Integrating climate modeling into due diligence

Physical climate risk data: the more we learn, the less we know? Khalid Azizuddin's recent piece in *Responsible Investor captures well what many practitioners are grappling with today: - asset-level data that remain incomplete or hard to interpret; - physical hazard exposure often disconnected from financial materiality; - little visibility on supply chains or customers; - adaptation and resilience efforts largely ignored; - and a risk of over-simplifying complex realities into a single “score.” Some three years ago, EDHEC Business School set out to address exactly these challenges, working to advance climate risk modelling and make decision-useful for investors, companies, and public authorities. In this work, we have developed: 🔹 a blueprint for a new generation of probabilistic climate scenarios; 🔹 high-resolution geospatial modeling capabilities to allow for geographic and sectoral downscaling, consistent with each scenario; 🔹 an open database of decarbonisation and resilience technologies through the #ClimaTech project, which officially launched this week. While the research is public, the new EDHEC Climate Institute has also been assisting a school-backed venture, Scientific Climate Ratings (SCR), which integrates this research to deliver forward-looking quantification of the #financialmateriality of climate risks for infrastructure companies and investors worldwide. While SCR provides a rating scale for comparability, it avoids the trap of over-simplification. Each rating is backed by probabilistic scenario modelling, analysis of physical and transition risk exposures, and explicit accounting for adaptation measures. The result is a synthesis that remains transparent, interpretable, and anchored in scientific rigour. Together, these initiatives aim to move the discussion from data abundance to decision relevance, equipping practitioners with tools that connect climate science, finance, and strategy.

Today I am reading a newly issued report “From Vulnerability to Value: A Risk Mitigation Playbook to Drive Resilient Development” produced by The Resiliency Company with partnership from Urban Land Institute JLL Turner Construction Company and Ryan Companies US, Inc. to offer a practical method for turning climate resilience into a competitive advantage. As you all know, I spend most of my time looking at the housing industry intersection with climate risk, but it is worth remembering the critical inflection point that the commercial real estate industry is in–still recovering from the economic impacts and vacancy issues from Covid, rising insurance and rising physical risk, in some areas is creating significant challenges for CRE developers–these are our storefronts, our back offices, and our multifamily housing.  The stakes are immense, and effective collaboration is critical to managing risk across the entire value chain. 👉Report Link: https://lnkd.in/eQhuf45d  According to this playbook, the traditional risk management approach—relying on historical weather data, building codes, and insurance—is no longer sufficient to navigate increasing physical and transition risks. Converging pressures including economic headwinds, escalating extreme weather events, rising insurance costs, rapidly changing regulations, and aging community infrastructure are fundamentally reshaping the type and magnitude of risks facing all stakeholders in CRE new development. This includes lenders, investors, developers, owners, design teams, contractors, and insurers. Real estate owners and developers must adapt their business strategies by incorporating future climate risk assessments to mitigate climate risks. This includes mapping out the physical risks associated with their existing portfolios and potential acquisitions and implementing physical adaptation measures for assets at risk. Moreover, climate risks should be integrated into the due diligence processes of real estate transactions. By proactively addressing climate risks in the real estate sector, stakeholders can better protect their investments, promote sustainable development, and contribute to long-term climate resilience. Great work! Abby Ross Matt Posner Aimee Witteman Lindsay Brugger, AIA, CPHC Cheri Hanes, CRIS Hyon Rah Julia Gisewite Kelly Souza Myrrh Caplan, MBA, LEED Fellow Illya Azaroff, FAIA!

WOULD YOU BET YOUR CAPITAL REQUIREMENTS ON YOUR EXISTING CLIMATE MODELS - WOULD YOU DO IT WITHOUT BENCHMARKING? The Bank of England (BoE) is effectively operationalizing what RiskThinking.ai has been predicting: the era of "climate as CSR" is over, and the era of "climate as solvency" has begun. Here is how the RiskThinking.ai (RTAI) platform is the exact technical answer to the specific pain points identified in your post. 1. "Climate Risk is Credit Risk" The BoE Demand: Climate must be treated as a core financial risk, indistinguishable from credit or market risk. The RTAI Solution: This validates RTAI’s move away from "Climate Scores" (0-100) to Financial Metrics like Value at Risk (VaR) and CVaR. A credit risk officer cannot calculate a capital buffer with a "High Risk" score, but they can with a "17% VaR" figure . The Platform Advantage: RTAI integrates these financial metrics directly into the bank's credit models via API, treating climate strictly as a driver of Probability of Default (PD) and Loss Given Default (LGD). 2. "Boards are Personally Accountable" The BoE Demand: Directors can no longer claim ignorance or rely on vague sustainability reports. The RTAI Solution: The Downside Likelihood metric (e.g., "85% chance conditions will be worse than history") is designed specifically for the Board . It cuts through the noise and provides a single, defensible metric that defines the strategic risk environment, fulfilling their fiduciary duty to monitor material risks . 3. "Lack of Data = Hold More Capital" The BoE Demand: If you can't quantify the risk, the regulator will assume the worst and force you to hold expensive capital against it. The RTAI Solution: This addresses the Data Gap explicitly. The Climate Digital Twin (CDT) fills this void with over 140 billion forward-looking projections. The Platform Advantage: By using RTAI’s stochastic data, a bank can prove to the regulator that its risk is measured and managed, potentially lowering the capital surcharge compared to a bank using "black box" AI or generic data . 4. "The Connected System" (Banks + Insurers) The BoE Demand: Regulators see the system as one unit. If insurers exit, bank collateral collapses. The RTAI Solution: This is exactly what OUR MULTIFACTOR CLIMATE STRESS TESTING MODELS: Systemic Amplification. Scenario: A bank might think its mortgage portfolio is safe. RTAI UNCOVERS TAIL RISK WITH ITS STOCHASTIC METHODOLOGY(modeled as part of the ecosystem) The platform then recalculates the bank’s LGD based on uninsured collateral, revealing the true "systemic" credit risk that a siloed, DETERMINISTIC model would miss . #CLIMATERISK #MODELRISK #STOCHASTIC #RISKTHINKING

How do private equity firms measure climate risk? With trillions at stake in the energy transition, investors need hard data—not guesswork. Working with Risilience, Adams Street Partners has produced their latest Task Force on Climate-Related Financial Disclosures (TCFD) report. In this report, Adams Street Partners show how private equity can quantify and manage climate-related risks over time. 𝗞𝗲𝘆 𝗶𝗻𝘀𝗶𝗴𝗵𝘁𝘀 𝗳𝗿𝗼𝗺 𝘁𝗵𝗲 𝗿𝗲𝗽𝗼𝗿𝘁: ✔ 52% of active managers now integrate climate risks in investment decisions (up from 46% last year). ✔ 10-year exposure under the Paris Ambition (1.5°C) scenario represents less than 5.5% earnings value at risk. ✔ Less than 1% portfolio exposure to oil, gas, and consumable fuels—reflecting a low-carbon investment strategy. ✔ Increase the number of managers that set net-zero targets for their portfolio. 𝗧𝗵𝗲 𝗽𝗼𝘄𝗲𝗿 𝗼𝗳 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸 𝗺𝗼𝗱𝗲𝗹𝗹𝗶𝗻𝗴 Adams Street partnered with Risilience, to conduct climate scenario analysis using its Earnings Value at Risk (EVTR) model. 🔹 25,000+ companies assessed to benchmark emissions pathways 🔹 Four climate scenarios modelled—from current policies (3°C warming) to Paris Ambition (1.5°C) 🔹 Market, policy, and technology risks quantified for a 5- and 10-year investment horizon My take: Climate risk isn’t just a compliance exercise—it’s about resilience and opportunity. With scenario modelling, investors can quantify risks, adapt portfolios, and capture the upside of the net-zero transition. 🔹 Is your organisation integrating climate risk modelling into investment decisions? Download the full report here: https://lnkd.in/eExXwqaw __________ For updates on sustainability, climate, and innovation follow me on LinkedIn: http://bit.ly/4fPYlqz.

🏠 Climate Risk, Real Estate, and the Truth About Flood Maps: Why RiskFootprint™ Is Built for Due Diligence We're not an advocacy group; Not a non-profit Recent headlines have stirred controversy around climate risk scores from First Street Foundation, Zillow, Redfin, and Realtor.com. Some critics—often with deep ties to the real estate industry—are calling for a return to exclusive reliance on FEMA flood maps. But let’s be clear: FEMA maps were never designed to capture the full spectrum of today’s flood and natural hazard realities, let alone tomorrow’s. 🚫 The Problem with Legacy Flood Maps FEMA maps omit: Heavy rainfall flooding that’s increasingly common in urban and suburban areas Future climate change threat multipliers like sea level rise, extreme heat, and intensifying storms This narrow scope leaves buyers, investors, and communities exposed to risks that are scientifically predictable—but institutionally ignored. ✅ What Makes RiskFootprint™ Different At RiskFootprint™, we’ve built our SaaS platform around scientific transparency, open-source data, and actionable insights. Our reports include: 🔍 Over 30 Current-Day Hazard Assessments Flooding (riverine, rainfall, King Tide) Extreme winds and hurricane storm surge Wildfire, earthquakes, landslides, hail, etc. All modeled using historical, peer-reviewed, open-source data 🌡️ Future Climate Change Threat Multipliers Sea level rise (NOAA + NASA models) Extreme heat and rainfall Drought projections Our methodology is 90% grounded in current-day risks and 10% focused on future climate impacts—a balance that reflects both scientific rigor and practical relevance. 🧠 Why This Matters for Buyers and Stakeholders RiskFootprint™ isn’t just a score—it’s a due diligence tool. Whether you're evaluating a residential property or a commercial portfolio, our reports help you: Understand real-world hazard exposures Comply with ASTM PRA and various real estate disclosure laws Make informed decisions about resilience, insurance, and long-term value 🔎 Transparency Over Agenda We believe in empowering stakeholders—not obscuring risk. That’s why our platform is built to be replicable, auditable, and grounded in science—not politics. If you're a buyer, investor, or operator navigating today’s climate-aware real estate landscape, RiskFootprint™ is your ally in truth, transparency, and resilience. You can purchase a RiskFootprint(tm) report online for any residential or commercial property in the US at RiskFootprint dot com. https://lnkd.in/e3m5s_3a #duediligence #riskfootprint #flooddisclosure