> For the complete documentation index, see [llms.txt](https://docs.alphageo.ai/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.alphageo.ai/climate-resilience-suite-crs/use-cases/use-case-alphageo-for-climate-adjusted-valuation.md). # Climate Resilience Suite for Financial Modelling & Valuation A worked ten-year DCF example covering climate impacts on income, operating costs, capital expenditure, valuation and adaptation ## Overview This example shows how [Financial Impact Analytics](/climate-resilience-suite-crs/climate-resilience-suite-overview/financial-impact-analytics.md) feed into a ten-year discounted cashflow (DCF) valuation. It includes insurance, utilities, maintenance, workforce productivity, operational efficiency, downtime, retrofit CapEx and the Climate Risk Discount. It also explains Insurability Risk and calculates the resulting NPV Loss, Average Annual Loss and Adaptation Alpha. All financial assumptions and FIA inputs below are illustrative. They describe a hypothetical asset, not an observed property or a recommended forecast. Dollar amounts use one consistent currency. The FIA inputs represent the final asset impacts supplied to the valuation model. We compare three scenarios: a baseline with no additional climate impacts, a climate-adjusted case, and an illustrative adapted case. All three use the same underlying financial assumptions. The spreadsheet-style figures below can be viewed at full size. An [HTML version of all six sheets](https://github.com/Climate-Alpha/Public-Docs/tree/gitbook/.gitbook/assets/fia-dcf-sheets.html) is also available. ## 1. Financial assumptions
Spreadsheet of common financial assumptions for the ten-year DCF

Common financial assumptions. Teal values identify illustrative inputs.

Expense percentages are applied to potential gross income. Vacancy and the climate-related income reductions affect the income line separately. ## 2. FIA inputs and their financial effects The baseline has zero additional climate impacts. The adapted column supplies a second set of illustrative FIA inputs to demonstrate the valuation comparison. These assumed reductions do not represent a costed adaptation programme or a uniform reduction that every adaptation measure achieves.
Spreadsheet comparing climate-adjusted and adapted FIA inputs

FIA inputs applied to the climate-adjusted and adapted scenarios.

The climate-adjusted insurance input can, for example, comprise a flood contribution of 3 percentage points and a wildfire contribution of 2 percentage points, giving 5% in total. These contributions feed the single insurance expense line. The adapted insurance input of 3% is an assumption for this worked example. In an asset assessment it must come from recalculating insurance growth using the adapted peril impacts; it cannot be inferred by applying a blanket reduction to the 5% rate. Reducing both baseline and future impacts can leave the growth rate unchanged. ## 3. Apply the inputs to cashflows For year `t`, where year 1 is the first forecast cashflow: ``` Potential gross income_t = 500,000 × 1.03^(t − 1) Effective gross income_t = Potential gross income_t × 0.95 Climate-adjusted income_t = Effective gross income_t × 0.99 × 0.995 × (362/365) Insurance_t = Potential gross income_t × 0.04 × 1.05^t Utilities_t = Potential gross income_t × 0.08 × 1.02 Maintenance_t = Potential gross income_t × 0.05 × 1.04 CapEx_t = Potential gross income_t × (0.04 + 0.02) NOI_t = Climate-adjusted income_t − Insurance_t − Utilities_t − Maintenance_t Free cashflow_t = NOI_t − CapEx_t PV cashflow_t = Free cashflow_t / 1.08^t ``` Productivity, efficiency and downtime combine multiplicatively. Here their combined income multiplier is **0.976954**, a **2.3046%** reduction in effective gross income. Adding the three percentage losses would not give the same result. The adapted multiplier is **0.988434**. Insurance growth compounds annually. Utility and maintenance uplifts, and the income reduction factors, are applied at the stated level in each year; they do not compound again. Their dollar amounts still change with underlying income. CapEx adds percentage points to its share of potential gross income. ## 4. Ten-year DCF schedules Each schedule reads like a financial model: years run across the columns, income and expense lines run down the rows, and subtotals lead to free cashflow and valuation. Amounts in the schedules are **$000s**, rounded to one decimal place; the NPV summaries below each sheet are in dollars. Parentheses indicate deductions. All calculations use unrounded values. Productivity, efficiency and downtime appear as sequential income deductions, so their combined effect matches the multiplicative formula above. Year 11 is a separate reference for terminal NOI and does not add another holding-period cashflow. ### Baseline scenario
Baseline DCF spreadsheet with years 1 to 10 and year 11 terminal NOI

Baseline NPV: $7,648,997.33.

### Climate-adjusted scenario
Climate-adjusted DCF spreadsheet including productivity, efficiency, downtime and operating costs

Climate-adjusted NPV: $6,881,789.73. Climate-driven insurance growth compounds through year 11.

### Adapted scenario
Adapted DCF spreadsheet using the illustrative adapted FIA inputs

Adapted NPV: $7,248,290.46, using the assumed adapted inputs in section 2.

## 5. Terminal value and total NPV Terminal value uses year 11 NOI before CapEx. Insurance therefore includes an eleventh year of climate-growth compounding. The resulting terminal value is received at the end of year 10 and discounted for ten years. ``` Terminal value = Year 11 NOI / Exit cap rate PV terminal value = Terminal value / 1.08^10 Total NPV = Sum of PV cashflows for years 1–10 + PV terminal value ```
Spreadsheet comparing terminal values, NPV, NPV Loss, AAL and Adaptation Alpha

Valuation comparison in dollars. Teal rows highlight total NPV and Adaptation Alpha.

## 6. Interpret the FIA valuation metrics | Metric | Calculation | Example result | | ----------------------------------- | ---------------------------------------------------------- | ----------------------------------- | | 10-Year NPV Loss (CVaR) | (Baseline NPV − Climate-adjusted NPV) / Baseline NPV × 100 | **10.03%** | | Average Annual Loss (AAL) | 10-Year NPV Loss / 10 | **1.00% per year** | | Adaptation Alpha | (Adapted NPV − Climate-adjusted NPV) / Baseline NPV × 100 | **4.79% of baseline NPV recovered** | | Remaining NPV loss after adaptation | (Baseline NPV − Adapted NPV) / Baseline NPV × 100 | **5.24%** | The climate-adjusted scenario reduces NPV by **$767,207.59**. The assumed adapted inputs recover **$366,500.72** of that difference. Adaptation Alpha uses baseline NPV as its denominator; it is not a return on adaptation spending. A project appraisal also needs the cost and timing of the proposed measures. No separate implementation budget is included beyond the CapEx assumptions shown here. AAL here is FIA's annualized valuation-loss measure: the ten-year NPV loss divided by ten. It is not an estimate of insured claims in each individual year. NPV Loss and Adaptation Alpha summarize the DCF outcomes and must not be added back as extra cashflow deductions or benefits. Insurability Risk should be reviewed alongside the valuation. A high-risk flag does not automatically set coverage to zero or introduce a further premium increase in this calculation. If coverage availability changes the analyst's insurance assumptions, those revised assumptions require a separate scenario. --- # Agent Instructions This documentation is published with GitBook. GitBook is the documentation platform designed so that both humans and AI agents can read, navigate, and reason over technical content effectively. Learn more at gitbook.com. ## Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation by asking a question. Perform an HTTP GET request on the following URL with the `ask` and `goal` query parameters: ``` GET https://docs.alphageo.ai/climate-resilience-suite-crs/use-cases/use-case-alphageo-for-climate-adjusted-valuation.md?ask=&goal= ``` `ask` is the immediate question: it should be specific, self-contained, and written in natural language. `goal` is what the user is ultimately trying to achieve, the reason they need the answer. Sharing it helps GitBook give you a better, more relevant answer. A goal is most helpful when it describes the outcome the user wants rather than restating the question. For example, with `ask=how do I create an API token`, a goal like `automate deployments from our CI pipeline` lets GitBook tailor the answer to that use case. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.