The 2023 Climate Risk Landscape

The impacts of climate change and the necessary transition will impact almost every human and natural system. Successful companies and communities will be ones that are resilient in the face of these challenges. Developing climate resilience and contributing to a sustainable future requires action today. Organisations that recognize this are seeking to better understand their climate risks and opportunities and the strategies they should pursue. Climate risk tools can assist in the decision-making process and by validating climate strategies and uncovering new insights about climate risk. The pace of development and deployment of climate risk tools within the financial sector has been breath-taking. UNEP FI’s 2023 Climate Risk Landscape report aims to assist financial actors in better understanding this diverse and dynamic landscape of climate risk tools. The report explores the major market trends in both physical risk and transition risk tools and provides detailed analysis on dozens of individual tools. Some of the key findings found within the report are as follows: Greater integration of different climate risks within tools—tool providers have recognised the need for financial institutions to understand the full range of climate risks faced by a counterparty of portfolio. This has led to the expansion of integrated physical and transition risk tools as well as additional coverage of specific hazards within physical and transition risk assessments. This work is still ongoing and many risk interaction effects and tipping points are not typically captured. Focus on net-zero commitments within tools—as countries and companies around the world set ambitious targets for reducing greenhouse gas emissions, climate risk tools are being developed to help them set targets, assess their alignment, and implement their net-zero strategy. That has included the incorporation of a greater range of net-zero scenarios within tools as well as greater granularity for sectoral decarbonisation pathways. Rising regulatory demands are accelerating tool use and functionality—mandates for climate-related financial disclosures have come into effect in jurisdictions across the world. Regulatory climate scenario exercises and climate stress tests are becoming The 2023 Climate Risk Landscape 9 Contents | Executive summary more common as well. This regulatory pressure has both expanded the demand for climate risk tools and also resulted in a growing suite of purpose-built tools, designed to address climate disclosures and scenario exercises. New data and new insights are top priorities for financial institutions—many institutions involved in UNEP FI’s working group on climate risk tools expressed a desire for tools to continue to progress on addressing data gaps and offering decision-useful information. As climate tools become more central to financial analysis, institutions appear excited to explore leading-edge data and decisioning techniques such as those offered by geospatial data and machine learning algorithms. These trends and many others are explored in greater depth throughout the report.