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§04/ 10CHAPTER 04 — PG 135–179

CLIMATE RISKS & MATERIALITY

A Deep Dive into CVaR, Physical and Transition Risks

Climate risks are now quantifiable financial risks. CVaR (Climate Value at Risk) frameworks operationalize asset-level climate hazard assessment, letting investors, insurers, and corporates measure physical and transition risk exposure with spatial precision.

KEY IDEAS
  1. [01]

    CVaR extends traditional VaR to climate scenarios — probability and magnitude of loss from physical hazards (floods, droughts, hurricanes) and transition risks (carbon pricing, stranded assets).

  2. [02]

    Physical risks split between chronic (sea-level rise, soil degradation) and acute (extreme weather events).

  3. [03]

    Climate scenario frameworks: NGFS (six scenarios), RCP, SSP, IEA — each quantifying futures under different mitigation/adaptation paths.

  4. [04]

    Asset-level operationalization: client inputs → hazard → exposure → vulnerability → direct impacts → transition modeling.

  5. [05]

    FEMA National Risk Index maps 16 climate hazards across ~3,000 US counties — the granularity climate-aware investors need.

"Climate risk is financial risk, and investors need adequate data to make informed investment decisions."

Mark Golovcsenko · Principal · KPMG US Strategy
EXPERT INTERVIEW

Madison Condon · J.D.

Professor of Law · Boston University School of Law

"Decarbonization is a fiduciary responsibility. The SEC climate rule is investor protection — not environmental policy."

CONCEPTS & ACRONYMS