The method was originally conceived by The CO-Firm and developed together with experts from the financial industry. It was tested in the real economy as well.
Seven years of market testing
Your expert for questions
Dr Nicole Röttmer
Partner, Climate Leader, PwC Germany
PwC's “Climate Excellence” tool for climate scenario analyses supports investors and companies in making their portfolios fit 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 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.
Financial experts predict that climate change could put $43 trillion worth of fixed assets at risk by the end of the century. That's why the Task Force on Climate Related Financial Disclosures (TCFD), launched on behalf of G20 finance ministers, recommends expanded reporting on climate risks by the real and financial sectors.
Regulators such as the European Central Bank (ECB), the U.K. Financial Services Authority (PRA), and the German Federal Financial Supervisory Authority (BaFin), as well as regulators, are emphasizing the importance of this recommendation, for example in the ECB's Consultation Paper on Climate Risks and the Guidance on Non-Financial Reporting. Enhanced reporting is already shaping the risk management requirements and strategy of financial institutions and the real economy. Numerous new regulations are expected in the near future.
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.
“Climate change is transforming our economies. Only those who understand the risks, opportunities and cause-and-effect relationships can develop sustainable and credible strategies.”
Looking at climate change and potential impacts on portfolios, many questions arise:
The PwC Climate Excellence tool helps you answer these questions quickly and reliably. The tool's scenario analyses give you maximum transparency on your portfolios by visualizing financial impacts of climate change.
Climate-related opportunities and risks are calculated on the basis of various climate scenarios and energy system models. Climate transition risks are taken into account, such as changing prices, demand, technological advances or regulation.
Climate Excellence is already equally suitable for both the financial and the real economy. The goal of the tool is to cover all industries and sectors in detail. For this reason, PwC will regularly publish new modules in a rapid release rhythm.
The following modules are already available:
Next to follow are modules for physical risks, for insurers, for private equity and for entire countries. You will always find news about the releases on this website and on our social media channels.
“Climate Excellence creates transparency to understand multi-layered climate-related market dynamics and their impact. This is the basis to actively manage risk drivers and early warning indicators in the company.”
In July 2020 the ETH Zürich published the study “Taming the Green Swan: How to improve climate-related financial risk assessments.”, in which 16 climate transition risk tools were compared. The assessment focused on two lines of research:
PwC’s Climate Excellence Tool scores top for depth of analysis, and well in terms of coverage, scenarios and metrics. For more information check out the short summary blog of ETH here.
PwC is advising a pilot group of the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Insurance (PSI) on developing methods and piloting a climate risk assessment approach.
This pilot group consists of 22 of the world's leading insurance companies and aims with the project to develop an industry-wide approach for dealing with climate risks and opportunities.
The insurance industry should thereby gain a better understanding of the effects of climate change on its business and develop strategies to deal with this issue methodically.
Further information can be found here.
In a recent survey, PwC examines the food industry from the perspective of climate change. As the results of the global survey show, the industry is particularly exposed to the consequences of climate change − production costs in Europe could rise by up to 30 percent. However, less than half of those surveyed say that they feel the impact of climate risks on their business.
There are two types of risk to be considered: The physical risks, such as long periods of drought or hurricanes, and the transitory risks arising from the reduction of CO2 emissions, for example the increase in the cost of energy and raw materials if a CO2 price is introduced.
Read here how a scenario analysis can help with climate reporting.
Climate change is having an increasing impact on the business models of the transport and logistics industry. A holistic, long-term climate strategy is therefore essential for many to react to regulatory, regional and global developments and to minimize risks. The COVID-19 crisis acts as a catalyst.
The results of the PwC study can be found here.
Climate change and its consequences are having an enormous impact on the financial industry, but how do the associated risks and opportunities affect the portfolios of asset managers and asset owners financially? You can watch the webcast here. Have fun and enjoy watching it. If you have any questions, please contact email@example.com.
Dr Nicole Röttmer
Partner, Climate Leader, PwC Germany