1.2.3 Extreme climate risk metrics

Additionally, we developed three extreme climate values to demonstrate the overall impact of transition and physical risks for different future scenarios :

• Extreme Transition Risk: The transition risk metric represents the potential losses to an asset’s NAV (in %) due to its reliance on carbon emissions and, hence, its exposure to transition risks when introducing a carbon tax. To calculate the metric, we focus on the disorderly scenarios, where transition risks are the highest. Extreme Transition Risk is the relative difference in valuation of an asset being fully exposed to carbon taxes and not being exposed:

  • in per cent as of today and for 2030, 2040, 2050

  • Average Extreme Transition Risk in per cent as of today and for 2030, 2040, 2050 for all indices, portfolios, sectors, and markets

• Extreme Late-Alignment Risk: The metric represents the potential losses from both – transition and physical risks – to an asset’s NAV (in %) due to a delayed transition to a greener economy. These are costs assets have to face when they act too late to align with the Paris Agreement. The metric calculates the relative difference in the valuation of a company between the disorderly (higher expected costs from a carbon tax) and the orderly transition scenarios:

  • in per cent as of today and for 2030, 2040, 2050

  • Average Extreme Late-Alignment Risk in per cent as of today and for 2030, 2040, 2050 for all indices, portfolios, sectors, and markets

• Extreme No-Alignment Risk: The metric represents the potential losses from both – transition and physical risks – to an asset’s NAV (in %) due to no transition to a greener economy. These are costs assets have to face when they fail to act and align with the Paris Agreement. The metric calculates the relative difference in the valuation of a company between the no transition (higher expected costs from physical risks) and the orderly transition scenarios:

  • in per cent as of today and for 2030, 2040, 2050

  • Average Extreme No-Alignment Risk in per cent as of today and for 2030, 2040, 2050 for all indices, portfolios, sectors, and markets

• Extreme Physical Risk: The metric represents the potential losses to an asset’s NAV (in %) due to its exposure to physical risks. To calculate the metric, we focus on the no transition scenarios, where physical risks are the highest. Extreme Physical Risk is the relative difference in the valuation of a company being fully exposed to physical risks and not being exposed:

  • in per cent as of today and for 2030, 2040, 2050