This report details the results of the UN Environment Programme Finance Initiative (UNEP FI) Investor Pilot on TCFD Adoption, a collaborative effort to explore, enhance and apply a methodology for assessing the impact of physical and transition risks and opportunities on the portfolios of institutional investors. The Investor Pilot Group comprises 20 institutional investors from across the globe. This report presents the methodology enhanced and used by the Investor Pilot Group in collaboration with the data analytics firm Carbon Delta. Outputs and evaluations of this methodology are intended as a first step towards understanding the potential for incorporating the TCFD recommendations on scenario-based risk assessment in investors’ financial disclosure. In addition, and in order to highlight the range of methodologies currently available to conduct these types of assessments, the report offers a ‘landscape review’ of other providers’ methodologies for climate-related scenario analysis.

The UNEP FI Investor Pilot explored, enhanced and applied the Carbon Delta methodology, throughout the Pilot to road-test a ‘Climate Value at Risk’ (CVaR) for listed equities, corporate debt and real estate under several future scenarios. This measure brings together assessment of the physical and transition risks of climate change.

On the physical side, the methodology examines the impacts of chronic changes in the climate and acute weather events on companies’ operations using business interruption as a proxy.

On the transition side, it explores policy risk—the cost for companies from meeting countries’ emissions reductions targets; and green opportunities—the profits for low-carbon technology companies earn from providing the means by which to reduce emissions.

These physical and transition impacts are then translated into financial values through financial modelling.

The methodology further assesses portfolios against international climate targets to give a temperature alignment: the implied degree of warming of a portfolio.

Read the report