Financial losses due to climate risks are underestimated
Published: Tuesday, Jul 2nd 2024, 10:10
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Methods for assessing climate risks significantly underestimate financial losses for companies and investors. In a new study, researchers from the University of Zurich have shown that potential losses could be up to 70 percent higher than previously assumed.
This is because the models used to calculate these risks are often based on simplified data and indirect forecasts, as the University of Zurich (UZH) announced on Tuesday. For example, they assume that all of a company's assets are located at its headquarters.
For the study published in the journal "Nature Communications", the UZH researchers, together with researchers from the Universities of Vienna (Austria) and Utrecht (Netherlands), developed a new method that uses detailed information about a company's assets. In other words, the location and characteristics of a company's factories, facilities and natural resources.
Compared to the models that used simplified data, so-called proxy data, the estimated potential losses with this model were 70 percent higher.
In addition, the risk assessments do not take into account extreme events, which are rare but can have catastrophic effects, as the researchers explained in the study. Many of the assessments therefore focus on average impacts.
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