Quantifying the Climate Risks of infrastructure investments
Climate Risk Metrics
EXTREME CLIMATE VALUE
To really understand climate risks, investors need more than just an assessment of current emissions or contemporary extreme weather: they need forward-looking data showing the impact of different climate scenarios. We call this Extreme Climate Value.
A FORWARD LOOKING VIEW on CLIMATE RISK
Measuring current emissions or potential damage from extreme weather today is not the same thing than measuring climate risk! In 2024, with non-material carbon taxes, the level of CO2 emissions or extreme weather events do not threaten the financial value of infrastructure assets. The critical risk management issue is understanding how actual changes in the climate could affect asset prices. Without a forward-looking perspective, accurately measuring climate risk is impossible.
Different climate pathways will impact asset prices in different ways: transition risks increase future costs and discount rates through lower profits and higher interest rates. Physical risks reduce future revenues and increase capex and opex, as well as increase discount rates through the leverage channel. with infraMetrics, we take these dimension into account when estimating climate risk: we call this approach extreme climate value.
Our Approach
To measure and value climate impacts and risks at the asset level for the infraMetrics reference dataset of hundreds of infrastructure companies in all major infrastructure sectors, we follow these steps:
- We first measure baseline (today) climate impacts and risks for hundreds of individual assets tracked in infraMetrics. This includes scopes 1,2 and 3 emissions and the risk of damages from floods, storm and cyclones.
- Starting from this baseline, we value the asset-level financial losses due to either transition or physical risks in different climate scenarios at the 2030, 2040 and 2050 horizons. This includes orderly and disorderly transitions and a "no transition" scenario.
- Using these results, we create the ability for investors to build “Climate Comps”with this data to proxy their asset carbon footprint and also access benchmarks for their portfolio in terms of climate risk exposure, including for the purpose of TCFD reporting.
Model fit example: Baseline reported and predicted Scope 1 emissions in transportation infrastructure globally.
Emissions are modelled using activity-specific approaches (TICCS subclass) in order to use predictors that are the most relevant to each asset type and activity e.g., temperature variance (shown above). Other factors include traffic, size, design (shape), etc.
Measuring physical risks
Physical risks are unique to individual locations and cannot be averaged across assets to build proxies or benchmarks.
However, infraMetrics includes high-precision data for the physical risks to which hundreds of individual assets are exposed. Some of them may be in your portfolio. This data uses sub-asset level GIS data, high-resolution hasard models and asset specific vulnerability functions that can tell the difference an asset being 1% to 100% destroyed.
The team is equipped to produce custom physical risk analyses for individual assets as long as they can be precisely located and described.
When it is the case, we produce a 99% VaR for flood, cyclone and storms as well as expected business interruptions due to extreme temperatures for any asset type (TICCS activity class) anywhere in the world.
Robust Data
infraMetrics® uses a combination of reported data, physical models and statistical techniques to produce robust, PCAF-aligned climate impact and risk metrics for hundreds of individual assets: enough to build robust proxies and benchmarks of climate risks. With infraMetrics climate proxies (or "Climate Comps"), investors can approximate the climate impact of their assets using analytics customised to fit them the most: by activity, technology, size and more. With climate benchmarks, investors can gauge their own assets against the average level of climate impacts and risks of the relevant sector or segment.
- Climate impact proxies: carbon footprint (Scope 1, 2 & 3) and emissions per unit of revenue.
- Transition risk proxies: funded emissions, EBITDA-at-risk, Extreme Climate Value (scenario-based)
- Climate impact and risk benchmarks from the climate impact of the infra300® index, to customised benchmarks to compare assets and portfolio to the relevant reference.
Using inframetrics climate datA
Portfolio Risk Benchmarking
Investors in infrastructure equity or debt can compare the impacts and transition risk of their portfolios against the climate metrics of representative market indices and market segments.Climate Impact and Transition Risk Proxies
Our clients can easily generate customised proxies of any missing climate data in a portfolio, including impact and transition risk metrics, using our "comps" builder.Climate Risk Estimation and Management
Investors can use our climate metrics to understand the risks their portfolios face and design strategies to effectively manage climate risks.Regulatory Reporting
InfraMetrics data can be used as direct inputs or to generate proxies for reporting requirements at the portfolio and asset level.
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