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Crucial Gaps in Climate Risk Assessment Methods

Initiative in Sustainable Finance: Stefano Battiston – Current climate risk assessments severely underestimate potential losses

Researchers from Zurich, Vienna, and Utrecht have identified significant flaws in current climate risk assessment techniques that could severely underestimate climate-related financial losses for businesses and investors.

A study by Giacomo Bressan, Anja Duranovic, Irene Monasterolo and Stefano Battiston, recently published in Nature Communications, reveals that current methods often rely on simplified data, leading to underestimation of up to 70% in potential losses. Their new methodology, which considers detailed asset information such as factory locations, equipment, and natural resources, offers a more accurate risk picture.

The study also highlights the need to account for extreme events, which can increase losses by up to 98%. Accurate risk assessments are essential for effective climate adaptation and investment strategies.

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More about the Study

Initiative in Sustainable Finance at the Department of Finance

Press Release from the University of Zurich

Literature

Giacomo Bressan, Anja Duranovic, Irene Monasterolo, Stefano Battiston. Asset-level assessment of climate physical risk matters for adaptation. Nature Communications, 1 July 2024.
DOI: 10.1038/s41467-024-48820-1

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