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Climate risk and resilience

Weathering unprecedented challenges and realizing even bigger opportunities

ship moving through water

Climate change is reshaping industries. Real assets and infrastructure are threatened by extreme weather. Financial firms face rising loan risks. Energy companies must adapt to a low carbon economy. But challenges like these present opportunities—if companies position themselves to adapt and lead. KPMG provides a comprehensive offering to help companies understand their unique climate risks, harden their organization against risks, and implement a strategy to realize opportunities.

Climate change is disrupting business as usual

Opportunities

Global sustainable investments may total  US$53 trillion by 20252

  • new markets and assets
  • alternative energy sources
  • resource efficiency
  • new products and services
  • infrastructure and supply chain resilience

Risks

If global temperatures risk above 3°C by 2050, global GDP could decrease by over 18%1. Physical and transition risks include:

  • extreme weather events
  • chronic climate changes
  • shifting consumer preferences
  • increased regulation and expanded carbon markets
  • talent and reputational risks
  • technological disruption

Footnotes

1 Swiss Re Institute, “The economics of climate change: no action not an option” (April, 2021).

2 Bloomberg, “ESG assets may hit $53 trillion by 2025, a third of global AUM" (February 2021)

The Taskforce for Climate-related Financial Disclosures (TCFD) provides a framework for assessing risks and opportunities

Governance: Disclose the organization's governance around climate-related risks and opportunities

Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s business, strategy, and financial planning

Risk management: Disclose the process used by the organization to identify, assess, and manage climate-related risks

Metrics and targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities

 

Source: FSB, “2021 Status Report: Task Force on Climate-related Financial Disclosures” (October 2021)

KPMG offers an integrated process to help you better understand your company’s climate risks and drive solutions—in alignment with TCFD.

Climate risk assessment, impact analysis, and resilience strategy

  1. Evaluate TCFD alignment: Assess current state disclosures in relation to the TCFD reporting requirements
  2. Assess climate risk: Assess physical and transition risk exposure and identify areas of opportunities related to climate change using scenario analysis. 
  3. Develop climate action plan: Develop an action plan to address climate risks and opportunities and refine TCFD reporting

The following three climate scenarios will form the basis for further risk analysis:

VERY AGGRESSIVE MITIGATIONSOME MITIGATIONBUSINESS AS USUAL SCENARIO


Emissions start declining by 2020

Likely not to exceed 2°C

RCP 2.6
 


Emissions rise till 2080 then fall. 

Expected 3°C-4°C

RCP 6.0
 


Emissions continue to rise at current rates

Likely not to exceed 4°C

RCP 8.5
 

Climate policies and regulationsHigh efforts to curb emissions via regulatory changesMedium efforts to curb emissions as global climate policy and pricing is fragmented

Low efforts to curb emissions

Market preferences

Market preferences rapidly shift away from fossil fuels to renewables

Moderate shift away from fossil fuels

Few/Minimal shifts in market demand

Changes in weather patterns

Chance of extreme weather increase is lowChance of extreme weather increase is moderate

Chance of extreme weather increase is high

Technological ChangesTechnology oriented towards sustainable developmentEnergy mix, with fossil fuels modestly reduced to half of the world’s power generation to include renewables

Fossil fuel continues to generate most of the world’s energy

Climate adaptation

Low environmental impact and low cost of climate adaptation needed

Climate adaptation required at a medium level and cost

Climate adaptation required at a high level and cost

 

See how we helped a global asset manager embed a comprehensive strategy to manage climate risks and opportunities.
 

Understanding transition risks

Businesses need robust tools to quantify their climate-related transition risks and associated potential financial impacts. Using a variety of climate scenarios and integrated climate-economic assessment models, we help our clients strategically map out risks and opportunities (e.g., changes in energy and carbon prices around the globe, growth rates of economies). The underlying principles and methods embodied in this tool align with guidelines outlined by the Task Force on Climate-Related Financial Disclosures (TCFD), helping our clients meet internationally-accepted criteria. Our clients can explore potential risks and opportunities in the short- and long-term, focusing on transition risk as they move towards a low-carbon emission future.

Example: Price of carbon by year and scenario

NDC = Nationally determined contributions

Quantifying economic impacts

Understanding climate-related risks and opportunities require financial analyses that can incorporate various climate scenarios and business plans. The KPMG Climate IQ tool allows our clients to assess their portfolios and quantify the potential financial impact of such physical and transition risks as well as opportunities using principles of economics, finance, and enterprise risk management. KPMG Climate IQ methodology is streamlined and automated generating financial estimates that provide the forward-looking information to help with strategic capital planning as expected by boards and investors and outlined by the Task Force on Climate-Related Financial Disclosures (TCFD).*

*KPMG Climate IQ is approved by and delivered in collaboration with KPMG UK

Assessing physical climate risks

The other critical element of a sustainable decarbonization plan is assessing potential climate-related risks in your portfolio. KPMG partners with third parties to help quantify financial impacts of property damage and business interruption on a site-level basis. This helps your organization to quickly and simply identify major risks—both by type and magnitude—and how these can be integrated into future risk mitigation plans. Our tools are supported by over $5 million of climate data.

Asset-level assessment | Asset exposure example

Identify key trends within individual assets to understand where attention is needed to mitigate climate peril impact

  • Asset location: Baltimore, MD
  • Asset type: Manufactured housing
  • Overall risk: Top 5% of all assets
  • RCP scenario: Low
  • Forecast year: 2030
  • Greatest risk factors: Water stress, flood

Risk-level assessment | Portfolio exposure example

Aggregate groups of assets with like characteristics to provide climate risk and/or portfolio-level insights

  • Risk factor: Wildfire (top 10%)
  • RCP scenario: High
  • Forecast year: 2050
  • Assets at risk: 24 / 565 (4%)
  • Asset types: Manufactured housing
  • Value at risk: $538,568

Dive into our thinking

Climate risk and resilience

Weathering unprecedented challenges—realizing even bigger opportunities

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Meet our team

Image of Katherine Blue
Katherine Blue
Climate and ESG Advisory Leader, KPMG US
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Image of Erkan Erdem
Erkan Erdem
Principal, Economic & Valuation Services, KPMG US
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Image of Adam Levy
Adam Levy
Principal, Modeling & Valuation, KPMG US
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Image of Jason Ballentine
Jason Ballentine
Climate Risk & Resilience Leader, KPMG US
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Image of Katherine Blue
Katherine Blue
Climate and ESG Advisory Leader, KPMG US
Read bio
Image of Erkan Erdem
Erkan Erdem
Principal, Economic & Valuation Services, KPMG US
Read bio
Image of Adam Levy
Adam Levy
Principal, Modeling & Valuation, KPMG US
Read bio
Image of Jason Ballentine
Jason Ballentine
Climate Risk & Resilience Leader, KPMG US
Read bio

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The information contained herein is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

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