It is becoming increasingly difficult to separate climate related risk from the conventional view of financial risk.
So how do you assess the financial risks related to climate change?
Unpredictable weather patterns across the world can influence everything from food prices, health costs, retail clothing sales patterns as well as how effective and efficient our buildings are at being comfortable places to live and work in.
This has been acknowledged globally by G20 finance ministers and Central Bank governors who tasked the Financial Stability Board (FSB) with helping various stakeholders such as investors, lenders, and insurers – identify, quantify and report on climate-related financial risks.
The FSB, an international body that monitors and makes recommendations about the global financial system includes members such as Mark Carney, Governor of the Bank of England and representatives from the International Monetary Fund and World Bank.
Its taskforce released a series of recommendations (Recommendations of the Task Force on Climate-related Financial Disclosures, Bloomberg, 2017) structured around four thematic areas: governance, strategy, risk management, and metrics and targets.
Financial risks related to climate change – Scenario Analysis
A key element of the report is that organisations should use scenario analysis to assess potential financial implications of climate-related risks and opportunities and disclose those in their financial filings.
Organisations are encouraged to select a set of scenarios to include a global warming potential of 2°C and potentially 2 more global warming scenarios across different timelines.
One sector that is particularly at risk from climate change is the real estate sector. Energy consumption and asset resilience are key elements for the sector which can be directly and linearly related to climate conditions.
Increasingly real estate investors are wanting more information and data on sustainability and its predicted influence on property value and sector decision making.
Building Information Modelling for Strategic Asset Management (BIM:SAM) Modelling
EVORA EDGE (EDGE) has pioneered the use of energy models for strategic asset management purposes. Using CIBSE future weather data, EDGE can literally simulate and stress test building performance and building resilience in a virtual environment across 3 or 4 climate change scenarios. Using leading software, we can create financial models around building capital and life cycle costs within the energy model.
This 3-D digital modelling technique, which we call BIM:SAM (see below), enables our clients to identify climate related risk over the short, medium and long term. And this enables both the optimisation of existing building use as well as future-proofing.
This same model can be used to manage EPC MEES risk and can be transferred with the property creating a digital passport for the lifetime of the building.
What is BIM:SAM?
Building Information Modelling (BIM) is an intelligent 3D model-based process that gives architecture, engineering, and construction professionals the insight and tools to more efficiently plan, design, construct, and manage buildings and infrastructure.
Strategic Asset Management (SAM) involves the balancing of costs, opportunities and risks against the desired performance of assets.