Projects financed under the Equator Principles are required to conduct a Climate Change Risk Assessment aligned with the risk categories of the Task Force on Climate-related Financial Disclosures (TCFD), the depth and nature of which will depend on the type of Project being financed, as well as the nature of the potential risks, including their materiality and severity.

For all Category A and, as appropriate Category B Projects, this should include consideration of relevant physical risks as defined by the TCFD. Climate Physical Risks are those risks resulting from climate change, which involve acute or chronic shifts in climate patterns. Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events such as cyclones, hurricanes, or floods. Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea level rise or chronic heat waves.

Furthermore, many clients now require a screening type assessment of the potential first order physical risks to a target asset as part of the pre-investment/acquisition due diligence process. To accommodate this requirement, SLP offers a Physical Climate Risk Assessment (PCRA) service as part of our Environmental and Social Due Diligence (ESDD) service. The objective of the PCRA assessment is to assess the potential first order physical risks to a target asset, or portfolio of target assets, associated with exposure to the physical consequences of climate change under a number of varying scenarios as recommended by the Task Force on Climate-related Financial Disclosures (TCFD).

The patterns of physical impacts attributable to climate change can be termed “physical climate scenarios”. Physical climate scenarios typically present the results of global climate models (referred to as “general circulation models”) that show the response of the Earth’s climate to changes in atmospheric GHG concentrations. IPCC scenarios based on “Representative Concentration Pathways” (RCPs) are examples of physical climate change scenarios adopted by the Intergovernmental Panel on Climate Change (IPCC) in its 6th Assessment Report (AR6).

SLP performs scenario-based analyses to evaluate the potential physical climate risk against different physical climate change scenarios adopted by the Intergovernmental Panel on Climate Change (IPCC) in its 6th Assessment Report (AR6). These include Optimistic, Business as Usual and Pessimistic scenarios, which are assessed against defined timeline horizons (e.g., 2030 and 2040/50). The key hazards which are typically assessed for projects in South East Asia includes; coastal and riverine flooding, water stress, extreme heat, drought, tropical cyclones and wildfires.

Performing a TCFD-aligned physical climate risk assessment at the site level enables our clients to better understand the potential future impacts of climate change on their DD target/s, thereby aiding their decision making process.

Our Physical Climate Risk Assessment studies can be incorporated into the main ESDD assessment report prepared for a particular transaction, or be presented in a bespoke standalone report, whichever is the clients preference.

A selection of project brochures for our Physical Climate Risk Assessment service can be found here.

Should you require any further information regarding our Physical Climate Risk Assessment service please contact us.