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Carbon risk and climate risk

Climate change affects the business and investments of companies. We wanted to clarify the discussion on climate and carbon risks and provide tools for evaluating these risks.

WHAT WAS IT ABOUT?

Closed project: 1/2015 – 6/2016

Climate risk refers to the global effects of climate change on a company’s global business environment. These direct effects are caused by factors such as weather conditions and rising sea levels.

The discussion on climate and carbon risks needed a framework. We wanted both companies and investors to begin assessing the climate change-related risks their business activities and investments may involve. We also developed practical tools for evaluating these risks.

What was achieved?

Assessing carbon risks in an investment portfolio

The Helsinki Stock Exchange’s Climate Impact Assessment was drawn up in 2015 in co-operation with the Climate Leadership Council (CLC), South Pole Group and Nasdaq Helsinki. In 2016, we repeated the assessment. The studies demonstrate how the carbon intensity of investments can be assessed, what kinds of information are generated by such assessments and how such information can be used.

The investor tool developed during the study helps investors to understand and identify the climate impact and carbon risks associated with their investments. It also helps them to assess whether an investment has a profitable risk–return profile, given the possibility that international climate policy will be tightened. Here is the user guide for the investor tool.

Discussion events have also been arranged, in which climate and carbon risks, as well as methods of combating them, have been discussed with investors. The Montreal Pledge for investors, signed by many Finnish investors, and the Portfolio Decarbonization Coalition of the UN have also been presented at these events.

Taking account of climate risk within a business

A climate risk tool based on climate data collected by the UK’s Met Office was developed for companies. It helps firms to identify and take account of climate risks and their potential impact on business activities, plan measures to avoid the related risks and include climate risks in their risk-management processes.

A climate risk assessment framework and checklist were also produced in the project. Fortum was involved in piloting the tools. Download the technical report and the user guide.

Who participated?

The carbon risk assessment and investor tool were drawn up in 2015 in co-operation with the Climate Leadership Council (CLC), South Pole Group and Nasdaq Helsinki, and the assessment was repeated with South Pole Group in 2016. The Portfolio Decarbonization Coalition of the UN also formed part of the discussions with investors.

The climate risk tool for companies was based on the climate data gathered by the UK’s Met Office. Fortum was involved in piloting the tools.