Many asset owners are familiar with climate risk metrics such as carbon footprint or WACI. While these are important, they do not take the bigger picture into account. In this article, we explore other areas you should be considering when assessing climate risk in your portfolios.

Asset owners assessing climate risk in their portfolios often use metrics such as Weighted Average Carbon Intensity (WACI), carbon footprint, or implied portfolio temperature. Such metrics are typically calculated based on the reported or estimated greenhouse gases (GHGs) emitted by each company in the portfolio. However, while the amount of GHG emissions may be a readily calculable and important metric, it is an imperfect measure of the climate risk to which the portfolio may be exposed.

Climate risk refers to the physical, transition and litigation risks that are likely to arise from climate change, which in turn depend on the future global policy pathways. While policy change should force a reduction in carbon emissions, how this translates into financial risk for investors is uncertain and not directly measurable simply by looking at headline emissions statistics.

Read our full thought leadership piece for an example of this and to find our recommendations in building an approach to measuring and monitoring climate risk.

Click here to download our article

How Hymans Robertson can support you

Hymans Robertson has a wealth of experience assisting financial firms and pension funds with their climate-related disclosures and risk management. We are happy to discuss any aspect of climate change and climate-related financial disclosures with you.

If you would like to discuss with one of our specialists, please get in touch.