The dilema of estimating Climate Change Physical Risks

This week, an interesting paper on the dangers of the misuse of Climate Change Model Projections for climate risks reporting was published. The paper raises concerns about the climate model projections today not being 'fit for purpose' to evaluate the physical risks components of the TCFD aligned financial disclosures … You don’t know what TCFD stands for? Me neither until about 12 months ago. Many of us, actually.

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The criticism in the paper must be heard and understood. In fact, there is the risk of (mis)using climate projections for a crude  "ticking the physical risk check  box' on the TCFD reporting workflow.

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At the same time,  the integration of climate change physical risks might end up being  blocked by the sheer complexity of the information required. Users are asking for simplified summary scores / traffic light systems pointing to enhanced risks.... and that might be just what we need now to 'naturalise’  the factoring in of physical climate risks. 

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As Ana, a colleague of mine pointed out , the discussion about climate models not being ‘fit for purpose’ for decision making has always been there.  A few  years ago the dilemma/dialectic was at the (mainly) public adaptation planning level. As a response, new approaches to decision making under uncertainty were developed.  Now it has migrated to the corporations and financial institutions’ sphere. 

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Can  a consensus be found? We can wait and see how the consensus is found - you know “the market is clever“ (where I heard that before?)... but we should also, at least, be aware of the limitations, understanding that we, you and they are paving the road to a more comprehensive use of climate change data. 

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In a discussion with other colleagues, one of them noted that it is also key to raise awareness about the current risks. The impacts of climate change are already here, and in many cases are being ignored. Learning about managing current risks is the first step to managing the future ones.

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Personally, I welcome  papers like the one that  motivated this post. The imperative to pricing in physical and transitional climate risks is here to stay. Ticking the physical risk box is a fact now. However,  anchoring risk management decisions to a transparent, and simplified  but robust use of climate change data is key to avoid maladaptation.

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Discussions like this one are around the table in Climate Scale everyday. The more we know about the needs for climate change data, the more we simplify the presentation of our products while keeping in mind one key element: transparency to preserve the science behind.

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