Reflecting physical climate risk in financial and corporate reporting
The impacts of climate change have dominated headlines this year. This summer has seen some of the most severe wildfires in California, with an area of 5,808.30 km2 devastated and the total losses estimated at US$ 2.5 billion. Europe has also experienced its fair share of extreme weather events – the cost of Greece’s deadly Attica fires in July is estimated to be around US$ 33.7 million while Storm Friederike earlier this year caused an overall loss of US$ 2.7 billion to Germany and its surrounding neighbours.
It is therefore very timely that Bank of America and the European Bank for Reconstruction and Development (EBRD) hosted the event “Finance, Business and Climate Resilience: Physical Climate Risks and Opportunities” in San Francisco yesterday as part of the California Global Climate Action Summit.
The event focused on how financial institutions and businesses can share better market information to help factor physical climate risks into their operations, investment decisions, and financial and corporate reporting.
It provided an opportunity for the EBRD to share insights about how it has integrated physical climate risk management and climate resilience into its financing operations, as part of its Green Economy Transition (GET) approach.
During this high-profile event, the EBRD also released a new knowledge product – a web tool exploring how businesses can integrate information about physical climate change impacts into corporate and financial reporting.
Covering firms across a range of sectors including manufacturing, agribusiness, power and energy, mining and commercial property, the infographic provides successful examples of how recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) on physical climate can be put into practice. It builds on the report Advancing TCFD Guidance on physical Climate Risks and Opportunities , which was jointly developed by the EBRD, the Global Centre of Excellence on Climate Adaptation (GCECA), a range of partners from the financial, corporate and regulatory sector as well as two consultancy firms, Acclimatise and Four Twenty Seven. This report, which was published in May 2018, provided recommendations on how institutions can include physical climate risks and opportunities into their financial and corporate reporting.
In addition, the United Nations Environment Programme Finance Initiative presented their newly developed methodology on assessing the risks and opportunities from the physical impacts of climate change on financial institutions’ loan portfolios. They also shared experience of piloting the methodology in 17 partner financial institutions.
The “Finance, Business and Climate Resilience: Physical Climate Risks and Opportunities” event was a milestone along a collaborative journey that involves thought leaders from the corporate, finance and regulatory sectors, which the EBRD and the GCECA initiated in 2017 based on the recommendations of the TCFD.
Whilst the TCFD recommendations provided a framework for disclosing transition and physical climate risks and opportunities, they left organisations to develop their own methodologies and approaches for implementing the disclosure recommendations.
A vivid public discussion followed, focusing on the impacts of transition risks. However, physical climate impacts also affect businesses’ balance sheets and asset values.
Here at the EBRD we have been developing practical approaches to supporting climate resilience through our investment operations for almost a decade. This experience enables us to support our clients in identifying the specific hazards they face from the physical impacts of climate change.
Since 2011, we have built up a portfolio of over 200 climate resilience investments with a total investment volume of more than €5 billion. Covering a wide range of sectors and industries, this provides a valuable evidence base and demonstration impact for the growing range of businesses and financial institutions interested in managing physical climate risks and promoting climate resilience through their investments and operations.