December 6, 2019 | Written by: Anders Quitzau
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Climate-related Financial Risk, Energy Transition & Resilience… a matter of economics and survival
There is no doubt that climate is changing and that this will have severe impacts on several societal levels. For many companies, climate change may mean business opportunities but at the same time also a major business challenge and thus financial risk. Managing climate risk is not just a question about sustainability, but about the viability of your business.
The risks associated with climate change are:
Physical Risk, arising from acute and chronic events, like
- Heatwaves, floods, wildfires, storms
- Sea level rise, Storm surge and other extreme variabilities in the environment
- Public concerns
Transition Risk, arising from the process of:
- Moving to from high carbon to low-carbon asset base/economY/operations/society and investments
- Changes in energy, regulation, policy, technology, business models, legal frameworks
Arising from companies, individuals and governments, that have suffered loss or damage from physical or transition risk factors and would be seeking to recover their losses.
DID YOU READ: How is IBM keeping up with the global IT trends?
G20 Financial Stability Board – recommends climate risk management and transparency
In June 2017, The Task Force on Climate-related Financial Disclosures (TCFD), established by the G20 Financial Stability Board (FSB) released its final recommendations in its 2017 report, which provide a framework for companies and other organizations to develop more effective climate-related financial disclosures through their existing reporting processes. In its 2017 report, the Task Force emphasized the importance of transparency in pricing risk—including risk related to climate change—to support informed, efficient capital-allocation decisions. The large-scale and complex nature of climate change makes it uniquely challenging, especially in the context of economic decision making. Furthermore, many companies incorrectly view the implications of climate change to be relevant only in the long term and, therefore, not necessarily relevant to decisions made today. Those views, however, have begun to change.
More specifically TCFD recommendations were:
- Governance: Disclose the organization’s governance around climate-related risks and opportunities
- Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning
- Risk Management: Disclose how the organization identifies, assesses, and manages climate-related risks
- Metrics & Targets: Disclose those used to assess and manage relevant climate-related risks and opportunities where such information is material.
TCFD has recommended an international framework for assessing and reporting on climate-related risks and which we can help companies implement:
IBM Climate Risk & Resilience Services (CRRS)
CRRS provides an innovative approach and a data-rich business platform to identify, manage, and report on physical, transition and liability risk, greenhouse gas (GHG) emissions and operational resiliency.
We combine our industry-leading platforms with digital tools, advanced analytics and expert climate consultancy services. Providing climate-related risk management, scenario analyses, disclosure support, and innovative cognitive solutions to define, prioritize and address risk, investments, capital programmers, ecosystems and value-chain initiatives.
Our services utilize our global reach and our local knowledge, providing access to experts in every industry and covering every business and institutional process.
Our game-changing collaboration and trusted partnerships extend this reach and allow us to orchestrate climate and transition solutions to improve every part of government, institutions and corporations.
One of the central platforms to IBM Climate Risk, & Resilience services is The Climate Service (TCS) software.
The Climate Service’s Climanomics™ web-based software empowers customers with knowledge of what their risks are, where they are, and what the trends are, so they can manage these risks intelligently. From portfolio management to due diligence to arbitrage on over/under-valued properties, this information enables customers to embed climate risk into operational and strategic financial decisions.
The platform provides global coverage, models various climate scenarios, multiple hazards, provides analysis of different kinds of risks and recommends different strategies and opportunities for risk mitigation.
IBM offers a holistic set of IBM and TCS tools, capabilities and services to support managing climate-related financial risk & transition through practical actions including
- Analysis of physical, liability and transition climate risk for financial returns and savings
- Climate impact assessments for Capital Project Planning
- Impact assessment of climate risk for physical assets
- Compliance with expected and existing regulatory environments
- Addressing Environmental & Social Risks
- Limit disruption & increase operational resilience
- Energy transition & compliance to Paris Climate Change Goals
- Implementation of actions – maximize return and minimize losses in face of climate risk across the entire ecosystem & value-chain
- Trading – Capitalise on Weather Forecasts / Climate Projections for profit
- Operations – Capitalise on Weather Forecasts / Climate Projections for higher yields
- Financial disclosure for clients and reporting on Climate Risk for Investor Relations
If you like to learn more, please feel free to contact Dr. Murray Simpson (IBM Global Lead – Climate Risk, Energy Transition, Resilience & Sustainability) at Murray.Simpson@ibm.com or myself Anders Quitzau (IBM Innovation Executive) at email@example.com