Abstract
While investors are paying more attention to climate change, there is a lack of granular data designed to support financial decisions. Climate services can provide improved indicators and metrics to help investors better manage physical climate risks. This chapter presents the results of the ERA4CS-JPI Climate project ClimINVEST aimed to co-design tailored information on climate change. It provides an overview of investors’ needs and information gaps on the physical impact of climate change. It identifies what information sources financial actors rely on and what challenges they face in decision-making incorporating available climate change information while taking into account diverse investor mandates and risk management approaches. Three unique geographical cases are presented, both on commonalities and differences, namely France, the Netherlands and Norway. In France, the 2015 Energy Transition for Green Growth Act (Article 173-VI) requires institutional investors to report on their integration of climate-related risks in their investment policies. In the Netherlands, the Dutch Central Bank and financial institutions are challenged to deal with potential flood risks from more frequent precipitation and sea level rise. In Norway, actors such as Finance Norway and the Norwegian government are assessing the risks from physical impacts of climate change on the Norwegian economy.
Keywords
- Financial sector
- Physical climate risks
- Investor needs
- Climate services
- France
- The Netherlands
- Norway
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Notes
- 1.
The counterparty is the entity that receives funding from the financial institution. The selected service providers’ approaches aim to provide financial institutions with some information on physical climate risks for one or several types of counterparties: projects, companies or governments.
- 2.
Acute climate-related phenomena are disruptive and event-driven. They refer to phenomena that are typically perceived as a shock to the system. More specifically, they include changes in frequency or magnitude of extreme events such as cyclones, heatwaves, storms, etc.
- 3.
Chronic climate-related phenomena refer to long-term persisting changes in mean and variability of all types of climate patterns. They include for example: sea level rise; change in mean temperature patterns and chronic heatwaves at the end of the spectrum of temperatures evolution.
- 4.
For more information on the disclosure requirements under Article 173-VI, see the implementing decree n°2015-1850 of 29 December 2015 of article L.533-22-1 of the Financial and Monetary Code. https://www.legifrance.gouv.fr/eli/decret/2015/12/29/2015-1850/jo/texte.
- 5.
Direction Générale du Trésor, Banque de France, ACPR, 2016. L’évaluation des risques liés au changement climatique dans le secteur bancaire.
- 6.
Transparency of information typically refers to clarity of the sources, of the methodology to carry out the analysis.
- 7.
Some financial institutions also express preferences for some specific information formats. Some financial institutions are willing to be provided with some intermediary indicators in order to be able to combine them by themselves and produce tailored information. One expressed example of this need is to obtain sensitivity factors that are counterparty- and hazard-specific, that the financial institution will combine with its own selection of climate hazards scenarios.
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Acknowledgements
The ClimINVEST project is part of ERA4CS, an ERA-NET initiated by JPI Climate, and funded by RCN (NO), ANR (FR), NWO (NL) with co-funding by the European Union (Grant 690462). We thank Kristina Alnes (CICERO), Asbjørn Torvanger (CICERO), and Michel Cardona (I4CE) for valuable inputs and review.
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de Bruin, K. et al. (2020). Physical Climate Risks and the Financial Sector—Synthesis of Investors’ Climate Information Needs. In: Leal Filho, W., Jacob, D. (eds) Handbook of Climate Services. Climate Change Management. Springer, Cham. https://doi.org/10.1007/978-3-030-36875-3_8
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