Climate risk and resilience

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

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

Opportunities

Global sustainable investments total at least US$25 trillion—up 15% since 2018.² Potential opportunities include:

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

Footnotes

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

_{2 Reuters, “Sustainable investments account for more than a third of global assets” (July 2021)}

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

TCFD 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

Phase 1: Develop strategy

1. Evaluate TCFD climate risk readiness: Evaluate the extent to which your business’s processes and controls enable climate readiness, resilience, and TCFD-aligned reporting.

2. Assess risk and opportunities: Understand physical risks, transition risks, and opportunities by scenario, value chain component, and geography.

3. Review strategic response planning: Review current business strategy, risk mitigation plans, resilience investments, and develop strategic responses and recommendations.

Phase 2: Implement strategy

4. Transform your organization: Implementation of your strategic responses across your business and creating a climate resilience business/operating model.

5. Measure progress and reporting: Detailing your TCFD-aligned climate narrative to the market based on your risk and actions today, and the pathway ahead.

Assessing physical climate risks

The other critical element of a sustainable decarbonization plan is assessing potential climate-related risks in your portfolio. KPMG has developed a proprietary tool that visualizes and assesses risk exposure across multiple climate change scenarios and forecast periods. It 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.

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

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

Visualization output

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}