Climate change poses an existential threat to millions of lives and is currently not reflected in pricing of financial instruments. Understanding the financial impact of these losses requires a new level of modelling to comprehend the implications of these long horizon risks that will affect both current and future investments over a time scale of of the next 30 to 50 years.
Ensuring your organization has the right framework in place to measure, report and manage these risks and opportunities is moving from a voluntary to a regulatory requirement not just for banks and insurers but for asset managers. This presents a clear challenge for everyone to build an understanding of these risks and embed them within their current process. The Quant Foundry team has research and developed a suite of solutions to help address these challenges. This includes insight of governance, strategy and significantly a risk engine that can incorporate transition and physical impacts.
For those that are new to this subject, here are a few slides explaining IPCC and the BoE call to arms.
The questions are what are the risks and how will they impact the business, clients and stakeholders. Climate risks are widely regarded to be the most significant risks over the next 30 years an beyond to peoples ways of life. These risks will impact hundreds of million lives and potentially erode trillions of dollars in value. Companies and financial institutions will have to play a role in helping to actively assist in providing funding to assist with the transition.
Climate Risk Overview
Physical Risks – Natural Disasters
The planet is facing a set of natural catastrophes that have not been seen since prehistory.
We are anticipating unprecedented shocks driven through increasingly more frequent and powerful storms, droughts, and erratic weather patterns.
Transition Risks – A Disaster to be Averted
Adapting to climate change will require individual, companies and governments to change behaviors at an unprecedented pace. The ability of companies to adapt to improve the sustainability of their products will require both clear management strategies and considerable capital investment.
Those companies with large emissions or damaging products could well face huge reductions in cash flows and limited access to capital.
The Components of Climate Risk For Your Organisation
GOVERNANCE
Organizations will need to align accountability and incentivization with the proposed client solutions and have a clear framework of leadership to effect and manage the change.
MEASUREMENT
Defining the systems and processes to meet the needs, from low cost top down approaches to bottom integrated solutions to identify and enhance investment solutions that can provide a clear insight to clients.
STRATEGY
Decisions on the objectives of the firm, meeting the needs for disclosure, risk assessment, product innovation and portfolio solutions. Then defining how to go about building solutions.
DISCLOSURE
Meeting the needs for voluntary and regulatory disclosure. Demonstrating the capabilities of your governance and strategy and capabilities to all stakeholders..
- Framework – how do I create a new framework and governance for climate-related risk management?
- TCFD – how do I deliver disclosure reporting by the end of 2020?
- Stress – how do I respond efficiently to Bank of England stress test?
- Capital – how do I measure climate risk premium for Pillar 1 reporting?
- Internal Rating – how can I integrate climate risk measurement into our lending methodologies?
- Client Solutions- can I create out-performance by differentiating my investments between climate leaders and laggards?
Climate Risk Specialists
Quant Foundry has been at the forefront of climate risk research for nearly 2 years, Dr Chris Cormack has built and designed innovative risk models to address transition and climate risks
Service Offering
Strategic Advisory
Climate Scenario Construction
Regulatory Advisory
Quantitative Model Construction
Risk Integration Services
Project Management
Business Analysis
Model Validation
Quant Foundry Technology
Modern application design that can be deployed on premises or cloud-based .NET architecture.
Detailed granular data model allowing detailed company level assessments.
Rich data analysis framework that can be accessed simply from Python as standard or your favorite data analysis tool if you need customization.
Simple programmable dashboards for standardization using open standards to minimize cost of ownership. Modular and expandable architecture allowing users to select the functionality they need but to expand when required
We will be shortly releasing our white paper on our offering shortly, that will help organisations as the right questions internally and help shape the future of climate risk assessment within your organisation.
For a copy of this overview to share within your organisation and how to get in touch with us on this offering can be found in the links below.