Environmental Risks: What, Where & When?

By Hubert Thieriot 16 May, 2018

Thieriot explains how the Environmental Risk Profiler identifies, monitors & anticipates environ risks

Editor’s note: Hubert no longer works for CWR on the water & energy space, which included driving the water risk valuation conversation for the energy sector. Engagement with multiple stakeholders at CWR has led him to explore for-profit solutions in addressing challenges in Environmental Risk Analysis. He now spearheads Environmental Risk Profiler, an independent online solution to identify, monitor & anticipate environmental risks, with which CWR may work on a project basis. Find out more about what Hubert is doing with the profiler below.

Long delegated to insurers, environmental risks are becoming a mainstream concern for financial institutions and corporates themselves. Whether motivated by regulations, uncertain climate, or simply in a bid to optimise operations and returns, a growing number of organisations are willing to better understand their exposure to environmental risks. However, such analyses can prove challenging as the required datasets and tools are often complex, scattered and irregularly updated.

Hence the Environmental Risk Profiler, aiming to make it simple for organisations to get on top of the “what, where and when” of environmental risks.

Environmental risks are becoming a mainstream concern

With USD330bn in losses from natural catastrophes and less than half of the losses insured, the year 2017 set a record (second only to 2011 when Japan was hit by the tsunami). And the situation is expected to get worse due to the rising intensity of extreme weather events. As a matter of fact, extreme weather events tops the 2018 list of most pressing risks published by the World Economic Forum. Including natural disasters and “failure of climate change mitigation & adaptation”, environmental risks represent three of the top five risks in terms of likelihood.

2017 set a record with USD330bn in losses from natural catastrophes…

…extreme weather events tops the 2018 list of most pressing risks

Add to this a growing set of regulations requiring funds & corporates to analyse and disclose their exposure to climate change – see here for an analysis of environmental disclosure trends in China, and here for the new Natural Capital Coalition supplement named “Connecting Finance and Natural Capital”. As a consequence, more and more organisations are willing to assess their exposure and devise mitigation strategies. The responsibility to care for environmental risks no longer lies on (re-)insurers’ shoulders only.

The “what, where and when” of environmental risks

Not all risk factors are equal, nor are companies exposed to the same extent. Understanding one’s exposure to such risks starts with understanding what hazards create the most salient risk for a company, where they are the most likely to materialise, and when they might hit.

Take a power utility as an example: which of its power plants are more exposed to heat-waves or droughts, now and in 20 years time? For an airport operator, how does the future look in terms of heavy precipitation, storms, or high temperatures, and how will it impact costs and delays?  As a retailer or electronics company, how many of my critical suppliers are exposed to floods? As an F&B actor, is a drought developing where my crops producers are? Hotels, how do natural disasters affect occupancy rate and property values? The list could go on.

Understanding environmental risks is all about the what, where & when…

 

…e.g. for power utilities, which of its power plants are more exposed to heat-waves or droughts, now & in 20 years time?

The Environmental Risk Profiler is precisely an attempt to help organisations understand the complexity of these risks in a layman-accessible yet accurate manner, leveraging the most recent developments in terms of data acquisition, modelling and analysis.

Visit our website www.erprofiler.com for more case studies and examples of Environmental Risk Profiles.

Leveraging the new deluge of datasets and techniques

We are progressively drifting from a shortage of data toward a deluge of data, bringing challenges of its own. Think of satellite imagery, drones, climate change models, government open data, NGOs or academics research. Some initiatives have emerged trying to make sense from this plethora of information and make it closer to end-users and decision-makers – see for instance Resource Watch led by the World Resources Institute.
Similarly, the Environmental Risk Profiler draws from the most recent developments of spatial agencies, academics, NGOs, governments and other various sources to provide risk assessments in a accurate, granular and cost-efficient manner.

 Data is drawn from the most recent developments of spatial agencies, academics, NGOs, govts…

…to provide risk assessments in a accurate, granular & cost-efficient manner

What’s in it for me?

First, get an idea of what companies or portfolios are most exposed to, and how they compare against peers. This is called an environmental risk profile: an at-a-glance identification of the most salient factors both as a company and for each asset individually. Such information will help prioritise risk management strategies.

The goal is to help understand exposure to environmental risks & better inform development strategy in the short & longer term

After the most salient risks have been identified, with their locations and time horizons, there are several ways to move forward. The profiler can help set up real-time monitoring (i.e. through satellite data or dedicated information network) to sharpen reaction capacity. Scenarios can be developed with different likelihoods and time horizons to inform risk mitigation strategies and foster resilience in the longer term. Overall, the goal is to help understand exposure to environmental risks and better inform development strategy in the short and longer term. Learn more about the Environmental Risk Profiler here.

Further Reading

• Where Is The E In ESG Disclosure In China? – China is moving to mandatory environmental disclosure with a tentative 2020 deadline, but where are listco’s now? China Water Risk’s Dawn McGregor & SynTao’s Dr. Peiyuan Guo share 8 key takeaways from their newly released joint report, “CHINA PRIORITISES ENVIRONMENT: More Disclosure Needed To Match Rising Risks”
• 5 Trends For China Green Finance – Stay on top of China’s green finance trends & opportunities with China Water Risk YuanChao Xu’s 5 key takeaways from China’s Green Finance Committee Annual Conference. From mandatory disclosure to ERA and One Belt, One Road to green buildings
• Connecting Finance & Water Risk – Natural Capital Coalition’s Mark Gough & Joseph Harris-Confino on their newly launched supplement for the finance sector – see how can this help bankers, investors and insurers alike amidst increasing ESG adoption
• How To Manage Water Risk In Your Growing Business – Water risk is financial risk. So how do investors and business overcome challenges and manage water risk? Trucost’s Byford Tsang and Rochelle March expand and also share the benefits
• Top 10 CSR Trends For 2018 In China – 2018 is a landmark year for China on numerous fronts – what does this mean for CSR? SynTao highlights key trends to watch out for from their new report, including Xiong’An, the Greater Bay Area & mandatory disclosure

• Water Risk Valuation – What Investors Say – See what 70+ investors have to say on different valuation approaches we applied to 10 energy stocks listed across 4 exchanges. Is there consensus? What are they most worried about?