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The [https://en.wikipedia.org/wiki/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: [https://en.wikipedia.org/wiki/Hazard hazards], [https://en.wikipedia.org/wiki/Climate_change_vulnerability vulnerability] and exposure. The IPCC summarizes published research on climate risk evaluations. <ref>About — IPCC". Retrieved 2023-11-16.
The [https://en.wikipedia.org/wiki/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: [https://en.wikipedia.org/wiki/Hazard hazards], [https://en.wikipedia.org/wiki/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 [https://en.wikipedia.org/wiki/Climate_risk_management climate risk management] including [https://en.wikipedia.org/wiki/Climate_risk_insurance climate risk insurance].
</ref> International and research communities have been working on various approaches to [https://en.wikipedia.org/wiki/Climate_risk_management climate risk management] including [https://en.wikipedia.org/wiki/Climate_risk_insurance 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. <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 ==
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.
* Physical Risks: Risks related to the physical impacts of climate change.
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]''
== Transition risks ==
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.
{| class="wikitable"
|+ Caption text
|-
! 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.pdfRecommendations of the Task Force on Climate-related Financial Disclosures]''


==Climate Risk Categories==
==Climate Risk Categories==

Revision as of 05:22, 22 November 2023

UW Climate Risk Lab

“Making the best climate risk data, analysis and tools available to all.”

About

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. 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.

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 University of Washington (UW), which include the Buerk Center for Entrepreneurship, Clean Energy Institute, Creative Destruction Lab, eSciences Institute and Urban Infrastructure Lab. Its external partners include: the Duke Energy Data Analytics Lab, the Pacific Northwest Mission Accelerator Center, Riskthinking.ai and Washington Maritime Blue.

History

The CRL originated in 2022 with a grant from the Office of UW President Ana Marie Cauce made to the Foster School of Business, Department of Finance & Business Economics. The idea for a CRL was originally conceived by Ron Dembo, Founder of Riskthinking.ai and later brought forward by a co-founding team lead by Phillip Bruner, UW Professor of Sustainable Finance, Charlie Donovan, Senior Economic Advisor at Impax Asset Management, Sam Shugart, New Product & Services Market Analyst at Puget Sound Energy and Simon Park, Harvard graduate and Fellow of the UW Evans School of Public Policy.

Steering Committee

The CRL Steering Committee is currently made up of the following members:

Phillip Bruner, Professor of Sustainable Finance and CRL Executive Director

Léonard Boussioux, Assistant Professor of Information Systems and Operations Management

Charlie Donovan, Senior Economic Advisor at Impax Asset Management and CRL Leadership Council Chair

Emer Dooley, Artie Buerk Faculty Fellow and Site Lead at Creative Destruction Lab

Dale Durran, Professor of Atmospheric Sciences and Adjunct Professor of Applied Mathematics

Kristie Ebi, Professor of Global Health and Environmental and Occupational Health Sciences and Founder of the UW Center for Health and the Global Environment

Sara Jones, Director of the Masters of Supply Chain Management and Master of Science in Business Analytics

Dorothy Reed, Professor of Civil and Environmental Engineering, and Adjunct Professor of Industrial and Systems Engineering

Dan Schwartz, Boeing-Sutter Professor of Chemical Engineering and Founding Director of the Clean Energy Institute

Jan Whittington, Associate Professor of the Department of Urban Design and Planning and Founding Director of the Urban Infrastructure Lab

What are Climate risks?

Climate risks are the negative impacts of climate change events on industry, governments, and individuals. These risks are estimated to incur trillions of dollars in damages in the next century as the climate continues to worsen.

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.
  • Physical Risks: Risks related to the physical impacts of climate change.

Climate-Related Risks, Opportunities, and Financial Impact

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

Transition risks

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.

Caption text
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 of the Task Force on Climate-related Financial Disclosures


Climate Risk Categories

Physical risks - Climate risks that pose a variety of financial consequences, including property damage and human illness. These climate risks include acute events, like extreme temperatures and climate disasters such as hurricanes, wildfires, and floods, and chronic events, like rising global temperatures, sea-level rise, and the extinction of animal, insect, and plant species. Data representing the physical risks of climate change include global temperature data, sea-level measurements, ocean temperatures during extreme temperature events, and damages to property in the wake of a natural disaster.

Transitional risks - The risks to society associated with changing policy and laws to address and mitigate climate change. These include increased costs to develop goods and provide services, reduced company output, and loss of assets. Data representing these risks include articles outlining changes in government policy and projected loss of revenue due to the implementation of such policy measures.

Liability risk- Also known as legal liability or legal risk, these risks refer to the potential for an individual, organization, or entity to be held legally responsible or accountable for actions, decisions, or events that may result in harm, loss, injury, or damage to others. In the context of liability risk, "liability" typically refers to the legal obligation to compensate or make amends for such harm or loss. Liability risks can arise in various situations, and they are an important consideration for individuals, businesses, and institutions.


Welcome to the Climate Risk Lab
“Unlocking Climate Risk Insights for a Sustainable Future”


Climate Risk Lab Featured Entry Display




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Notes

  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


Getting started

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