Deutsche Asset Management is introducing a new approach to climate risk management, now mapping the physical location of corporate facilities and their exposure to climate risks.
Partnering with a California-based climate intelligence advisory firm Four Twenty Seven, the physical locations of more than one million global corporate facilities have been mapped and climate science models applied to assess their exposure to potentially catastrophic climate events.
This means Deutsche AM can now integrate a company's physical climate risk equity score within new investment products, and assess the implications of climate events for individual companies in its portfolios.
The scoring process identifies and categorises the location, activity and business sensitivity of facilities or companies to climate hazards. The climate science models are then used to assess the geographical exposure to hazards, and the impact of these is measured from an operations, supply chain and market risk perspective.
For example, the data can be analysed to see how rising sea levels could affect coastal and offshore oil and gas infrastructure, how floods could disrupt supply chains, or whether extreme heat affects labour productivity in the agricultural and construction sectors, Deutsche AM said.
"The availability of this new data on physical climate risk is a major step forward to addressing a serious and growing risk for investors. Climate risk is now centre stage, however we believe the investment industry needs to champion the disclosure of annual and once-in-a-lifetime climate risks by companies. We have a duty to understand what more hurricanes or heatwaves mean for valuations and investment returns," head of Deutsche AM, Nicolas Moreau said.
Deutsche said the new map provides credible insight into the vulnerability of corporate production and retail sites to climate change as factors such as sea level rise, droughts, flooding and cyclones pose an immediate and measurable threat to investment portfolios.
A research paper supporting the new approach shows that, while no location is immune from the risks of physical climate change, Asia is particularly vulnerable - five out of six people occupying the highest climate risk zones globally live in Asia, while 145 million people in China are living on land threatened by rising seas.