The Climate Risks for Asset Managers (CRAMs) project will develop a global assessment on the economic impacts of climate change on corporate activities, tailored specifically towards the needs of investors in managing climate change risks within investment portfolios. The Potsdam Institute on Climate Impact Research (PIK) and Carbon Delta (together the “Project Team”) will translate major climate policy and physical climate impact risks into sector and company overarching monetary risk assessments. Therefore, we will apply and improve existing climate data sets, damage, growth and cost functions, and CO2 pricing models into comprehensive financial risk assessments, building on the lessons learned from this team’s pathfinder project, titled Climate & Economy. In order to get a broad overview of the global financial sector, we have assembled a highly distinguished Expert Advisory Team, which is representative of pension fund managers, insurance companies, private banks and sustainable asset managers investing globally. The Assets Under Manage (AuM) of our Advisory Team is approximately $1.5 trillion USD (almost 3% of the global market capitalization). CRAMs will be implemented in two stages, each stage containing three work plans. Both stages will involve climate risk modeling, the development of risk assessments on company activities and significant engagement with the Advisory Team, which will provide critical feedback on the modeling results and risk assessments. This staged approach is intended to create an iterative process between the asset managers and the project team. In the first stage, climate mitigation costs for different commodities will be calculated per region and physical climate risk factors around the globe will be modeled. In the second stage, details of production sites will be established, and growth and damage functions will be improved and elaborated, especially for the convective events modeled in stage 1. Through this project, our analysis will demonstrate to asset managers how climate change risks can make a material impact on how companies perform financially, and therefore climate risk data should be included into typical asset valuation methodologies. In 2015, Citigroup warned investors, in a note entitled ‘Energy Darwinism II’, that $100 trillion of value was at stake in the global fossil fuel industry due to climate change risks. Investors have started to take action, many choosing to ‘engage’ with the boards of the oil companies. Others chose to divest, with AXA announcing it was selling some $500 million of coal stocks. However, there are safer and more strategic options for investors to protect the value for assets within their investment portfolios. In order to establish a portfolio’s Value at Risk from climate change, investors need new forms of climate risk data, that which speaks the language of investors and yet accesses the research of climate scientists. CRAMs takes a big step towards precisely delivering accurate climate risk assessments for some of the largest companies in the world. CRAMs would for the first time quantify numerous climate risks for investors and demonstrate how climate risk data can be integrated into the asset valuation process.
Develop a global assessment on the economic impacts of climate change on corporate activities, tailored specifically towards the needs of investors in managing climate change risks within investment portfolios
Help improve modeling of both physical and regulatory risk related to climate change impacts and political responses. Provide data and novel methods for risk modeling.
