Presentation from Workshop on Climate Change: Assumptions, Uncertainties and Surprises, 3-4 September 2020

1. Understanding the Socio-
economic implications of climate
impacts
Swenja Surminski, Head of Adaptation Research
Grantham Research Institute, LSE
OECD workshop ‘“CLIMATE CHANGE: ASSUMPTIONS, UNCERTAINTIES AND
SURPRISES”, September 2020

2. Integrated risk perspective is essential!
Risk = exposure + vulnerability + hazard
“Risk from a changing climate comes
from vulnerability (lack of
preparedness) and exposure (people
or assets in harm’s way) overlapping
with hazards (triggering climate events
or trends)”
IPCC, WG II
• How can risk assessment
support different types of
decision-making?
• How can we combine
different risks – physical,
transition, liability?
• Are we understanding
interdependencies ?

3. 1. Assessing risks to inform policy:
The UK CCRA focuses on
physical risks (for now)
Source: ASC (2016) UK CCRA 2017 – Synthesis Report

4. 1. What are the risks and opportunities today
and in the future?
• Thresholds? Lock-ins? Cross-cutting
risks?
2. Are the risks being managed, taking
account of government and other action?
• How do we know what
adaptation action is happening?
Any barriers? Adaptive capacity?
3. Are there benefits from further action over
the next five years, over and above what is
already planned?
• How do we know what is
happening, what is planned ?
The CCRA methodology

5. Q8 - Which of the
statements below
best describe your
company's
assessment of
current and future
climate risks from
climate change?
Source: GRI UK Business
Adaptation Survey, 2019
2. Firm-level risk assessments: Some momentum through TCFD, but for
many businesses still early days …

6. Q17 - If you
experienced any
financial impact
from these events
can you quantify
this?
Source: GRI UK Business
Adaptation Survey, 2019
… and very little quantification of financial impacts.

7. New tools are emerging – but lack of transparency, various
methodologies in use, who understands the limitations, who sets
the standards?
Mercer’s Modelling the Investment
Impacts of Climate Change tool
(Mercer, 2019) identifies real estate,
infrastructure, agriculture and
timberland as the sectors showing
the greatest negative sensitivity to
the impact of physical damage.

8. Importance of linking different schools of thoughts….
7.5
5
2.5
0
%
2C
Peril Asset type Risk metric
2°C warming by end of
century
4°C warming by end of
century
UK flood risk Residential mortgages
% increase in AAL by
2050s
61% 130%
% increase in number of
properties at significant
risk of flooding (annual
probability of 1.3% or
above)
25% 40%
UK flood risk Investment portfolios
% increase in AAL by
2050s
40% 70%
North America and
Pacific Rim tropical
cyclones
Investment portfolios
% increase in AAL by
2050s
43% 80%
European winter wind
storms
Investment portfolios
% increase in AAL by
2050s
6.3% 3.6%
Modelling shows increased losses are expected across all perils, but they are lower if global efforts to reduce emissions are successful
Source: Westcott, Ward, Surminski, Sayers, Bresch and Claire 2020 Be prepared – exploring future climate-related risk for residential
and commercial real-estate portfolios, Journal of Alternative Investments.
Based on The Cambridge Institute for Sustainability Leadership (CISL) (2019): Physical risk framework: Understanding the impacts of
climate change on real estate lending and investment portfolios, developed by Vivid Economics.

9. … by combining catastrophe, climate and adaptation models:
2C
Source: Westcott, Ward, Surminski, Sayers, Bresch and Claire 2020 Be prepared – exploring future climate-related risk for residential and
commercial real-estate portfolios, Journal of Alternative Investments.
Based on The Cambridge Institute for Sustainability Leadership (CISL) (2019): Physical risk framework: Understanding the impacts of climate
change on real estate lending and investment portfolios, developed by Vivid Economics.
The modelling suggests that adaptation measures help reduce the Average Annual Loss from floods to properties in UK mortgage portfolios

10. But key methodological challenges remain -
Source: Surminski et.al. 2018

11. A real-estate investment perspective: “The loss scenario we find challenging is determining
the risk to an ‘adapted’ asset that withstands the event, but now stands in the midst of impaired
adjacent properties and infrastructure. Despite no physical damage to our asset there can be a
chilling effect on the local market impacting valuations, sales, leasing, other. This has been a difficult
risk to put parameters around; how long the downturn and at what economic cost?”
A reinsurance broker perspective: The climate change signal is not captured in most of the
analytics available to the industry; even for current risks we are at an early stage of quantification, and
vulnerability functions are very limited. This is why stress testing for climate change is so important.”
An institutional investor perspective: “ For our stress testing we use ND-GAIN to measure our
sovereign holdings exposure to climate-related risks and opportunities. ND-GAIN measures a country’s
vulnerability to climate change and its readiness. How can we assess the efforts taken by our
counterparties to reduce risks? ”
- while information needs grow:

12. THANK YOU!
s.surminski@lse.ac.uk