The Institutional Investors Group on Climate Change (IIGCC) has outlined four challenges that investors face when using corporate physical climate risk data for valuation, pricing and risk management.
Challenges:
- Limited or uneven coverage at company and asset level
- Opaque methodologies and assumptions
- Diverging models which complicate comparison and decision making
- Limited incentives for companies to disclose physical climate risks
IIGCC writes: “In response, investors are using engagement with companies more systematically to test assumptions and build a clearer picture of risk and resilience, as well as pushing for better incentives for disclosure and resilience planning. In practice, this helps bridge the gap between imperfect data and real-world decisions.”
It stressed the importance of climate risk assessment frameworks, clearer expectations for data providers, and sector-neutral engagement tools to support effective dialogue with companies.