeconomic models, we quantify the expected physical climate impacts that portfolios may experience from a range of present-day acute and chronic climate hazards. Our Climate Diagnostic tool identifies current and future climate risks, including a breakdown by hazard or location, drawing on natural disaster event data going back decades. We also provide portfolio-wide climate heat mapping that allows you to screen portfolios for vulnerability to a full range of climate impacts, covering a wide range of chronic and acute hazards for the present-day and under a range of future climate scenarios and time periods.
Scenario analysis
Through Climate Quantified™, we model future changes in climate hazards under various climate scenarios and time periods. Working with you to identify the climate-sensitive drivers of value in your asset valuation models, we quantify the transmission channels from climate hazards to valuation drivers. The expected financial impacts under each scenario are compared with the current climate to identify assets and regions which are at greatest risk. This informs climate-smart strategic planning and allows you to demonstrate an advanced, in-depth understanding of physical climate risk in their disclosures to stakeholders.
Transition risk assessment
Climate Quantified™ transition risk tools build on scenario analysis to calculate Climate Value at Risk (CVaR) for physical assets, business segments and companies, as well as the implications for equity and debt securities. We use this analysis to help you optimise your portfolios as you incorporate climate-related objectives, such as a net-zero target, into your strategy. Through Climate Quantified™, we can analyse and evaluate transition risks across all sectors of the economy and follow their transmission through the financial sector and real economy to assess how these losses in value crystallise across portfolios and sectors.
Tailored Climate Risk Management and Resilience Advice
Climate Quantified™ uses model outputs to identify key loss drivers within investment portfolios. This information allows us to provide tailored risk reduction advice with cost to implement, cost-benefit analysis for any risk mitigation action to support internal business cases and ranking the importance of these mitigation measures by impact to the portfolio. This analysis helps clients identify risk financing and mitigation measures to reduce the financial loss potential of climate change. It also highlights potential cost savings through ‘smart’ risk mitigation options, taking investment costs into consideration.
Incorporating transition risk into investment strategies
We can help you develop climate-smart investment strategies that align with regulations and net-zero targets. Climate Value at Risk (CVaR)-adjusted valuations are incorporated into our Climate Quantified™ portfolio analysis tool that evaluates an investment fund or portfolio’s transition risk. In doing so, we can identify the most significant contributors to climate transition risk and identify alternative investment options or portfolio constructions that will reduce transition risk and optimise your strategy.
Climate risk benchmarking, disclosure and reporting
Meeting climate risk disclosure requirements through voluntary or regulatory schemes is critical for the financial services sector. Climate Quantified™ analytical tools provide a basis for robust and detailed disclosures that demonstrate awareness of climate change impacts and preparation for the transition to a net-zero and resilient economy. Our disclosure advisory services support clients to assess how climate risks are impacting business models and strategies. We then establish reporting frameworks to communicate this in line and help with the TCFD recommendation or other mandatory schemes. We also draft and review submissions aligned with TCFD recommendations and benchmark approaches and activities relative to peers and global best practice standards.
Embed sustainable values in business practices
We help you to embed climate risk and sustainable values into the heart of your business operations, implementing strategic plans for long-term leadership on the transition to a net-zero and resilient economy. Our specialists can help you define how climate links to your organisations’ purpose and value and how it will form a part of your value proposition. We help ensure that your people strategy drives your climate strategy, identifying and nurturing behaviours you need from your people to develop a culture that is responsive to climate change.
We ensure that your incentives and reward programmes are aligned with your values and reinforce your climate strategy. Incentive design for Executive Directors will need to be disclosed and reported on each year. We help you to embed climate-related targets that are material and measurable within incentive programmes to ensure accountability for the delivery of the strategy.
Managing organisational change
We understand that managing a whole-economy transition net-zero and facing increasingly severe physical climate impacts in all sectors will demand creative thinking and new approaches to how your organisation operates. We also know that change can be hard to manage. Our change management advisory services can help your organisation successfully navigate the organisational changes required to meet your climate objectives. Taking a people-centred approach, we work with you in many different capacities, from strategy development to on-the-ground support.
Employee learning and engagement
Successfully operationalising a strategic response to climate change requires more than analytics, process maps and systems design. We address the human dimensions of organisational change, driving employee readiness, so your whole business is prepared for the challenges of the climate transition. Our team of climate specialists dedicated to learning and communications ensures that our employee engagement services draw on the latest science for effective climate communications to drive behavioural change. We help you understand your workforce’s attitudes and sentiment on climate issues and initiatives through employee listening to create communications build targeted communications that educate and engage employees. We offer a range of climate learning services, from tailored e-learning modules that can be rolled out company-wide, to board level training on climate risk to build role models within leadership and foster the desired culture.
Engage with counterparties, investees, and other stakeholders
An economy-wide transition to a net-zero, climate-resilient future requires active engagement across industry segments and sectors. We facilitate engagement with relevant stakeholders and develop corporate engagement strategies through analyst meetings and formal shareholder engagement processes. Providing evidence of progress using reliable and robust data and analysis is essential to support transparency and demonstrate long-term commitment, strengthening engagement and industry buy-in. We design and implement strategic communications strategies to describe how your business supports the climate change agenda and plans to meet your climate objectives.
