The purpose of this paper is to provide companies and financial organizations with a common understanding of climate-related physical risks according to climate science, to identify gaps in the publicly available guidance to assess those risks, and to propose potential resources that would facilitate better risk assessment and, in turn, risk management.
To do so, we analyze climate-related physical risk assessment guidance from leading corporate disclosure initiatives to examine whether existing publicly available
guidance aligns with climate science and provides consistent terminology and robust methodologies for risk assessment.
The analysis reveals that the guidance do not share a robust understanding and approach to identifying and assessing physical climate risks, which could result in unmanaged risks, reduced resilience, and ultimately financial losses. The findings are relevant for companies, financial organizations, environmental, social, and governance (ESG) ratings agencies, climate data and analytical service providers, disclosure initiatives, and others seeking to assess exposure to physical risks from climate change, as well as climate scientists and policymakers seeking to influence the private sector.
The guidance across initiatives contains inconsistent terminology that rarely aligns with that of the IPCC.
Some hazards highlighted by the IPCC are missing or receive little attention from the guidance.
The guidance does not provide or refer to a comprehensive set of metrics for quantifying each of the factors of physical climate risks across all hazards.
Hazards related to water stress and flooding have the most extensive set of metrics and data sources.