New investor partnership scores corporates on physical climate risk exposure

Deutsche Asset Management (DAM) has formed a new partnership with a US-based advisory to develop a first-of-its-kind climate risk service that calculates the physical climate risks of investor portfolios.

As part of the Deutsche Bank Group, DAM has €711bn of assets under management and is seeking to reduce the climate risk of its portfolio by partnering with California-based climate advisory Four Twenty Seven.

Four Twenty Seven has mapped the physical locations of more than one million global corporate facilities and has assessed the probability of them being damaged or affected by climate-induced disasters such as flooding, heatwaves and storms. The advisory claim that this is the first time that individual companies can calculate exposure to climate events, which is now being utilised by the DAM.

“The availability of this new data on physical climate risk is a major step forward to addressing a serious and growing risk for investors,” DAM’s head Nicolas Moreau said. “Climate risk is now centre stage; however, we believe the investment industry needs to champion the disclosure of annual and once-in-a-lifetime climate risks by companies. We have a duty to understand what more hurricanes or heatwaves mean for valuations and investment returns.”

DAM can now integrate physical climate risk equity scores of companies within its investment portfolio. A scoring methodology categorises the location, activity and business sensitivity of a facility against different climate hazards. The risk is the measured against operational, supply chain and market perspectives.

research paper by Four Twenty Seven and DAM was launched as the COP23 climate conference in Bonn to mark the partnership. The research found that companies and facilities operating in Asia were vulnerable to physical risks. Five out of six people occupying the highest climate risk zones globally are located in Asia, while 145 million people living and working in China are threatened by rising sea levels.

Invigorated investors

Since the launch of the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD), more investors are acting on climate risks in their portfolios.

More than 100 investors with $1.8trn under management have written to the chief executives of 60 of the world’s largest banks, including HSBC and Bank of America, calling for better disclosure and implementation on climate risks in their investment portfolios.

In fact, the number of the asset owners recognising and acting on climate change has risen by almost a fifth in the last year, with 60% of the world’s biggest investors taking steps to protect their portfolios.

Most recently, Australia’s largest private health insurer, Medibank, announced that it would divest tens of millions of dollars away from fossil fuel investments. The company published a statement to the Australian stock exchange today (13 November) to signal its intention to funnel revenue into low-carbon investments.

Matt Mace

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