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Getting started on Physical climate risk analysis in finance

In the frame of the ClimINVEST European project, I4CE reviews existing approaches to assess physical climate risks developed by eight service providers. The report provides detailed analysis of these approaches in a common framework, and discusses crucial aspects such as the outputs; the perimeter of analysis; the data sources and their granularity; the strategies to analyze impacts; the use of forward-looking analysis.

Key points
  • Financial institutions are gaining awareness on physical climate risks, but they are not yet necessarily taking action
  • A limited number of service providers have developed approaches on physical climate risk analysis for financial institutions
  • Existing approaches address potential impacts of climate change on the counterparties of financial institutions
  • Existing approaches provide scores or quantitative estimates with different types of details
  • Tradeoffs on specificity, exhaustiveness and detail result in different scopes of analysis
  • The limited availability of counterparty-specific data is a major challenge
  • Forward-looking analysis is starting to be integrated in physical climate risk analysis