Climate Excellence: making companies fit for climate change
PwC’s scenario analysis tool has been designed to identify climate-related risks and opportunities and serves as a basis for climate reporting
The development of climate and climate protection affects economic performance, with financial risks as well as opportunities.
These risks are already being seen more and more in the real estate and financial sectors, whether it is power stations that are not commissioned, electrification of private vehicles or energy requirements for rental properties.
Climate-related factors are increasingly affecting economic value chains, for example by storm or fire damage to buildings and production plant. “Transition risks” are also increasing. These are caused by the transition to a low-carbon economy and affect companies’ financial viability. In short: climate change and its consequences are a matter of increasing concern for the economy and companies alike.
To mitigate the risks of climate-related factors affecting financial markets, the Task Force on Climate Related Financial Disclosures (TCFD) commissioned by the G20 Finance Ministers recommended extending disclosures by the real estate and financial sectors to include climate-related risks as part of their financial reports. There’s a good reason for this: financial experts have calculated that climate change could put $43 billion of assets at risk by the end of this century (TCFD Recommendations, 2017).
PwC adopts Climate Excellence software for scenario analysis
In light of this, PwC has adopted a well-established tool for assessing specific climate transition risks: the Climate Excellence software for scenario analysis. The tool was developed by The CO-Firm, a Hamburg-based company. Companies and investors can use it to perform quicker, simpler scenario analyses based on predefined, recognised climate scenarios and identify their financial risks. PwC’s experts were particularly keen on having a valid data basis. The tool is also systematic, methodical and provides answers to your specific questions, for example: How will this affect my cost and sales position? What technologies will determine the future in each region? How will my clients be affected by the change?
Detailed description of the Climate Excellence scenario analysis tool
Climate Excellence is a leading tool for
- assessing risks and opportunities at a global, product and technology level
- analysing systemic opportunities and risks (most financial effects are linked not to CO2 prices but to changes in input prices and competitive dynamics)
- measuring adaptability (ie, risk management capability) and assessing actions in financial terms for companies
The results, including risk drivers and early warning indicators as well as financial consequences, can be integrated directly into standard credit and investment procedures as well as strategic and asset planning.
Climate Excellence complements your reporting
- in line with the recommendations of the TCFD
- in line with the current CDP reporting requirements
- in line with Article 173 of the French Energy Transition Act
Climate Excellence supports
- creation of heat maps for a preliminary analysis of risks and opportunities
- your company’s in-house modelling
- custom analyses for you on climate change for selected sectors, countries, companies or individual scenarios
Climate Excellence enables you
- to access pre-defined, recognised scenarios that have been operationalised for financial risk modelling
- to use databases covering more than 50 countries and over 200,000 companies/production centres and products within the TCFD’s priority areas
Climate Excellence builds on its own databases and external databases. It comprises a set of different models and databases covering the business, sector and country levels in various high-risk sectors worldwide. It examines products and production sites from the relevant sectors within the real estate industry, technical energy saving measures, carbon efficiency, improvement measures as well as pre-defined climate scenarios and sector-specific contexts.
“Climate change is changing the way company values are perceived. The dynamics behind this are complex, from changes to market prices and technology costs to regulatory actions and changes to competitive dynamics. Climate Excellence creates the transparency needed to understand these dynamics and their impact and to actively manage them as risk drivers and early warning indicators within the company.”
Scenarios for improving planning and strategy
The tool’s climate scenarios illustrate the conditions required to achieve the common goal of limiting global warming and the CO2 emissions associated with it. This generally involves considering future energy supply, new or adapting technologies as well as changes in the macro-economic context.
These scenarios, such as those suggested by the International Energy Agency, create a valuable basis for assessing the risks and opportunities arising for companies and sectors. However they are not normally directly suitable for conducting a financial assessment of those risks and opportunities.
PwC is pushing for the development of scenarios that do form a basis for this type of financial assessment. Climate Excellence has a standard set of scenarios which allow modelling in line with current predicted trends in regulation and technology, modelling based on a path to global warming of two degrees or on a path to global warming of below two degrees. Additional climate change scenarios are also possible.
Our basis: relevant data, studies and our own experience
PwC has validated databases on plant structures, technology optimisation options, asset/technology costs, efficiency gains and energy costs. Our experts also draw their knowledge from respected studies and their own experience from cross-country and cross-study work across a wide range of sectors. Third-party databases are also included where they can improve analysis.
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