PHYSICAL RISK

PHYSICAL RISK

Our physical climate risk methodology is rooted on traditional natural catastrophe modeling for insurance combined with the latest climate science and projections. There are four fundamental components to a physical climate risk assessment:

HAZARD

EXPOSURE

VULNERABILITY

FINANCIAL RISK

Climate hazard datasets for both acute (floods, windstorms, wildfires…) and chronic hazards (increased temperatures, reduced water availability, rising sea levels…).

How the business or corporation is exposed through its assets (physical assets, debt securities, equity…) or value/supply chain.

The vulnerability component models the impact of climate hazards on the exposures (e.g. damage caused to a building by flooding).

Monetary estimates both at the asset and portfolio or corporation levels to provide quantitative risk metrics such as Value at Risk (VaR) or Expected Shortfall (ES).

EXPOSURE

The platform consolidates detailed information on assets at risk, such as buildings, agricultural areas, or infrastructure, including their descriptions, precise locations with longitude-latitude coordinates, total estimated values in euros, and other relevant asset-specific characteristics. This information is later used both by vulnerability and financial models to assess physical risk.

HAZARD

Hazard: Flood

An inventory of standardized open-data readily accesible by the platform on the intensity and frequency of acute and chronic climate hazards, including projections for the different climate scenarios and time-horizo.

Coastal Flood

Events where sea or ocean water significantly rises or overflows, flooding areas typically dry. They occur due to extreme weather events like storms, cyclones, storm surges, tsunamis and gradual sea level increases.

Riverine Flood

These are excessive accumulations of water in dry areas, caused by heavy rains, snow-melt, river flooding, storms, cyclones, or dam breaches.

Windstorms

Strong winds and heavy rains. They can take the form of hurricanes, typhoons, or cyclones that form over warm tropical and subtropical waters, depending on the location.

Wildfire

Rapidly igniting and spreading, wildfires are fueled by dry conditions, wind, and extreme heat. They quickly devastate forests, grasslands and properties.

Chronic heat

Chronic heat refers to extended episodes of intense heat in a specific area, where temperatures during the day and night significantly exceed normal levels.

Drought

Droughts are extended dry periods with low rainfall impacting ecosystems, agriculture, water supply, and regional financial stability.

Subsidence and Landslide

Subsidence and landslides involve ground movement. Subsidence is the slow sinking of land due to natural or human activities, while landslides are rapid downhill movements of rock or soil triggered by external forces.

Water Stress

Water stress occurs when the demand for water exceeds the available supply, or when poor water quality restricts its usage. It results from factors like overpopulation, droughts, and inefficient water management, affecting agriculture and human access to clean water.

VULNERABILITY

A comprehensive set of vulnerability models that measure the probability of a given impact on a given asset provided a hazard event with a given intensity has taken place.

Asset 1:
Damage: 90%
Asset 2:
Damage: 5%
Asset 3:
Damage: 40%
Asset 4:
Damage: 60%
Asset 5:
Damage: 5%

FINANCIAL RISK

Probability distributions for the monetary impacts resulting from damage to physical assets or the interruption of cash flows.

The platform produces several risk metrics at the asset and portfolio/corporation level, such as Value at Risk (VAR) and Expected Shortfall (ES).

Value at Risk (VaR) at 95% CL 2050 forecast:
  • RCP 8.5
  • RCP 4.5
  • RCP 2.6
  • 60 M$
  • 30 M$
  • 10 M$

Climate Physical Risk Assesment – Practical Case & Report