Three climate risk quantification challenges and how to overcome them

By Peter Carter, Head of Climate Practice & Head of Captive and Insurance Management Solutions, WTW

While quantifying carbon emissions is important in terms of meeting certain climate disclosure requirements, it doesn’t provide you with a comprehensive view of climate risk.

A 2023 joint report from WTW and the Institute of International Finance highlights how emissions quantification tends to be backward-looking and may not accurately capture how your profitability is likely to be affected into the future. There’s also a low correlation between financial risk and carbon intensity.

This means your organization needs to find additional climate risk quantification techniques. These methods should be capable of measuring the consequences of physical climate change on your assets and the secondary effects resulting from changes in business models and supply chains as they adapt to a lower carbon economy. This kind of approach will help you better understand the financial impacts of climate risks.

If we think about managing climate transition risks – and opportunities – these relate to the business uncertainties around net-zero transition, such as policy, legal and market changes. These shifts could see some organizations face significant moves in asset values, cashflows and higher costs of doing business. Analytical techniques can let you quantify transition risk as a financial impact.

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