While the current ESG systems implemented in asset managers' portfolios are helping to smooth the transition to a more sustainable low-carbon economy, the risk management solutions organizations have in place to manage the risk of climate perils are often insufficient. There is a need for asset managers to understand the potential impacts of extreme weather on their assets and operations and take steps to mitigate these risks through effective risk management strategies. Businesses that routinely consider climate-related risk in their investment decisions will have a more intelligent, more efficient allocation of capital (FINAL-2017-TCFD-Report).
Organizations do not always associate climate-related events with business risk making them more susceptible to damage. Understanding the vulnerabilities of physical properties and the geography-based expected climate impacts for specific areas can determine the need to adjust portfolios to protect asset companies from financial losses and save lives through improved communication of risk mitigation strategies.
Climate change presents two main sources of risks to financial investors: physical climate risks that expose assets to the consequences of climate change and climate transition risks related to the impacts of changes in policies and regulations to reduce greenhouse gas emissions (NGFS, 2019; GFSG, 2016). Until now, most studies have focused on transition climate risk. However, there are increasing concerns about physical climate risk on businesses, particularly equity, debt, and real estate assets in investors' portfolios (Bank of England, 2018; DNB, 2018). Physical climate risks can be acute (event-driven), such as floods, droughts, and storms, or chronic (longer-term shifts), such as long-term heat stress, droughts, and sea level rise (Council on Economic Policies. November 2019. Climate Risks in Financial Assets: Emanuele Campiglio, Pierrre Monnin and Adrian von Jagow).
Financial regulators and other relevant stakeholders have raised concerns about climate risks on real asset values (Carney, 2015). The Task Force for Climate-related Financial Disclosures (TFCD) established recommendations for a systematic plan to address the importance of climate risks. Among the TFCD recommendations were recommended disclosures for asset managers on climate-related investment risks, and in March of 2022, the SEC signaled the escalation of these disclosures, announcing a rollout of new regulations mandating climate-related physical and transitional investment risk disclosures. While many investment managers are privately held and are not subject to the SEC's disclosures, increasingly, trustees are requesting asset managers report on the climate-related risk of exposed assets. The SEC disclosures and stakeholder pressure will likely trigger fund professionals to consider establishing a process for evaluating climate-related risks in their portfolios.
In March of 2021, London's Deloitte Centre for Regulatory Strategy (EMEA), anticipating new requirements demanding quantification and reporting of climate risk, advised:"...Board of asset managers will want to examine in depth their firms' climate risk exposure (at the portfolio/fund level), and ensure that ongoing processes for capturing climate risk are granular enough to take account of the specific characteristics and risk profiles of the sectors and geographies they are exposed to."
As we are witnessing in real-time the acceleration of physical consequences such as storms, floods, fires, and extreme heat due to changing climate, the physical risk can cause significant investment risk across many asset classes. Institutional investment managers seeking to protect investors capital have a broader risk management responsibility to the pension funds they serve. Too often, organizations look at short-term costs instead of investing in risk management tools now that allow them to avoid higher costs later. Establishing critical event budgets to estimate climate perils and gathering actionable information to address these threats has the potential to protect investor’s capital and save costs, assets, and lives. Prevention is a form of insurance and will cost your firm 4 to potentially 100 times less than a catastrophic weather event and protect investors capital from a significant draw down.
Monarch Weather is a Solution for Asset Managers
Monarch Weather's Situational Awareness dashboard and Comprehensive Climate Analysis provide customized bespoke hyper-local portfolio climate risk assessments and interactive dashboards focused on real-time or chosen time horizon situational awareness of approaching perils. Monarch's data answers the following:
Monarch Weather is Different
Monarch is uniquely suited to assist your needs with a team of Certified Consulting Meteorologists (CCM) and GIS Data Analysts. We can also act as forensic Meteorologists for insurance claims or legal proceedings and, most importantly, bring context to weather and climate events. We are not only Data Analysts but Meteorologists who understand the unique nuances of weather. Not just giving you the science data but answering what this means for my business, our people, and our physical assets.
Unleashing the Power of Technology and Harnessing Human Insights and Observations
Monarch's proprietary models incorporate meteorological expertise with weather observations, weather and climate model data, AI technology, satellite derived information, ground information using GIS principles. Then, we dissect and optimize all information and add our meteorology context expertise with a climate-specific peril probability score allowing your organization to transform the forecast into actions that prevent and reduce financial losses and save lives.
About Monarch Weather
Monarch Weather is a woman-owned weather and climate intelligence company providing asset investment managers with climate-related risk reports. Partners include an Emmy-Award-winning on-air Meteorologist, a Certified Consulting Meteorologist, and an Emmy Award-winning Senior Meteorologist for NBC News, currently responsible for all weather content that airs nationally across all platforms.
If you are interested in a sample site report, don't hesitate to get in touch with Traci@monarchweather.com
