Deutsche AM launches new climate risk assessment tool
International asset management company, Deutsche Asset Management, has developed a new approach to the assessment of climate risk exposure as part of its investment strategy. The assessment system was developed in cooperation with the Californian consulting firm Four Twenty Seven, which is dedicated to the collection and analysis of climate data. Four Twenty Seven has surveyed more than one million corporate sites worldwide and used climate models to identify climate risks for each company, including heat waves, floods and cyclones, using scientific climate models.
Deutsche AM is using the resulting climate risk company score to develop new products and to evaluate companies for climate risks. The scoring process identifies and categorizes the location, activity and vulnerability of manufacturing sites and companies to climate risks. The economic impact of a climate catastrophe will be examined in terms of operational aspects, supply chain and market risks. For example, the data may be analyzed to determine how rising sea levels affect offshore oil and gas infrastructure, how floods disrupt supply chains, or how extreme heat can affect the performance of workers in the agricultural and construction sectors. Nicolas Moreau , Head of Deutsche Asset Management, said the availability of information on physical climate risks is a crucial step forward to addressing the serious and growing risks facing investors.
We believe the investment industry should work to ensure that companies disclose their recurrent and exceptional climate risks. We have an obligation to understand what more tropical storms and heat waves mean for the valuation of companies and investment risks," Mr Moreau said. The new approach and the threat to investment funds of climate change is described in a research report by Four Twenty Seven and Deutsche AM, released at the World Climate Summit "COP23" in Bonn.
Although no region in the world has been spared the risks of physical climate change, the research report specifically highlights the risks in Asia as a particularly vulnerable region, where five out of six people occupying the highest climate risk zones globally live. This includes 145 million people in China living in areas threatened by rising sea levels. The initial analysis also covers listed equities in France, although coverage will be extended globally in due course.
The report, Measuring Physical Climate Risk in Equity Portfolios, is available here.