Abstract

Constructing forward-looking climate-related physical risk indicators

Timely and consistent climate-related data is essential for analyses of trends and shifting patterns in financial markets and the economy at large. The NGFS Bridging Data Gaps report states that “given the importance of forward-looking assessments of both physical and transition risks, the current reliance on mostly backward-looking data is unsatisfactory”.
With this paper, we want to answer the question: How can we use existing climate data from private data providers to extract relevant forward-looking aggregates at a sector and/or country level? To do so, we use data from a third party data provider on forward-looking data such as physical risk scores; including the underlying financial risks.
One main issue we encountered is the limited coverage in company level data. In addition, the variation between the data of different providers is high, similar to other areas of sustainability data and the hazard types covered as well as their definitions are not consistent across data providers and therefore need to be taken into account when analysing results. Finally yet importantly physical risk metrics should be comparable across years and scenarios and reflect financial damages.
Since results are likely to depend greatly on source data used, we focus on developing methods and concepts, rather than on actual results. These findings can contribute to foreseen work in the New G-20 DGI initiative recommendation 5: Physical and Transition Risk Indicators.