Climate risk: Need for more collaboration between research and finance

By Miriam Stackpole Dahl

How can investors protect their portfolios against physical impacts of climate change? A new report provides insight to what investors need to make better investment decisions in a changing climate.

Physical impacts of climate change – such as changes in temperature and precipitation patterns, and extreme weather events such as heatwaves, flooding, and drought – can have significant financial impacts. In spite of this, most companies do not account for the physical climate risk to their infrastructure, as pointed out recently by The Economist.

A new report ‘Physical climate risk: Investor needs and information gaps’ prepared in the framework of the ClimINVEST project, provides an overview of the information investors need to improve their understanding of the physical impacts of climate change, to measure their exposure and to prepare and implement strategies that reduce the implications of these risks.

CICERO is leading the ClimINVEST project that aims to build understanding of physical climate risk among investors by bringing scientists and investors together in a series of science-practice labs to co-design tailored information and tools on climate change and physical climate risk.

Lack of publicly available data

One of the reasons why companies do not account for physical climate risk is a lack of publicly accessible data that investors can use to measure and respond to physical climate risk. To date, some consulting companies have appeared as data providers, but there is still a significant gap in publicly available information needed to address investor needs.

The ClimINVEST project conducted an overview of service providers’ approaches to physical climate risk analysis targeting the financial sector. The results show that most of the data are not publicly available and provide limited transparency on methodology. Moreover, the approaches that are publicly available focus only on water scarcity.

Key needs of the financial sector, as identified by the ClimINVEST project to-date include:

• In-house capacity building and training within financial institutions on physical climate risk to increase risk awareness;

• Better tools and metrics to assess how the climate changes, including increases in flooding and extreme weather events, and associated physical impacts that affect assets in specific sectors markets and locations; and

• Guidance and information to better engage with companies on climate-related risks.

For further investor needs identified, please consult the full report.

Case study countries with unique perspectives

The report reflects on the needs of a range of different investor types such as pension funds, asset managers, insurance providers, and banks across the three case study countries: France, the Netherlands, and Norway.

“These countries are at the forefront of creating awareness and acting on the risks and opportunities of the physical impacts of climate change in the financial sector and provide unique perspectives,” said Karianne de Bruin, researcher at Wageningen Environmental Research – one of the consortium partners in the ClimINVEST project – and lead-author of the report. De Bruin previously held a position also at CICERO.  

Co-designing information and tools

In its next phase, the ClimINVEST project team is collaborating with financial institutions in France, the Netherlands, and Norway in a series of science-practice labs to co-design transparent and publicly available information and methodologies based on open-access data. A science-practice lab is a workshop that encourages dialogue between the financial actors and climate scientists.

If you, as a financial actor, are interested in joining one of the science-practice labs, or in collaborating with us on emerging issues dealing with physical climate risk, please contact us:

France: Romain Hubert 
The Netherlands: Karianne de Bruin
Norway: Sophie Dejonckheere