Chapter 3

Question 1

Climate Risk

Answer 1

1. TR
2. PR

Question 2

TCFD

Answer 2

Taskforce on Climate related Financial Disclosures – singles out physical and transition risk as main source of climate risk

Question 3

PR hazards

Answer 3

1. acute -weather related (floods, hurricanes, wildfires, etc.)
2. chronic - long-term trends (rising average temperatures, rising sea levels, etc.)

Question 4

TR hazards

Answer 4

1. policy and legal (ex: C taxes)
2. technology (technological change - renewable E)
3. market (trend towards S products)
4. reputational

Question 5

TR consequences

Answer 5

in the face of these hazards (driving factors) different kinds of assets and companies will have different levels of:

1. exposure
2. vulnerability

Question 6

TR exposure

Answer 6

F sense: assets and firms that are in a vulnerable place or setting

ex: warehouse in a coastal area exposed to sea level rise

Facility level - high emissions assets

corporate level - firms dependent on emissions

Question 7

TR vulnerability

Answer 7

1. propensity/predisposition of the asset/firm to suffer adversely from its exposures to hazards; ease of reducing

ex: at facility level vulnerability to physical climate risk depends on physical infrastructure (two neighboring factories in a flood zone - one may have flood pumps installed)

2. ease of reducing/ eliminating emissions

ex: lack of preparedness for company’s transition to climate mitigation/adaptation; facility incorporating hydrogen based production instead of stranding

facility level - extent of ability to decarbonize

corporate level - viability/robustness of transition plan

Question 8

PR exposure

Answer 8

facility level - anything in hazard zone

corporate level - firms with facilities/supply chains in hazard areas

Question 9

PR vulnerability

Answer 9

facility level - extent of adaptive infrastructure (flood pumps, fire breaks)

corporate level - viability of contingency plans; access to insurance

Question 10

Stranded assets

Answer 10

assets that have suffered from unanticipated / premature write-downs, devaluations or conversion to liabilities

Question 11

getting data for PR is not easily accessible - easier to assess exposure than vulnerability

Answer 11

exposure: need location of facilities and can then assess physical risk exposure

vulnerability: ultimately refers to facility level preparedness (ex: does facility in flood prone area have flood walls?)

Question 12

Insurance availability is crucial to mitigate F losses for physical risk

Answer 12

if insurers pull out of vulnerable areas so will corporations - leaving vulnerable area without insurance

Opportunity: corporate sector can partner with government and insurers to find solutions that allow for burden and profit sharing
–> companies could be rewarded for staying in certain areas or could partner with communities to build adaptive infrastructure

–> insurers could work with firms and communities to encourage uptake of adaptive measures (through premium discounts) and share expertise on resilience