Gaining a better understanding of climate risk

The roadblocks that stand in the way of companies analysing and reporting their climate risks, as recommended by the Task Force on Climate-related Financial Disclosures (TCFD), were discussed at a panel discussion at EIT Climate-KIC’s Climate Innovation Summit.

The session, called Climate-related risk tools and methods for the financial industry, started with a 10-minute pitch from each of the panelists, who had each developed a tool or a methodology for assessing climate risk with the support of EIT Climate-KIC. This was followed by a 30-minute discussion on how to scale up climate risk reporting.

The three panellists were:

  • Oliver Marchand, CEO of Carbon Delta, who presented his Value-at-Risk model that is currently being used by investors including Axa to understand climate scenarios and the absolute value of investment risks and opportunities.
  • Nico Kröner, product development manager at South Pole Group, who showcased a scenario-based tool, allowing full integration of physical climate risks into long-term asset allocation and benchmarking across investment portfolios.
  • Hans Sanderson, senior scientist at Aarhus University, represented a consortium led by Aarhus University including Deltares, Tecnalia and CDP. He talked about how large multinational corporations, including Maersk and Kimberley Clark, are discussing and assessing climate risks.

When asked why so few companies are reporting on the climate risks they face, Marchand said it is a relatively new and surprisingly complicated topic for companies. It involves forecasting, and it is complicated to work out its materiality and make the data “usable”.

The panelists were challenged as to whether scenarios are the right way to conduct such analysis, and were asked how confident they were that the scenarios they use will come to pass.

Kröner pointed out that scenarios are not expected to be exactly accurate, but are intended to explore different possible futures in order to gain a better understanding of potential changes to the economy.

Sanderson added that scenarios are a useful tool to help businesses explore how they can make changes to their business models to be more in line with a low-carbon economy. He stressed the need for making changes, rather than reporting as a “box-ticking exercise”.

In a snap-poll, the audience members were asked whether they thought the TCFD should start to specify the scenarios on which companies should base their reporting, or whether it should continue to suggest that companies choose their own scenarios. A clear majority raised their hands to say they believe companies should continue to choose their own scenarios.

With the carbon costs of travel in mind, Climate Innovation Summit session summaries are available online for those who cannot attend—and for review for those present. These summaries aim to extract the key debates, dialogues, and learnings from each #MissionFinance session.

 
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Goal 10: Mainstream climate in financial markets
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