RiskNew tool to evaluate climate change risk launches

New tool to evaluate climate change risk launches

A first-of-its-kind initiative based on scenario-based modelling has been created to help businesses and investors evaluate how climate risks could affect them.

As the UK continues to swelter in a summer heatwave, a new tool developed by Germany-based risk management consultancy The CO-Firm has been launched to offer scenario-based modelling of climate risks and opportunities for businesses. The climateXcellence tool, the first of its kind, is designed to enable businesses and investors to evaluate the materiality of climate risks on a profitability level.

Since the risks of climate change increasingly affect the economy, experts are recommending expanded reporting by all stakeholders on climate risks. The Task Force on Climate Related Financial Disclosure (TCFD) estimates that by the end of this century assets worth $43tn –  corresponding to 3.5 times China’s national budget – will be at risk.

climateXcellence enables companies and investors to determine their financial risks more easily and much faster, on the basis of predefined, recognized scenarios.

A strategy built around the issues raised by climate change creates more opportunities than risks when adjustment takes place early

“We conduct analyses in over 50 countries which cover more than 80% of the global GDP,” said Dr Nicole Röttmer, CEO of The CO-Firm. “We have analyzed more than 33,000 companies, over 200,000 factories and 15,000 technical adaptation measures for climate risks and opportunities in a 2°C and 2.7°C scenario.”

The scenario analyses of The CO-Firm indicate that transition towards a strategy built around the issues raised by climate change creates more opportunities than risks when adjustment takes place early.

Selected companies can realize up to 150% growth potential of their EBITDA if they prepare early and are target-oriented for a situation in which average temperatures rise by 2°C. If companies fail to act and adapt to the low-carbon transition, the effects on earnings can materialize already in the short- to medium-term. In some sectors, impacts are likely to arise from 2020 onwards.

Partner organizations involved in the development of the new tool were Allianz Global Investors, Allianz Climate Solutions, WWF Germany and the Investment Leaders Group of the University of Cambridge.

ClimateXcellence was successfully tested within the EU-funded Energy Transition Risk Project in a consortium with 2° Investing initiative, S&P Global Market Intelligence, the University of Oxford and others.

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