Climate Financial Impact Metrics
Modelling the financial impact of climate change
Last updated
Modelling the financial impact of climate change
Last updated
Model the financial impact of climate change using our Climate Financial Impact metrics. We offer financial analytics that adjust the OpEx, CapEx, and Cap Rates that influence the Net Present Value (NPV) of an asset due to climate change.
Each datapoint is delivered as a coefficient that can be easily incorporated into financial models for strategic decision-making - from standard DCF valuation models, to budgets, forecasts, and capital plans.
Current climate-related financial metrics products on the market remain loss-focused, with analytics such as Climate Value-at-Risk (CVaR) that assess financial losses from climate hazards. While these loss-focused metrics are essential to downside risk management, they are insufficient for strategic finance - in other words, the optimization of capital amidst climate volatility, be it investments, budgeting, or capital planning.
AlphaGeo has developed the cashflow-focused Climate Financial Impact Metrics with this in mind, designing them to integrate seamlessly into investment and corporate finance models (e.g., DCF, capital planning) 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:
Market example
Climate VaR, Average Annual Loss, Expected Loss, etc.
AlphaGeo’s Climate Financial Impact Metrics
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 forecasting models
Insurance cost impact: Climate-induced annual rate of change in insurance costs
Utilities cost impact: Climate-induced annual rate of change in utilities cost
Retrofit cost impact: Additional CapEx for thermal comfort/hazard reinforcement retrofits
Discount rate/exit cap rate impact: Climate-adjusted discount rate/exit cap rate
Climate Valuation Impact: Estimated NPV impact based on the metrics above
Check out this article for an example on how these metrics can be applied in cashflow modelling. Use Cases:
Valuation and sensitivity analysis
Financial planning
Capital planning
Public budgeting and economic modelling
On-demand searches using the AlphaGeo Explorer. Register for a free trial here.
Address-based query using our API for larger volumes (see documentation).
