Data centers, which support critical infrastructure such as emergency services, government websites, and healthcare facilities, are vulnerable to climate-related hazards. A thorough assessment of these assets can help identify which ones are most at risk of damage and disruption from climate-related events such as heatwaves, hurricanes, and flooding. This information can inform decisions on new site locations and mitigation strategies for existing sites. Conducting a resilience strategy assessment can also help companies uncover opportunities for cost savings and revenue generation, such as installing solar panels to power their operations. Additionally, proactively implementing resiliency measures can enhance a company’s intangible value, as it can demonstrate a commitment to safety and security, and attract tenants who prioritize these values. A well-planned and implemented resiliency strategy can help companies not only mitigate the risks posed by climate change but also benefit from its opportunities. By doing so, companies can increase their preparedness, reduce costs, and create new revenue streams.
Climate risk assessment tools are not foolproof, but their limitations can be offset with careful mitigation strategies.
Climate change poses a significant threat to US commercial real estate markets, and various software tools are used to analyze climate risks. However, these tools can be effective for assessing baseline physical risks but often fall short when evaluating material physical risks from climate change. A report by MetLife Investment Management, “Pitfalls & Mitigants of Climate Assessment Software,” explores various risk assessments to understand how to mitigate these shortfalls.
The report identifies two categories of physical climate risk hazards: acute and chronic. To assess risks in the real estate industry, different models and data sources are needed. Historically, property insurers have assessed early physical risks by analyzing catastrophic risk from extreme weather events, using event-based modeling and historical data such as flood maps and weather patterns. The report highlights the need for more sophisticated models and data sources to accurately assess the impact of climate change on commercial real estate markets. By better understanding and mitigating climate risks, investors and property owners can make more informed decisions and reduce the potential losses associated with climate change.
Pursue innovative and proactive climate risk mitigation strategies that transcend traditional risk management approaches.
The article discusses the importance of going beyond traditional approaches to climate risk management and insurance. It highlights the need to consider alternative risk transfer options, such as captives and parametric solutions, which can help organizations cope with the growing volatility of climate risks. These options can provide a cash injection to help organizations recover from climate-related disasters.
The article also emphasizes the importance of considering the broader context of climate risk management, including supply chain partners and local authorities. By understanding how these stakeholders would respond in the face of a climate-related event, organizations can develop more robust business continuity plans and reduce the impact of catastrophic events.
Finally, the article argues that climate disclosure metrics, such as greenhouse gas emissions, are not sufficient to understand and manage climate risk. Instead, organizations should take a holistic approach that considers environmental, economic, and social systems to develop more resilient business models and identify new opportunities. By going beyond traditional approaches, organizations can create a more resilient and sustainable future.
IIM-L students bag awards for their innovative approaches to addressing the pressing issue of climate change.
Two students from the Indian Institute of Management, Lucknow (IIM-L), Shankar N and Amruth Chinnappa CT, won national awards at the 2024 Climate Corps Annual Summit for their summer internship projects under the EDF Climate Corps Fellowship, India cohort. Amruth won the ‘Innovation Award’ for developing a custom climate risk and impact assessment tool for Larsen & Toubro, while Shankar earned the ‘Business Case Award’ for creating a practical emission reduction strategy for Mahindra & Mahindra. Amruth’s tool assesses climate risks and impact across company project sites, while Shankar’s plan focused on reducing Scope 1 and 2 emissions. Both students’ work was praised for its practicality, scalability, and potential to drive significant emissions reductions.
A report card from US regulators shows substantial strides in addressing climate-related risks.
The Ceres’ 2024 scorecard evaluates the progress of US financial regulators in addressing climate-related risks. The assessment highlights that while there has been significant progress, more work remains to be done. Regulators have made progress in producing research, data, and integrating climate risks into their oversight of regulated entities. For example, the Federal Reserve System, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation issued guidance on climate-related financial risk management. The Securities and Exchange Commission (SEC) also finalized a climate disclosure rule requiring public listed companies to report climate-related financial risks. However, despite these efforts, Republican politicians continue to criticize these initiatives, with the House Judiciary Committee accusing Climate Action 100+ of colluding to force out ExxonMobil directors and colliding with federal law. The committee has threatened to introduce legislative reforms to address what it sees as anti-competitive behavior. Despite these challenges, experts agree that there has been a significant evolution in how regulators approach climate-related financial risks, but more work is needed to address the issue.
Aon deepens its climate risk monitoring capabilities through a partnership with Fathom to further empower clients
Aon has expanded its Climate Risk Monitor solution by collaborating with flood expert Fathom to enhance its flood risk capability. The partnership provides high-resolution data for flood risk assessment, allowing clients to analyze flash, river, and coastal flooding at a 10-square-meter resolution in select regions. The data helps clients understand the impact of climate-related perils, including rising sea levels, on individual assets, portfolios, and locations. Climate Risk Monitor also assesses the likelihood of other climate-related hazards, such as droughts and wildfires, under different climate change scenarios. The solution provides diagnostic reports and visualizations to help clients understand the insurability of flood perils and inform risk management decisions. The collaboration with Fathom builds on Aon’s recent certification of the Florida Flood v3.0 model and integration of flood risk data into its ELEMENTS 18 catastrophe modelling suite. The Climate Risk Monitor is designed to help clients assess and manage climate risk, support risk mitigation and transfer strategies, and demonstrate climate awareness to stakeholders.