Asset-level climate physical risk assessment is key for adaptation finance

44 Pages Posted: 14 Apr 2022 Last revised: 6 Mar 2023

See all articles by Giacomo Bressan

Giacomo Bressan

WU Vienna University of Economics and Business

Anja Duranovic

EDHEC Business School

Irene Monasterolo

EDHEC Business School

Stefano Battiston

University of Zurich - Department of Banking and Finance; Ca Foscari University of Venice

Date Written: March 20, 2022

Abstract

Climate physical risk assessment is crucial to inform adaptation policies and finance. However, science-based and transparent solutions to assess climate physical risks are still missing. This is a main limitation to fill the adaptation gap. We provide a methodology that quantifies physical risks on geolocalized productive assets, considering their exposure to both chronic and acute impacts (hurricanes) across IPCC scenarios. Then, we translate asset-level shocks into economic and financial losses. We illustrate the methodology in an application to Mexico, a country that is highly exposed to physical risks, attracts adaptation finance and foreign investments. We find that investor losses are underestimated up to 70% when neglecting asset-level information, and up to 82% when neglecting acute risks. Therefore, neglecting the asset-level and acute dimensions of physical risks can lead to large errors in the identification of the relevant adaptation policy response and finance tools aimed to build resilience to climate change.

Keywords: Climate physical risks, spatial finance, plant-level impact, tail risk, investors’ losses, adaptation

JEL Classification: G00, G32, Q54

Suggested Citation

Bressan, Giacomo and Duranovic, Anja and Monasterolo, Irene and Battiston, Stefano, Asset-level climate physical risk assessment is key for adaptation finance (March 20, 2022). Available at SSRN: https://ssrn.com/abstract=4062275 or http://dx.doi.org/10.2139/ssrn.4062275

Giacomo Bressan

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1, Building D1, 3rd Floor
Vienna, 1020
Austria

Anja Duranovic

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Irene Monasterolo (Contact Author)

EDHEC Business School ( email )

58 rue du Port
Lille, 59046
France

Stefano Battiston

University of Zurich - Department of Banking and Finance ( email )

Andreasstrasse 15
Zürich, 8050
Switzerland

Ca Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy

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