Environmental And Climate Risks In
Financial Analysis
Author(s)
M. Onischka
Abstract
The assessment and consideration of risks in the analysis of companies and
projects play an important role in investment decisions. In the context of climate
change new significant types of risk arise, such as physical risk, regulatory risk
or risk of reputation. It can be shown that climate risks are additive, increasing
the whole risk exposure significantly. Relevant studies have shown that
depending on the sector climate risks will affect the value of assets (value at risk)
up to double-digit percentage. Applying common methods and procedures these
risks are generally determined and measured insufficiently. Thus, the provision
for environmental and climate risks in the granting of credits, sell-side/buy-side
research or due diligences is not adequate, although existing approaches would
generally allow a valuation of these risks.
The main target of this paper is firstly to analyse the problem of the
‘debasement’ of historical data especially in the light of climate change. In
addition to that, relevant approaches for the process of financial analysis will be
outlined in order to implement environmental and climate risks by means of
adjusted risk premiums. In this context these approaches represent practical
potentialities for the implementation of risk premiums as well as fundamental
factors that have an impact on the investment decision. Here an important
connection between risk measure, economic reference parameter and valuation
method is developed.
Keywords: climate change, risk assessment, valuation, risk management, risk
measure, financial analysis, environmental risk.
Keywords
climate change, risk assessment, valuation, risk management, risk
measure, financial analysis, environmental risk.
Related Book
Other papers in this volume
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