Andrew Eil on climate risk thinking and Athena's impact

📝 Australia just released its inaugural National Climate Risk Assessment. What are the takeaways for investors? ➤ "Changes in the timing, duration, intensity and spatial patterns of [climate] hazards are likely, with many events occurring more frequently, in combination or affecting new locations" 💡𝑰𝒏𝒗𝒆𝒔𝒕𝒐𝒓𝒔 𝒎𝒂𝒚 𝒘𝒂𝒏𝒕 𝒕𝒐 𝒄𝒐𝒏𝒔𝒊𝒅𝒆𝒓 𝒆𝒙𝒕𝒓𝒆𝒎𝒆 '𝒕𝒂𝒊𝒍' 𝒆𝒗𝒆𝒏𝒕𝒔 𝒊𝒏 𝒕𝒉𝒆𝒊𝒓 𝒇𝒐𝒓𝒘𝒂𝒓𝒅-𝒍𝒐𝒐𝒌𝒊𝒏𝒈 𝒔𝒄𝒆𝒏𝒂𝒓𝒊𝒐𝒔 ➤ "Future changes in Australia’s climate will not occur gradually or smoothly" 💡 𝑰𝒏𝒗𝒆𝒔𝒕𝒐𝒓𝒔 𝒔𝒉𝒐𝒖𝒍𝒅 𝒃𝒆 𝒑𝒓𝒆𝒑𝒂𝒓𝒆𝒅 𝒇𝒐𝒓 𝒏𝒐𝒏-𝒍𝒊𝒏𝒆𝒂𝒓 𝒔𝒉𝒊𝒇𝒕𝒔 𝒊𝒏 𝒓𝒊𝒔𝒌 𝒂𝒏𝒅 𝒆𝒙𝒑𝒐𝒔𝒖𝒓𝒆 ➤ "Continued investment in uplifting climate and hazard information would paint a more comprehensive understanding of future climate risk, including developing a greater understanding of future climate and hazard extremes, compound risk, and the possible impacts of reaching climate or ecological tipping points" 💡 𝑰𝒏𝒗𝒆𝒔𝒕𝒐𝒓𝒔 𝒔𝒉𝒐𝒖𝒍𝒅 𝒊𝒏𝒄𝒓𝒆𝒂𝒔𝒆 𝒕𝒉𝒆𝒊𝒓 𝒖𝒏𝒅𝒆𝒓𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒐𝒇 𝒔𝒚𝒔𝒕𝒆𝒎𝒊𝒄 𝒄𝒍𝒊𝒎𝒂𝒕𝒆 𝒓𝒊𝒔𝒌 𝒂𝒏𝒅 𝒉𝒐𝒘 𝒊𝒕 𝒄𝒐𝒖𝒍𝒅 𝒂𝒇𝒇𝒆𝒄𝒕 𝒕𝒉𝒆𝒊𝒓 𝒑𝒐𝒓𝒕𝒇𝒐𝒍𝒊𝒐𝒔 Learn how Trex can help elevate your climate scenario data and shed light on non-linear climate and energy transition shifts here: https://trexanalysis.com/ 📚 Read Australia's National Climate Risk Assessment here: https://lnkd.in/g8ftaXiT (Image shows P.28 of the Assessment summary report)

Current #climate scenario analysis fundamentally lacks probabilistic assessments, which severely limits effective financial valuation and policy decision making. Two complementary approaches can estimate these missing probabilities: a least-committal maximum entropy method using minimal constraints, and an economist-informed approach that incorporates professional recommendations for carbon pricing while correcting for implementation realities. Both methods converge on sobering findings: the median 2100 temperature increase will be approximately 2.7°C, with virtually no chance of limiting warming to 1.5°C and a significant 35-40% probability of exceeding 3°C. Without substantial policy corrections and significantly greater investment in climate abatement measures, the probability distribution will continue to favor dangerous high-temperature anomalies of 3°C or higher, which have never been experienced by human civilization and would dramatically increase the likelihood of irreversible climate tipping points, making adaptation efforts far more challenging and costly than current transition investments. Maintaining current inadequate carbon pricing policies essentially condemns future generations to bear catastrophic physical climate damages.

Yue (Nina) Chen Chen just put out one of the most succinct and compelling explanations for the limitations of climate scenario analysis that I've seen to date. In this Responsible Investor piece, she explains why the current approaches to scenario analysis may be furthering climate complacency, in which financial institutions and companies wrongly conclude that they face limited direct impacts from a transitioning economy and worsening physical risks. I would love to see how some of the emerging approaches she describes are helping firms grapple with the implications of climate change. Embedded in this piece are also some encouraging nuggets: including data on the acceleration of clean energy technology, even without further policy support. I'm excited to see what other insights come from Nina, and the cohort of brilliant financial regulators who have recently left the government and may now be able to speak out about climate risks in a new way!

There are many valuable points in this, and a simple starting point that opens up many other possibilities. "Change your interpretation of the outputs from a limited climate scenario analysis. Treat it not as a full risk assessment, but as a learning tool. The outputs should be viewed as likely lower bounds with high uncertainty, not precise forecasts. The most valuable insight might not be the number itself, but the questions that follow" #ClimateRisk #ScenarioAnalysis #ResponsibleFinance

In recent years, climate risk has become the cornerstone to managing resilience and shaping net-zero strategies. Many disclosure frameworks, such as TCFD and ISSB, focus heavily on climate risks and opportunities and how these feed into governance and strategy. Yet, despite this, many organisations still find it challenging to build a comprehensive approach. Below, Senior Consultant Kristen Mierzejewski breaks down 6 common barriers companies face when it comes to tackling climate risk. From frameworks to financial impacts, climate risk assessments can feel overwhelming. Let’s start the conversation on how to make them manageable and actionable 👉 https://lnkd.in/e4gNwXSR #ClimateRisk #RiskManagement #ClimateStrategy

What’s the crucial first step in assessing climate risk? It’s not identifying the risks themselves, it’s asking - what are the possible futures that could shape those risks? 🌍 Under the Australian Sustainability Reporting Standards (ASRS), companies are expected to assess their exposure to climate-related risks and opportunities, but more often than not, we are seeing scenario analysis being left to the end. Explore why starting with climate scenarios as part of the risk identification process is key in our latest article by James Balík-Meacher and Elizabeth Lu via the link in the comments 👇 #ASRS #ClimateDisclosures #MakingSustainabilityHappen #OneTeam

We have put out a lot of content over the last few months around preparing for #ASRS, but I think this might be the most important one when it comes to driving actual business insights & value from this reporting process. The #AASBS2 standard requires companies to identify and assess their exposure to climate risks and opportunities via scenario analysis (https://lnkd.in/g4hBnvfC) and the "simple" way to do that is to take a 2 step process, identify things you think will be a risk, then assess those risks under different futures. The big problem is that we see companies missing potentially material R&Os that aren't relevant under todays conditions, but will be major issues depending what future unfolds. A real client example - we are working with a company who has a large heavy vehicle fleet. They initially ruled out EVs & hydrogen opportunities to reduce emissions & cost exposure, due to the lack of available/affordable technology today. However, when they applied a climate scenario lense, and looked at a rapidly decarbonising world, where battery prices are dropping and government is investing in infrastructure, suddenly it became one of the biggest potential cost savings available to them. Understanding the scenarios that could unfold, before identifying the important risks, means this company can now map out a decision tree around those emerging technologies and realise those cost and emissions savings when they become viable, rather than discarding something potentially material and missing the opportunity. This is just one example, but this process is so important to help companies plan effectively into the uncertain future. Read more here: https://lnkd.in/gu-P7Qp2

Climate scenario analysis is one of the foundations of a robust climate change assessment, and a key part of #ASRSreporting. The article authored by James Balík-Meacher and Elizabeth Lu discusses climate scenario modelling and its importance. SLR Consulting

🌍 Understanding climate risk is paramount for financial institutions striving for long-term sustainability. As decision-makers, we must equip ourselves with strategies that effectively assess and manage climate-related risks. 💡 By decoding the intricacies of climate impacts, we can safeguard our investments and ensure resilience against the evolving challenges of our environment. Let’s share insights and best practices to navigate this critical aspect of financial strategy. #ClimateRisk #FinancialResilience #Sustainability #RiskManagement

Australia Seeks Insight on Climate-Economic Blind Spots - Mirage News: The Reserve Bank of Australia is actively seeking partnerships with researchers, as well as investing in its own internal climate risk modelling.