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2.4.1 General modelling approach

Building on previous work (Alogoskoufis et al., 2021), we developed a methodology that combines financial and macroeconomic variables to project financial indicators of infrastructure assets (e.g., revenues, dividends, etc.) under various climate scenarios: We modelled the relationship between key financial variables in infrastructure companies (total assets, revenues) and macroeconomic variables (GDP, inflation). The calibrated model is able to predict financial variables based on macroeconomic projections under different climate scenarios. We complemented the climate scenario outputs with asset-level measures of carbon emissions and physical damage. Carbon emissions and physical damage impact infrastructure assets’ financial indicators and their future cash flows. We use Scientific Infra & Private Assets’ asset pricing model[1] to estimate assets’ NAV under all climate scenarios. Finally, we estimate companies’ potential losses in NAV if the global alignment actions of the Paris Agreement were only implemented in 2030 or not at all. We use the results to build climate risk metrics on the index, portfolio, sector, and country levels.

[1] We explain further details on the Scientific Infra & Private Assets’ asset pricing model when introducing our infrastructure asset valuation approach.

Alogoskoufis, S., Dunz, N., Emambakhsh, T., Hennig, T., Kaijser, M., Kouratzoglou, C., … Salleo, C. (2021). ECB economy-wide climate stress test. Methodology and results. Occasional Paper Series. European Central Bank, 281.

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