Financial exposures to climate risks
Greetings Readers, Physical climate risks are quite varied in their characteristics. Some risks are highly frequent, changing second to second (e.g. wind speed traveling through wind turbines) or day to day (e.g. snow falling upon a city or town). Others are chronic, evolving slowly over years or decades (temperatures rising streadily across a region or country). And still others are extreme, occurring infrequently and with immediate high impact (e.g. hurricanes, wildfires, severe thunderstorms). The financial exposures to climate risk are also varied. Climate risks can impact the value of an institution's assets (stuff it owns) and liabilities (stuff it owes). Climate risks can also cause an institution's revenue (money it earns) and costs (money it spends) to deviate from expectations. The intersection of climate risks and financial exposures creates an opportunity to value climate risk and--if the value exceeds an institution's risk tolerance--transfer them. Below we pr...