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__NOTOC__
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       <h2>About</h2>
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          font-weight: bold; font-size: 21px">UW Climate Risk Lab</h2>
         <p>The UW Climate Risk Lab (CRL) is a multidisciplinary research and innovation center based at the [https://foster.uw.edu/ University of Washington Foster School of Business] in the Department of Finance & Business Economics. Established in 2022, it advances data and technology solutions to issues in climate-related financial risk for corporate and government decision-makers. [https://foster.uw.edu/faculty-research/directory/phillip-bruner/ Phillip Bruner], co-founder of the CRL, currently serves as its Executive Director.<p>
         <p>The UW Climate Risk Lab (CRL) is a multidisciplinary research and innovation center based at the [https://foster.uw.edu/ University of Washington Foster School of Business] in the Department of Finance & Business Economics. <p>
        <p>The CRL brings together academics and professionals in climate finance, risk management, business
analytics, data engineering, computer science, atmospheric sciences, supply chains management,
information systems and AI. </p>
 
      <div class="mw-collapsible mw-collapsed" data-expandtext="Read more" data-collapsetext="Read less">
          <h3>History</h3>
          <p>The CRL originated in 2022 with a grant from the Office of UW President</p>
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<p>The CRL brings together academics and professionals in climate finance, risk management, business
analytics, data engineering, computer science, atmospheric sciences, supply chains management,
information systems and AI. It collaborates with several initiatives within the [https://www.washington.edu/ University of Washington (UW)], which include the [https://foster.uw.edu/centers/buerk-ctr-entrepreneurship/ Buerk Center for Entrepreneurship], [https://www.cei.washington.edu/ Clean Energy Institute], [https://foster.uw.edu/centers/creative-destruction-lab/ Creative Destruction Lab], [https://escience.washington.edu/ eSciences Institute] and [https://uil.be.uw.edu/ Urban Infrastructure Lab]. Its external partners include: the [https://nicholasinstitute.duke.edu/issues/energy-data-analytics Duke Energy Data Analytics Lab], the [https://pnwmac.org/ Pacific Northwest Mission Accelerator Center], and [https://maritimeblue.org/ Washington Maritime Blue].</p><h2>History</h2>
      <p>The CRL originated in 2022 with a grant from the Office of UW President [https://en.wikipedia.org/wiki/Ana_Mari_Cauce Ana Marie Cauce] made to the Foster School of Business, Department of Finance & Business Economics. The idea was then developed by a team lead by [https://foster.uw.edu/faculty-research/directory/phillip-bruner/ Phillip Bruner], UW Professor of Sustainable Finance, [https://impaxam.com/about/team/charlie-donovan/ Charlie Donovan], Senior Economic Advisor at [https://en.wikipedia.org/wiki/Impax_Asset_Management_Group Impax Asset Management], Sam Shugart, New Product & Services Market Analyst at Puget Sound Energy and Simon Park, Harvard graduate and Fellow of the [https://en.wikipedia.org/wiki/Evans_School_of_Public_Policy_and_Governance UW Evans School of Public Policy].
   
      <h2>Steering Committee</h2>
      <p>The CRL Steering Committee is currently made up of the following members:</p>


:[https://foster.uw.edu/faculty-research/directory/phillip-bruner/ Phillip Bruner], Professor of Sustainable Finance and CRL Executive Director
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      <p>This website’s content is licensed under a [https://creativecommons.org/licenses/by/4.0/Creative Commons
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:[https://www.leobix.us/ Léonard Boussioux], Assistant Professor of Information Systems and Operations Management
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:[https://impaxam.com/about/team/charlie-donovan/ Charlie Donovan], Senior Economic Advisor at [https://en.wikipedia.org/wiki/Impax_Asset_Management_Group Impax Asset Management] and CRL Leadership Council Chair
* Share — copy and redistribute the material in any medium or format for any purpose, even commercially.


:[https://foster.uw.edu/faculty-research/directory/emer-dooley/ Emer Dooley], Artie Buerk Faculty Fellow and Site Lead at Creative Destruction Lab
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:[https://www.atmos.washington.edu/~durrand/ Dale Durran], Professor of Atmospheric Sciences and Adjunct Professor of Applied Mathematics
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:[https://globalhealth.washington.edu/faculty/kristie-ebi Kristie Ebi], Professor of Global Health and Environmental and Occupational Health Sciences and Founder of the [https://www.washington.edu/research/research-centers/center-health-global-environment-change/ UW Center for Health and the Global Environment]
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:[https://about.me/sarajones#! Sara Jones], Director of the Masters of Supply Chain Management and Master of Science in Business Analytics
* No additional restrictions — You may not apply legal terms or technological measures that legally restrict others from doing anything the license permits.


:[https://www.cei.washington.edu/people/daniel-t-schwartz/ Dan Schwartz], Boeing-Sutter Professor of Chemical Engineering and Founding Director of the [https://www.cei.washington.edu/ Clean Energy Institute]
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:[https://urbdp.be.uw.edu/people/jan-whittington/ Jan Whittington], Associate Professor of the Department of Urban Design and Planning and Founding Director of the [https://uil.be.uw.edu/ Urban Infrastructure Lab]
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== Climate-related Financial Risk ==
<h2 style="font-family: 'Helvetica', Arial, sans-serif;
 
          font-weight: bold; font-size: 21px">Climate-related Financial Risk
=== What is climate risk? ===
=== What is climate risk? ===
Climate risk is the potential for negative consequences for human or ecological systems from the [[wikipedia:Impacts_of_Climate_Change|impacts of climate change]]. <ref>IPCC, 2022: Annex II: Glossary [Möller, V., R. van Diemen, J.B.R. Matthews, C. Méndez, S. Semenov, J.S. Fuglestvedt, A. Reisinger (eds.)]. In: Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O.Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, pp. 2897–2930, doi:10.1017/9781009325844.029.</ref> It refers to risk assessments based on formal analysis of the consequences, likelihoods and responses to these impacts and how societal constraints shape [[wikipedia:Climate_change_adaptation|adaptation]] options. <ref>Adger WN, Brown I, Surminski S (June 2018). "Advances in risk assessment for climate change adaptation policy". Philosophical Transactions. Series A, Mathematical, Physical, and Engineering Sciences. 376 (2121): 20180106. Bibcode:2018RSPTA.37680106A. doi:10.1098/rsta.2018.0106. PMC 5938640. PMID 29712800.</ref> <ref>Eckstein D, Hutfils M, Winges M (December 2018). Global Climate Risk Index 2019; Who Suffers Most From Extreme Weather Events? Weather-related Loss Events in 2017 and 1998 to 2017 (PDF) (14th ed.). Bonn: Germanwatch e.V. p. 35. ISBN 978-3-943704-70-9. Retrieved 7 December 2019.</ref> The science also recognizes different values and preferences around risk, and the importance of risk perception. <ref>Ara Begum, R., R. Lempert, E. Ali, T.A. Benjaminsen, T. Bernauer, W. Cramer, X. Cui, K. Mach, G. Nagy, N.C. Stenseth, R. Sukumar, and P. Wester, 2022: Chapter 1: Point of Departure and Key Concepts. In: Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O. Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, pp. 121–196, doi:10.1017/9781009325844.003.</ref>
Climate risk is the potential for negative consequences for human or ecological systems from the [[wikipedia:Impacts_of_Climate_Change|impacts of climate change]]. <ref>IPCC, 2022: Annex II: Glossary [Möller, V., R. van Diemen, J.B.R. Matthews, C. Méndez, S. Semenov, J.S. Fuglestvedt, A. Reisinger (eds.)]. In: Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O.Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, pp. 2897–2930, doi:10.1017/9781009325844.029.</ref> It refers to risk assessments based on formal analysis of the consequences, likelihoods and responses to these impacts and how societal constraints shape [[wikipedia:Climate_change_adaptation|adaptation]] options. <ref>Adger WN, Brown I, Surminski S (June 2018). "Advances in risk assessment for climate change adaptation policy". Philosophical Transactions. Series A, Mathematical, Physical, and Engineering Sciences. 376 (2121): 20180106. Bibcode:2018RSPTA.37680106A. doi:10.1098/rsta.2018.0106. PMC 5938640. PMID 29712800.</ref> <ref>Eckstein D, Hutfils M, Winges M (December 2018). Global Climate Risk Index 2019; Who Suffers Most From Extreme Weather Events? Weather-related Loss Events in 2017 and 1998 to 2017 (PDF) (14th ed.). Bonn: Germanwatch e.V. p. 35. ISBN 978-3-943704-70-9. Retrieved 7 December 2019.</ref> The science also recognizes different values and preferences around risk, and the importance of risk perception. <ref>Ara Begum, R., R. Lempert, E. Ali, T.A. Benjaminsen, T. Bernauer, W. Cramer, X. Cui, K. Mach, G. Nagy, N.C. Stenseth, R. Sukumar, and P. Wester, 2022: Chapter 1: Point of Departure and Key Concepts. In: Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O. Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, pp. 121–196, doi:10.1017/9781009325844.003.</ref>
<div class="mw-collapsible mw-collapsed" data-expandtext="Read more" data-collapsetext="Read less">


Common approaches to [[wikipedia:Risk_assessment|risk assessment]] and [[wikipedia:Risk_management|risk management]] strategies based on [[wikipedia:Natural_Hazards|natural hazards]] have been applied to climate change impacts although there are distinct differences. Based on a [[wikipedia:Climate_system|climate system]] that is no longer staying within a stationary range of extremes, <ref>IPCC (2018). Global Warming of 1.5°C. An IPCC Special Report. Summary for Policymakers (PDF). Intergovernmental Panel on Climate Change. p. 5.</ref> climate change impacts are anticipated to increase for the coming decades. Ongoing changes in the climate system complicate assessing risks. Applying current knowledge to understand climate risk is further complicated due to substantial differences in regional climate projections. There is also an expanding number of climate model results, and the need to select a useful set of future [[wikipedia:Climate_change_scenario|climate change scenarios]] in the assessments.<ref>Whetton P, Hennessy K, Clarke J, McInnes K, Kent D (2012-12-01). "Use of Representative Climate Futures in impact and adaptation assessment". Climatic Change. 115 (3): 433–442. Bibcode:2012ClCh..115..433W. doi:10.1007/s10584-012-0471-z. S2CID 153833090</ref>
Common approaches to [[wikipedia:Risk_assessment|risk assessment]] and [[wikipedia:Risk_management|risk management]] strategies based on [[wikipedia:Natural_Hazards|natural hazards]] have been applied to climate change impacts although there are distinct differences. Based on a [[wikipedia:Climate_system|climate system]] that is no longer staying within a stationary range of extremes, <ref>IPCC (2018). Global Warming of 1.5°C. An IPCC Special Report. Summary for Policymakers (PDF). Intergovernmental Panel on Climate Change. p. 5.</ref> climate change impacts are anticipated to increase for the coming decades. Ongoing changes in the climate system complicate assessing risks. Applying current knowledge to understand climate risk is further complicated due to substantial differences in regional climate projections. There is also an expanding number of climate model results, and the need to select a useful set of future [[wikipedia:Climate_change_scenario|climate change scenarios]] in the assessments.<ref>Whetton P, Hennessy K, Clarke J, McInnes K, Kent D (2012-12-01). "Use of Representative Climate Futures in impact and adaptation assessment". Climatic Change. 115 (3): 433–442. Bibcode:2012ClCh..115..433W. doi:10.1007/s10584-012-0471-z. S2CID 153833090</ref>  


The [[wikipedia:Intergovernmental_Panel_on_Climate_Change|Intergovernmental Panel on Climate Change]] (IPCC) assessment framework is based on the understanding that climate risk emerges from the interaction of three risk factors: [[wikipedia:Hazard|hazards]], [[wikipedia:Climate_change_vulnerability|vulnerability]] and exposure. The IPCC summarizes published research on climate risk evaluations. <ref>About — IPCC". Retrieved 2023-11-16.</ref> International and research communities have been working on various approaches to [[wikipedia:Climate_risk_management|climate risk management]] including [[wikipedia:Climate_risk_insurance|climate risk insurance]].
The [[wikipedia:Intergovernmental_Panel_on_Climate_Change|Intergovernmental Panel on Climate Change]] (IPCC) assessment framework is based on the understanding that climate risk emerges from the interaction of three risk factors: [[wikipedia:Hazard|hazards]], [[wikipedia:Climate_change_vulnerability|vulnerability]] and exposure. The IPCC summarizes published research on climate risk evaluations. <ref>About — IPCC". Retrieved 2023-11-16.</ref> International and research communities have been working on various approaches to [[wikipedia:Climate_risk_management|climate risk management]] including [[wikipedia:Climate_risk_insurance|climate risk insurance]].


== What is climate-related financial risk? ==
=== What is climate-related financial risk? ===
Climate change is a medium- to long-term trend that is expected to have significant financial impacts on companies in affected industries, including on their credit profiles and/or share prices. However, this knowledge is not particularly helpful for lenders, investors, or regulators unless these climate-related financial risks can be further defined in terms of their scope and, more importantly, their timing and likelihood. It is necessary to identify climate risks to industries before they cause reductions in asset utilization or valuation, reduced income and margins, or other financial impacts—changes that translate into credit risk and influence lenders’ decisions about financial profiles. <ref>Imperial College Business School Center for Climate Finance & Investment (February 2022). “What is Climate Risk? A Field Guide for Investors, Lenders, and Regulators.” Available at: https://imperialcollegelondon.app.box.com/s/te5eahz3x47q93vufwwu3ntmf5rxecxs</ref>
Climate change is a medium- to long-term trend that is expected to have significant financial impacts on companies in affected industries, including on their credit profiles and/or share prices. However, this knowledge is not particularly helpful for lenders, investors, or regulators unless these climate-related financial risks can be further defined in terms of their scope and, more importantly, their timing and likelihood. It is necessary to identify climate risks to industries before they cause reductions in asset utilization or valuation, reduced income and margins, or other financial impacts—changes that translate into credit risk and influence lenders’ decisions about financial profiles. <ref>Imperial College Business School Center for Climate Finance & Investment (February 2022). “What is Climate Risk? A Field Guide for Investors, Lenders, and Regulators.” Available at: https://imperialcollegelondon.app.box.com/s/te5eahz3x47q93vufwwu3ntmf5rxecxs</ref>


 
=== Climate-related financial risk categories ===
== Climate-related financial risk categories ==
There are two categories of climate-related financial risk, according to the Taskforce on Climate-Related Financial Disclosures (TCFD): <ref>Taskforce on Climate-Related Financial Disclosures (June 2017). “Recommendations of the Taskforce on Climate-related Financial Disclosures: Final Report.” Available at: https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf</ref>
There are two categories of climate-related financial risk, according to the Taskforce on Climate-Related Financial Disclosures (TCFD): <ref>Taskforce on Climate-Related Financial Disclosures (June 2017). “Recommendations of the Taskforce on Climate-related Financial Disclosures: Final Report.” Available at: https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf</ref>


* Transition Risks: Risks related to the transition to a lower-carbon economy.
* Transition Risks: Risks related to the transition to a lower-carbon economy. ([[Transition risk|Read more ...]])
* Physical Risks: Risks related to the physical impacts of climate change.
* Physical Risks: Risks related to the physical impacts of climate change. (Read more ...)


[[index.php?title=File:Climate_related_risks.png|link=File:Climate_related_risks.png|center|thumb|700x700px|Climate-Related Risks, Opportunities, and Financial Impact]]''Source: [https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf Recommendations of the Task Force on Climate-related Financial Disclosures]''
[[File:Climate_related_risks.png|thumb|center|700px|Climate-Related Risks, Opportunities, and Financial Impact]]


=== Transition risks ===
''Source: [https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf Recommendations of the Task Force on Climate-related Financial Disclosures]''
Transition risks are those associated with the pace and extent at which an organization manages and adapts to the internal and external pace of change to reduce greenhouse gas emissions and transition to renewable energy. Transitioning requires policy and legal, technology, and market changes to address mitigation and adaptation requirements related to climate change (see Table 1). Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organizations (see Table 2). Alternatively, if an organization is a low-carbon emitter and in the renewable energy or climate transition market, they could experience market, technological, and reputational opportunities.
</div>
{| class="wikitable"
! colspan="2" |Transition Risk Categories
|-
|'''Policy and Legal'''
|Policy actions around climate change continue to evolve. Their objectives generally fall into two categories—policy actions that attempt to constrain actions that contribute to the adverse effects of climate change or policy actions that seek to promote adaptation to climate change. The risk associated with and financial impact of policy changes depend on the nature and timing of the policy change. As the value of loss and damage arising from climate change grows, litigation risk is also likely to increase. Reasons for such litigation include the failure of organizations to mitigate impacts of climate change, failure to adapt to climate change, and the insufficiency of disclosure around material financial risk my s.
|-
|'''Technology'''
|Technological improvements or innovations that support the transition to a lower-carbon, energy efficient economic system can have a significant impact on organizations. To the extent that new technology displaces old systems and disrupts some parts of the existing economic system, winners and losers will emerge from this "creative destruction" process. The timing of technology development and deployment, however, is a key uncertainty in assessing technology risk.
|-
|'''Market'''
|While the ways in which markets could be affected by climate change are varied and complex, one of the major ways is through shifts in supply and demand for certain commodities, products, and services as climate-related risks and opportunities are increasingly considered.
|-
|'''Reputation'''
|Climate change has been identified as a potential source of reputational risk tied to changing customer or community perceptions of an organization's contribution to or detraction from the transition to a lower-carbon economy.
|}
''Source: This table's content is reproduced from [https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf Recommendations of the Task Force on Climate-related Financial Disclosures]''
{| class="wikitable"
!Climate-related Transition Risks
!Potential Financial Impacts
|-
| colspan="2" |Policy and Legal
|- style="vertical-align:top;"
|
* Increased pricing of GHG emissions
* Enhanced emissions reporting obligations
* Mandates on and regulation of existing products and services
* Exposure to litigation
|
* Increased operating costs (e.g., higher compliance costs, increased insurance premiums)
* Write-offs, asset impairment, and early retirement of existing assets due to policy changes
* Increased costs and/or reduced demand for products and services resulting from fines or judgements
|-
| colspan="2" |Technology
|-
|
* Substitution of existing products and services with lower emission options
* Unsuccessful investment in new technologies
* Costs to transition to lower emissions technology
|
* Write-offs and early retirement of existing assets
* Reduced demand for products and services
* Research and development expenditures in new and alternative technologies
* Capital investments in technology development
* Costs to adopt/deploy new practices and processes
|-
| colspan="2" |Market
|- style="vertical-align:top;"
|
* Changing customer behavior
* Uncertainty in market signals
* Increased cost of raw materials
|
* Reduced demand for goods and services due to shift in consumer preferences
* Increased production costs due to changing input prices (e.g., energy, water) and output requirements (e.g., waste treatment)
* Abrupt and unexpected shifts in energy costs
* Change in revenue mix and sources, resulting in decreased revenues
* Re-pricing of assets (e.g., fossil fuel reserves, land valuations, securities valuations)
|-
| colspan="2" |Reputation
|- style="vertical-align:top;"
|
* Shifts in consumer preferences
* Stigmatization of sector
* Increased stakeholder concern or negative stakeholder feedback
|
* Reduced revenue from decreased demand for goods/services
* Reduced revenue from decreased production capacity (e.g., delayed planning approvals, supply chain interruptions)
* Reduced revenue from negative impacts on workforce management and planning (e.g., employee attraction and retention)
* Reduction in capital availability
|}
''Source: This table's content is reproduced from [https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf Recommendations of the Task Force on Climate-related Financial Disclosures]''


=== Physical risks ===
        <div style="clear: both;"></div>
Physical risks are those associated with the impacts from climate change. These risks can be event driven (acute) or associated with longer-term shifts in climate patterns (chronic), as described in Table 3
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{| class="wikitable"
! colspan="2" |Physical Risk Categories
|-
|Acute
|Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, heat or cold waves, or floods.
|-
|Chronic
|Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures, sea level rise, changing precipitation patterns) that may cause sea level rise or chronic heat waves.
|}
''Source: This table's content is reproduced from [https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf Recommendations of the Task Force on Climate-related Financial Disclosures]''


Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. Organizations' financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and extreme temperature changes affecting organizations' premises, operations, supply chain, transport needs, and employee safety. Table 4 presents examples of climate-related physical risks and financial impacts.
{| class="wikitable"
!Climate-related Physical Risks
!Potential Financial Impacts
|- style="vertical-align:top;"
|Acute


* Increased severity of extreme weather events such as cyclones and floods
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Chronic
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* Changes in precipitation patterns and extreme variability in weather patterns
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* Rising mean temperatures
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* Rising sea levels
== References ==
|
<references />
* Reduced revenue from decreased production capacity (e.g., transport difficulties, supply chain interruptions)
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* Reduced revenue and higher costs from negative impacts on workforce (e.g., health, safety, absenteeism)
* Write-offs and early retirement of existing assets (e.g., damage to property and assets in "high-risk" locations)
* Increased operating costs (e.g., inadequate water supply for hydroelectric plants or to cool nuclear and fossil fuel plants)
* Increased capital costs (e.g., damage to facilities)
* Reduced revenues from lower sales/output
* Increased insurance premiums and potential for reduced availability of insurance on assets in "high-risk" locations
|}
''Source: This table's content is reproduced from [https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf Recommendations of the Task Force on Climate-related Financial Disclosures]''
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      <h2>On this day...</h2>
      <ul>
        <li>Historical event 1</li>
        <li>Historical event 2</li>
        <li>Historical event 3</li>
      </ul>
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Latest revision as of 18:21, 16 September 2024


Welcome to UW Climate Risk Lab Wiki,

the place for best climate risk data, analysis, and tools available for all.


UW Climate Risk Lab

The UW Climate Risk Lab (CRL) is a multidisciplinary research and innovation center based at the University of Washington Foster School of Business in the Department of Finance & Business Economics.

The CRL brings together academics and professionals in climate finance, risk management, business analytics, data engineering, computer science, atmospheric sciences, supply chains management, information systems and AI.

History

The CRL originated in 2022 with a grant from the Office of UW President


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Climate-related Financial Risk

What is climate risk?

Climate risk is the potential for negative consequences for human or ecological systems from the impacts of climate change. [1] It refers to risk assessments based on formal analysis of the consequences, likelihoods and responses to these impacts and how societal constraints shape adaptation options. [2] [3] The science also recognizes different values and preferences around risk, and the importance of risk perception. [4]

Common approaches to risk assessment and risk management strategies based on natural hazards have been applied to climate change impacts although there are distinct differences. Based on a climate system that is no longer staying within a stationary range of extremes, [5] climate change impacts are anticipated to increase for the coming decades. Ongoing changes in the climate system complicate assessing risks. Applying current knowledge to understand climate risk is further complicated due to substantial differences in regional climate projections. There is also an expanding number of climate model results, and the need to select a useful set of future climate change scenarios in the assessments.[6]

The Intergovernmental Panel on Climate Change (IPCC) assessment framework is based on the understanding that climate risk emerges from the interaction of three risk factors: hazards, vulnerability and exposure. The IPCC summarizes published research on climate risk evaluations. [7] International and research communities have been working on various approaches to climate risk management including climate risk insurance.

What is climate-related financial risk?

Climate change is a medium- to long-term trend that is expected to have significant financial impacts on companies in affected industries, including on their credit profiles and/or share prices. However, this knowledge is not particularly helpful for lenders, investors, or regulators unless these climate-related financial risks can be further defined in terms of their scope and, more importantly, their timing and likelihood. It is necessary to identify climate risks to industries before they cause reductions in asset utilization or valuation, reduced income and margins, or other financial impacts—changes that translate into credit risk and influence lenders’ decisions about financial profiles. [8]

Climate-related financial risk categories

There are two categories of climate-related financial risk, according to the Taskforce on Climate-Related Financial Disclosures (TCFD): [9]

  • Transition Risks: Risks related to the transition to a lower-carbon economy. (Read more ...)
  • Physical Risks: Risks related to the physical impacts of climate change. (Read more ...)
Climate-Related Risks, Opportunities, and Financial Impact

Source: Recommendations of the Task Force on Climate-related Financial Disclosures


Data

References

  1. ↑ IPCC, 2022: Annex II: Glossary [Möller, V., R. van Diemen, J.B.R. Matthews, C. Méndez, S. Semenov, J.S. Fuglestvedt, A. Reisinger (eds.)]. In: Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O.Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, pp. 2897–2930, doi:10.1017/9781009325844.029.
  2. ↑ Adger WN, Brown I, Surminski S (June 2018). "Advances in risk assessment for climate change adaptation policy". Philosophical Transactions. Series A, Mathematical, Physical, and Engineering Sciences. 376 (2121): 20180106. Bibcode:2018RSPTA.37680106A. doi:10.1098/rsta.2018.0106. PMC 5938640. PMID 29712800.
  3. ↑ Eckstein D, Hutfils M, Winges M (December 2018). Global Climate Risk Index 2019; Who Suffers Most From Extreme Weather Events? Weather-related Loss Events in 2017 and 1998 to 2017 (PDF) (14th ed.). Bonn: Germanwatch e.V. p. 35. ISBN 978-3-943704-70-9. Retrieved 7 December 2019.
  4. ↑ Ara Begum, R., R. Lempert, E. Ali, T.A. Benjaminsen, T. Bernauer, W. Cramer, X. Cui, K. Mach, G. Nagy, N.C. Stenseth, R. Sukumar, and P. Wester, 2022: Chapter 1: Point of Departure and Key Concepts. In: Climate Change 2022: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O. Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA, pp. 121–196, doi:10.1017/9781009325844.003.
  5. ↑ IPCC (2018). Global Warming of 1.5°C. An IPCC Special Report. Summary for Policymakers (PDF). Intergovernmental Panel on Climate Change. p. 5.
  6. ↑ Whetton P, Hennessy K, Clarke J, McInnes K, Kent D (2012-12-01). "Use of Representative Climate Futures in impact and adaptation assessment". Climatic Change. 115 (3): 433–442. Bibcode:2012ClCh..115..433W. doi:10.1007/s10584-012-0471-z. S2CID 153833090
  7. ↑ About — IPCC". Retrieved 2023-11-16.
  8. ↑ Imperial College Business School Center for Climate Finance & Investment (February 2022). “What is Climate Risk? A Field Guide for Investors, Lenders, and Regulators.” Available at: https://imperialcollegelondon.app.box.com/s/te5eahz3x47q93vufwwu3ntmf5rxecxs
  9. ↑ Taskforce on Climate-Related Financial Disclosures (June 2017). “Recommendations of the Taskforce on Climate-related Financial Disclosures: Final Report.” Available at: https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf
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