Asset-level assessment of climate physical risk matters for adaptation finance

46 Pages Posted: 14 Apr 2022 Last revised: 4 Nov 2023

See all articles by Giacomo Bressan

Giacomo Bressan

WU Vienna University of Economics and Business

Anja Duranovic

Utrecht University - School of Economics

Irene Monasterolo

Utrecht University

Stefano Battiston

University of Zurich - Department 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 the scenarios of the Intergovernmental Panel on Climate Change. 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, and 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, investments 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 assessment of climate physical risk matters 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

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

Irene Monasterolo (Contact Author)

Utrecht University ( email )

Vredenburg 138
Utrecht, 3511 BG
Netherlands

Stefano Battiston

University of Zurich - Department Finance ( email )

Plattenstrasse 32
Zürich, 8032
Switzerland

Ca Foscari University of Venice ( email )

Cannaregio 873
Venice, 30121
Italy

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