Climate Risk
Climate change is a fact. Having said that, individual and collective efforts and behaviors in the transition towards a net zero carbon emissions economy by 2050 as agreed by plenty of developed countries, is in our hands.
Lexi advises industries and financial institutions in their endeavor to understand, measure and mitigate the physical risks associated to climate change and the transition risk (according to SSP scenarios) and effort required for compliance with the net zero emissions commitment.
Governments and regulators are in the process of defining how their individual GDP is going to facilitate the transition towards net zero. They consider using regulation and (carbon) taxes to achieve their goals, as can be seen in the amounts to be deployed in the EU Next Generation budgets, favoring green initiatives. There are different regulatory approaches about "how to get there" from public and private origin, such as NGFS, EU Taxonomy…and TCFD which is industry and voluntary driven.
For example, SFDR (Level 1) is already here since 10th March, 2021, for Asset Managers, while Level 2 is due to be specified and applicable on 1st January, 2022.
Our experience in this field allows us to have a clear idea of global best practices among banks, asset managers and insurance firms, how they are approaching the impact of physical and transition risks in their portfolios, strategy and risk management practices. The reality is that Climate Change, and the Climate Risk associated to it, are leading financial institutions to adapt their methodologies and processes for the calculation of clients´ credit risk. Liability and litigation risk must also be taken into consideration. As a result, climate risk is affecting, or will soon affect, products, ratings, tenors, amounts, yields and covenants, and as such, sectoral risk appetite and capital allocation. Additionally, new disclosures (NFDR, TCFD, SFDR…) and reporting requirements (SASB, PRI...) are impacting firms.
We may advise on awareness, training of teams, regulatory framework understanding for climate risk and ESG, and help fine-tune algorithms and models for risk calculation.
It is logical that your firm may also require data on geolocation of assets, carbon emissions measurement, multi-factor climate scenarios, temperature rise, climate VaR, external ESG ratings, portfolio analysis and valuations, screening, indices, ESG news and research…, and we may advise you on vendors´ offering to match your firm´s needs.
Our international experts will be delighted to talk to you.
