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Climate risk and resilience

Weathering unprecedented challenges and realizing even bigger opportunities

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. 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



Price of carbon graph

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


Contact us

Declan McManus

Declan McManus

ESG Climate Advisory Leader, KPMG US

+1 512-501-5326
Erkan Erdem

Erkan Erdem

Principal, Economic & Valuation Services, KPMG US

+1 703-286-8188
Adam Levy

Adam Levy

Principal, Modeling & Valuation, KPMG US

+1 312-665-2928
Jason Ballentine

Jason Ballentine

Climate Risk & Resilience Leader, KPMG US

+1 512-320-5182