How do you go from being aware of a physical climate risk to actually being able to use that information in risk assessment and credit processes? During Metria’s seminar on physical climate risks, representatives from the banking and finance sector discussed how data, analysis, and geographic information can contribute to better risk decisions. Here are three key takeaways.
Physical climate risks are no longer just a matter for sustainability reporting. To an ever-greater extent, they need to be assessed, explained, and managed within the organization’s regular business processes.
At the same time, this work is still evolving. During the seminar, discussions repeatedly returned to a central question: how do you create a sufficiently sound basis for decision-making when risks, data, and regulations are all constantly evolving?
1. Data quality is more important than data quantity
Access to more data does not automatically solve the problem. One of the clearest insights from the discussions was that the challenge is rather about gaining access to relevant, accessible, and quality-assured data.
For a bank assessing physical climate risk, the information must also be linked to the correct asset or property. Only then is it possible to analyze how, for example, flooding, heat, or other climate-related risks might affect a portfolio.
This places demands on both the quality of the data sources and on how different types of information are combined.
2. Physical climate risks are moving closer to banks’ core processes
Regulatory requirements are helping to give physical climate risk a more prominent place in banks’ risk management. Requirements for transparency and explainability, among other things, mean that the issue must be addressed in areas such as credit assessments and reporting—not merely as a separate ESG issue. This was also one of the seminar’s clear conclusions.
At the same time, both regulations and working methods are still evolving. As a result, many banks find themselves in a situation where methods need to be tested, evaluated, and gradually improved.
Therefore, the key is not necessarily to have a finished model from the start, but to create a process where the analysis can be understood, explained, and developed over time.
3. Start with the question—not the data source
The data needed depends on the decision to be made.
Satellite data, aerial imagery, radar, laser data, climate data, and property information can each provide different parts of the answer. During the seminar, participants discussed how different data sources and resolutions need to be selected based on the specific analysis needs.
This makes the dialogue between the business unit and the analyst crucial. First, the question must be defined: What do we need to know—and what decision should the information support?
Once that is done, it is possible to determine which data, which geographic resolution, and which analytical method are relevant.
The same risk looks different depending on where you are
A recent example illustrates why the geographic perspective is crucial.
The Swedish Meteorological and Hydrological Institute (SMHI) recently summarized August as a month of major hydrological contrasts. In large parts of southern Sweden, water flows were low or very low, and in some places, record-low. At the same time, heavy rainfall in northern Norrland led to high flows and flooding in places such as Boden.
For a bank with real estate or other assets spread across the country, this illustrates an important principle: physical climate risk is geographic. Exposure varies depending on where the asset is located and what local conditions prevail.
This is why geographic information is crucial when translating overarching climate scenarios into decision-making tools for an actual portfolio.
From Data to Better Risk Decisions
Overall, the discussions during the seminar indicated that addressing physical climate risk is not about finding a single, perfect data source or model.
It is about combining the right data, the right geographic level, and the right analytical expertise based on the decision to be made.
And perhaps that is precisely an important conclusion when the field is still a “work in progress”: start with the question the business needs to be able to answer and build the analysis from there.
Would you like to learn more about how geographic information and climate risk data can be combined to analyze real estate and portfolios? Read more about Metria Climate Analysis → Metria Climate Analysis for Real Estate and Housing in Sweden
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About Metria
Metria offers digital solutions and services in GIS, geodata, real estate, and business information. Our offering covers the entire process—from identifying our clients’ needs for geodata, real estate, and business information to collecting, analyzing, and visualizing data to generate insights that lead to smarter, safer, and greener decisions.
Since spring 2022, Metria has been part of Spir Group, a Nordic group with approximately 260 employees in Norway and Sweden.
Spir Group is a Nordic company that simplifies unnecessarily complex processes by collecting and making information accessible to consumers, the public sector, and the private sector.
Spir Group is the parent company and the visionary force behind several software subsidiaries, all dedicated to delivering business-critical technology that sustains and develops society.
Our clients range from real estate agents, banks, insurance companies, appraisers, real estate developers, media companies, builders, property owners, engineers, and energy companies to manufacturers of building materials.
We are a team of more than 260 colleagues with deep domain and technology expertise. Spir Group does more than just collect and share information. We enable innovation and growth that strengthen trust between people, businesses, and society.
For more information about Spir Group, visitwww.spirgroup.com.