Climate Scenario Financial Impact Analyzer Methodology

Hazard Types

The analyzer evaluates three primary climate hazard categories:

• Flood Risk: Probability and severity of flooding events affecting asset locations
• Heat Risk: Temperature-related hazards including extreme heat events and urban heat islands
• Water Stress Risk: Scarcity and quality of water resources impacting operations

Data Sources

Hazard scores are derived from global climate risk datasets including:

• Global flood risk models (e.g., Fathom Global Flood Maps)
• Climate hazard indices from IPCC Assessment Reports
• Water stress indicators from World Resources Institute (WRI)
• Historical climate data and projections

Risk Scoring

Each hazard is scored on a 0-100 scale where:

• 0-20: Low risk - Minimal climate hazard exposure
• 21-40: Moderate risk - Some exposure requiring monitoring
• 41-60: Medium risk - Significant exposure requiring mitigation
• 61-80: High risk - Severe exposure with potential operational impacts
• 81-100: Extreme risk - Critical exposure requiring immediate action

Scenario Framework

The tool incorporates three IPCC-aligned climate scenarios representing different future pathways:

Scenario Application

Hazard scores are multiplied by scenario factors to reflect how different future conditions may amplify current risks:

• Base hazard scores represent current conditions
• Scenario multipliers adjust for future climate projections
• Results show risk progression under different policy pathways

Sector Coefficients

Different industry sectors have varying levels of climate vulnerability:

Application Method

Sector sensitivity is applied as a multiplier to adjusted hazard scores:

• Lower multipliers indicate greater resilience
• Higher multipliers indicate greater vulnerability
• Technology sector (0.2x) shows lowest climate sensitivity
• Agriculture sector (1.0x) shows highest climate sensitivity

Asset Impairment

Asset value reduction based on climate hazard exposure:

impairment = riskScore × 0.25

Example: A risk score of 60 results in 15% asset impairment (60 × 0.25 = 15%)

EBITDA Impact

Annual earnings impact from operational disruptions:

ebitdaImpact = riskScore × 0.15

Example: A risk score of 60 results in 9% EBITDA reduction (60 × 0.15 = 9%)

Insurance Cost Increase

Additional insurance premiums for climate coverage:

insuranceIncrease = riskScore × 0.5

Example: A risk score of 60 results in 30% insurance cost increase (60 × 0.5 = 30%)

Default Risk Score

Composite risk incorporating debt burden and climate exposure:

defaultRisk = (debtRatio × riskScore × 0.3)

Where debtRatio = debtLevel ÷ assetValue, capped at 100.

Data Limitations

• Hazard data represents global averages and may not capture local microclimates
• Grid resolution may not capture site-specific conditions
• Future projections contain uncertainty ranges

Modeling Assumptions

• Linear relationships between hazard scores and financial impacts
• Simplified sector sensitivity coefficients
• Static financial translation formulas
• No consideration of adaptation measures or mitigation strategies

Usage Guidelines

• Results are indicative and should not be used for precise financial reporting
• Professional judgment should be applied in interpreting results
• Local regulatory requirements may require additional analysis
• Results should be validated against site-specific assessments

Primary Data Sources

• IPCC Assessment Reports (AR6)
• Fathom Global Flood Maps
• World Resources Institute Aqueduct Water Risk Atlas
• European Centre for Medium-Range Weather Forecasts (ECMWF)
• Global Climate Risk Index (Germanwatch)

Methodology References

• TCFD Recommendations for Climate-Related Financial Disclosures
• NGFS Climate Scenarios
• UNEP Finance Initiative Climate Risk Frameworks
• GRI Standards on Climate Change