Vivid’s Climate Risk Toolkit uses a scenario-driven approach to assess the impact of low-carbon transition risk on financial assets
The IPCC 1.5°C special report highlighted the need for immediate policy response to avoid severe climate change, with even a 2°C world likely to have significant physical risks attached. Meanwhile, the TCFD and NGFS have outlined the potential for climate change to disrupt financial markets. To help bridge the informational gap, the Climate Risk Toolkit uses scenario analysis and microeconomic modelling to quantify the transition risk impacts of disruptive climate policy on financial markets. Climate scenarios tailored to a client’s portfolio or view of future climate policy are developed using macroeconomic, energy system and land use models, in partnership with leading academic institutions. Vivid’s in-house suite of microeconomic value stream models are then used to estimate corporation-level impacts under each scenario. Asset class, subclass and asset-level impacts are estimated using a financial impacts estimation module. The Toolkit covers all major asset classes, including listed and private equity, corporate and sovereign debt, commodities, real estate, and infrastructure.
The Toolkit produces insights on climate transition-related financial risks for investors, asset managers, policymakers, and regulators
Vivid worked with HSBC Global Asset Management to estimate the impacts of different policy and technology scenarios on a major global equity index. Model insights were used to publish a white paper on the use of low-carbon transition scenario analysis for equity valuation. On-going applications of the Climate Risk Toolkit include exploring the impacts of a disorderly climate transition on financial assets, and assessing the implications of climate transition and liability risks for the insurance industry. Vivid helps institutional investors and asset managers to incorporate the Toolkit’s insights into their investment practices.