Deutsche Bank has created a new tool to identify the threats that climate change poses to its investment portfolios worldwide, making use of state of the art climate models.
In partnership with Four Twenty Seven, a climate intelligence advisory firm, the bank has developed maps and advance climate science models that can be used to determine the vulnerability of business sites and calculate their exposure to catastrophic events caused by climate change, including heatwaves, floods and intense storms.
Deutsche Asset Management and Four Twenty Seven outlined the new approach to climate risk management during the United Nations Climate Change Conference (COP23, 6-17 Nov), which is being attended by many leading investor and business groups.
The data shows how rising sea levels could affect coastal and offshore oil and gas infrastructure, how floods could disrupt supply chains, or whether extreme heath affects labour productivity in the agricultural and construction sectors.
“The availability of this new data on physical climate risk is a major step forward to addressing a serious and growing risk for investors. Climate risk is now centre stage, however we believe the investment industry needs to champion the disclosure of annual and once-in-a-life time climate risks by companies. We have a duty to understand what more hurricanes or heatwaves mean for valuations and investment returns,” said Nicolas Moreau, Head of Deutsche Asset Management.
Climate models simulates earth's systems
Four Twenty Seven has mapped the physical locations of more than one million corporate facilities globally and uses climate science models to address the likelihood of them being affected by extreme weather cause by climate change.
The bank said this is the first time the physical location of businesses and their exposure to climate-related events have been mapped for investment purposes.
This tool can be used to integrate a company’s climate risk equity score within new investment products, and assess how individual companies can be impacted by natural disasters.
The scoring methodology takes into account the location, activity and business sensitivity of corporate facilities to climate hazards.
Operations risks indicators
Climate science models are applied to assess the geographical exposure to risks from factors such as sea level rise, droughts, flooding and cyclones. The business impact of these extreme weather events is measured from a supply chain, operations and market risk perspective.
See the relevant Deutsche Bank press release here.
Read the full report here.