Financial Impact Analytics

Modelling the financial impact of climate change

Overview

AlphaGeo's Financial Impact Analytics models the impact of climate change on key drivers of cashflow and asset value, empowering strategic financial decision-making. Leverage our OpEx (e.g., insurance, utilities) and CapEx (e.g., retrofit) cost forecasts to enhance budgeting and forecasting, or combine them with our climate-adjusted Discount Rate for more robust discounted cashflow modelling, valuations, and investment analysis.

Financial Impact Calculator on the AlphaGeo platform

Our Approach: Beyond Risk Management to Strategic Finance

Most climate financial analytics on the market focus on forecasting expected losses based on known asset valuations, producing metrics such as Climate Value-at-Risk (CVaR) or Average Annual Losses.​While crucial for downside risk management, these metrics are insufficient for strategic financial analyses that require an understanding of climate's cashflow impact – such as for valuations and investment analyses, or financial and capital budgeting

Our cashflow-focused Financial Impact Analytics were developed with this in mind, and are designed to integrate seamlessly into investment and corporate finance models (e.g., DCF) that are critical to strategic financial decision-making.

The table below summarizes key differences between our unique cashflow-focused approach, and the current market standard:

	Loss-focused Analytics	Cashflow-based Analytics
Market example	Climate VaR, Average Annual Loss, Expected Loss, etc.	AlphaGeo’s Financial Impact Analytics
Method	Top-down, one-size-fits-all approach: Applies fixed percentage loss to full asset value based on risk exposure	Bottom-up, first-principles approach: Translate climate risk into impact on core financial drivers (relevant revenue, OpEx, CapEx, and discount rate assumptions)
Use case	Defensive and risk-focused: Used in risk management, insurance, portfolio stress testing to assess and manage risk exposure	Offensive and strategic: Used by investment and corporate finance teams to optimize capital allocation by integrating into valuation, budgeting, and other models

Product Features

Financial Impact Analytics:

1. Insurance cost impact: Climate-induced annual rate of change in insurance costs

2. Utilities cost impact: Climate-induced annual rate of change in utilities cost

3. Retrofit cost impact: Additional CapEx for thermal comfort/hazard reinforcement retrofits

4. Discount rate/exit cap rate impact: Climate-adjusted discount rate/exit cap rate

Core to the Financial Impact Analytics module are our forecast's of climate's impact on insurance and retrofit costs, utilities demand, as well as the climate risk discount rate.

Climate Valuation Calculator (SaaS subscribers): Estimated NPV impact based on the metrics above

Subscribers to our native SaaS platform, AlphaGeo Explorer, also receive access to a NPV calculator that models the impact of climate change on an asset's Net Present Value, based on a user's OpEx, CapEx, and investment assumptions.

Use Cases:

• Valuation and investment analyses

• Financial planning

• Capital planning

• Public budgeting and economic modelling

Visit this article for an example on how these metrics can be applied in cashflow modelling.