Fit for climate change with Climate Excellence

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Gunther Dütsch
Partner, Sustainability Services & Climate Risk at PwC Germany
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PwC’s “Climate Excellence tool” for climate scenario analyses

PwC’s “Climate Excellence tool” supports companies from the financial and real economy in conducting climate scenario analyses to make their portfolios fit and future-proof for the risks and opportunities of climate change. This enables them to realize increases in value, adequately manage risks, and set up a long-term sustainability strategy and compliant reporting.

Climate change forces immediate action

Increasing occurrence of climate disasters

According to the Intergovernmental Panel on Climate Change’s Sixth Assessment Report, climate change is becoming more drastic and the critical global warming mark of 1.5°C is likely to be exceeded by 2030. Global warming is leading to increasingly frequent and severe weather extremes.Climate change and climate protection are having an ever greater impact on economic developments. They also entail major financial risks: From power plants that do not come on stream, to the electrification of individual transport, to the increasing energy requirements for buildings.

More and more complex regulations

The pressure to act on the part of politicians is increasing. The EU is supposed to be climate-neutral by 2050. A joint effort that requires a radical turnaround – also for companies, banks and insurances.

Regulators such as the European Central Bank (ECB) or the European Insurance and Occupational Pension Authority (EIOPA) emphasise the importance of this goal, for example in the ECB consultation paper on climate risks and the guideline for non-financial reporting or in the EIOPA application guidance on climate change materiality assessment and climate change scenarios in the own risk and solvency assessment (ORSA). Additionally, more and more reporting requirements like the framework of the Corporate Sustainability Reporting Directive (CSRD) and the EU taxonomy are already shaping the necessity for climate risk analysis and management of financial institutions and the real economy.

Overview of Regulations and Requirements met by Climate Excellence

Climate risks are expensive

The TCFD predicts that climate change could put $43 trillion worth of fixed assets at risk by the end of the century.  According to a CDP study, the world’s 215 largest companies put the impact of climate risks on their businesses at nearly US$1 trillion – many of which are likely to come due within the next three years. This is due to dynamic market conditions, physical impacts and increasing regulation. To meet climate and energy targets by 2030, the EU Commission expects an additonal annual investment of up to €260 billion per year. The Sustainable Europe Investment Plan is part of the European Green Deal and aims to support both public and private investment in climate projects of at least €1 billion between 2021 and 2030.

Increasing pressure from stakeholders

How can companies maintain their "license to operate" and prove themselves in rapidly changing markets? The EU Action Plan, the Network for Greening the Financial System and other stakeholders are increasing the pressure to integrate climate-related risks and opportunities. Society, politicians, suppliers, investors and customers are increasingly demanding more transparency and action.