EIT Climate-KIC is Europe’s largest public-private innovation partnership focused on climate change, consisting of over 300 dynamic companies, the best academic institutions and the public sector. EIT Climate-KIC integrates education, entrepreneurship and innovation resulting in connected, creative transformation of knowledge and ideas into economically viable products or services that help to mitigate climate change. Its activities are driven by four themes: Urban Transitions, Sustainable Production Systems, Sustainable Land Use, as well as Decision Metrics & Finance. EIT Climate-KIC’s mission is to accelerate the transition to a zero-carbon economy. It’s one of six Knowledge and Innovation Communities (KICs) created in 2010 by the European Institute of Innovation and Technology (EIT).
The interview with CEO, Dr Nicole Röttmer, appeared in “Special Annual Reports & Trends 2018” of GoingPublic magazine. The article focuses on “The challenge of climate change as part of reporting”. Dr Röttmer discusses the modelling of financial risks and opportunities as well as side effects of climate change and why these must be reflected in the reporting of companies. You can read the interview here.
We are happy to announce that as of today (03.08.18) our article has been published more than 100 times:
- Finance portals – DE:
- Finance portals – International (English, Spanish and French)
- News portals banks:
- Environmental news portals
- The Global Treasurer where it has been selected as “Editor’s pick”
The Energy Transition Risk Project
– a toolset for scenario-based energy and climate transition risks –
We had launched the business-relevant IEA scenario basis early this year, for your free use. Now, we have completed the financial impact analysis for all four sectors, complemented by an analysis on valuation impacts by KeplerCheuvreux, and provide a joint synthesis on the implications for investors:
Scenario analysis insights on earnings (The CO-Firm)
- The low-carbon transition is generally an earnings growth story for the sectors under consideration (utilities, auto, cement, steel, aviation, shipping), showing that on average, companies have a business-case positive pathway to transition. A more rigorous global warming reduction scenario might even lead to stronger earnings growth, e.g. in steel sector.
- If companies fail to act and adapt to the low-carbon transition, the earnings hit can materialize already in the short- to medium-term. In some sectors, impacts arise starting 2020.
- To gain a more complete picture, transition risks should be considered at the company level rather than sector level, if possible, because financial performance varies significantly across firms. Across sectors, selected companies can realize up to 150 % growth potential of their EBITDA if they prepare for a 2 °C world.
- The underlying analysis provides an illustration of potential winners and losers in the low-carbon transition. Financial stakeholders need to match our scenario assumptions with their company-specific knowledge and opinions.
- The key risk drivers differ across the sectors under consideration and the scenarios applied, but include: the evolution of technology, regional differentiation, as well as direct regulatory measures to promote the transition, e.g. CO2 prices.
- Adaptive capacity is a result of dynamic capabilities, which allow existing resources (assets, financial pockets, intellectual property) to be put to good use, by means of a strategy. The role of financial strength on adaptive capacity has proved to be significant.
Scenario analysis insights on valuation
- Transition risks can affect the investment case of a company. Even so, transition risks are discussed sparingly in current equity valuations and are actually integrated into valuations even less frequently.
- This is because analysts still tend to lack conviction that transition risks affect a company’s investment case, whether due to a perception of low probability, low severity or, most commonly, that the risk falls outside of the analyst’s time frame.
- Scenario analysis can help analysts reduce uncertainty on complex issues. It can indicate how transition risks could affect the future earnings and valuations of companies, sectors and regions, and how this might vary over time.
- Our analysis shows that there could be a discrepancy between company valuations in our climate change scenarios and a market consensus baseline, suggesting that the market is not pricing in all transition risks.
- Upon seeing results like those of this analysis, the next step for analysts is to assign probability weightings to each scenario and begin to factor in the assumptions/inputs of the most likely future into their base case.
Application of results
- Equity analysts and asset managers can validate their previous assumptions on key determinants of company growth and profitability in a transitioning market. Furthermore, the analysis supports you in stock-picking
- CIOs can see shifts between sectors, new risks and new investment opportunities.
- CROs can embed new climate change induced risk drivers in traditional risk assessments.
- SCR can better inform portfolio, risk and asset managers with an integrated numbers-driven approach, „connecting” Investment and corporate responsibility views, providing unique climate analysis that can feed directly into sector, company and country assessments.
- Companies are enabled to perform scenario analysis in line with TCFD, providing financial impact results, a profound understanding of material business risks and opportunities, and their drivers; and their embedding in traditional risk assessments, strategy and governance processes.
- Policy makers receive concrete suggestions on how to support the energy (climate) transition via e.g., investment thresholds for different types of regulatory interventions such as the required EUR level of feed-in tariffs for supporting a 2.7°C- or 2.0°C-aligned build-out of renewables, trade-off between carbon prices, feed-in-tariffs, capacity payments required over time, and impact of these regulatory interventions on electricity prices.
Overall, the developed approach is quite universal as the value added in using the results is the same across all asset classes: equities, bonds, company financing, etc.
Access to results
The framework consists of
- Energy Transition risk tool for scenario-based financial impact analysis of climate risks and opportunities, based on the tool developed by The CO-Firm: climateXcellence and
- The related reports with applications of the approach
- The Investor primer to transition risk analysis. The first report outlines a methodology for bottom-up modelling of climate risks and opportunities and illustrates how modelling results can be integrated into valuation methodologies.
- Sector and company reports (4 sectors): applied the approach outlined in the Investor Primer and show the results for three companies each in the utilities, automotive and steel and cement sectors, the latter being a case study on six countries.
- Transition risks: How to move ahead is a management summary illustrating the key findings and learnings of the collaborative project.
Project results are also available on the TCFD Knowledge Hub for resources needed to understand and implement the TCFD recommendations and on Bloomberg as well as incorporated in the proposal for the European Parliament Directive on disclosures relating to sustainable investments and sustainability risks (EU) 2016/2341. The entire ET Risk toolbox, developed by 2° Investing Initiative, Carbon Tracker, I4CE, Kepler Cheuvreux, S&P Global Market Intelligence and the University of Oxford is also available on: www.et-risk.eu.
If you are interested in participating in “1 on 1” trainings and events about our work please contact us via climateXcellence@co-firm.com.
In this publication, renowned experts and executives from science and society, but above all from the financial sector, provide an insight into the state of the discussion and point out solutions on the way to a sustainable financial industry. You can order the book here.
The Science Based Targets Initiative has updated its methodology and guidelines for the transport sector. You can find more information here.
The Science Based Targets Initiative develops methods and guidance for financial institutions to set science‐based targets.
The CO-Firm at Union Investment’s conference on Sustainable Development Goals, Frankfurt, 06th June 2018
Meet us at the Conference “Sustainable Development Goals in Politik, Unternehmertum und Investment” in Frankfurt, 06th June 2018
Meet us at the Conference “Responsible Investors Europe 2018” in London, 05th June 2018
Topic: risk analysis tool co-developed by CO-Firm to illustrate climate protection risks in commercial properties. Here you can register for free.
The Task Force on Climate-related Financial Disclosures (TCFD) and the Climate Disclosure Standards Board (CDSB) announced the launch of the TCFD Knowledge Hub on 1st May 2018 – the first online platform with relevant insights, tools and resources to help organizations implement the TCFD recommendations. We are proud to find our reports and studys contribute to TCFD’s goal to develop voluntary, consistent climate-related financial disclosures that are useful to investors, lenders, and insurance underwriters in understanding material risks.
TCFD workshop on 19 April 2018, 11-17:00, designed by VfU, Green Finance Cluster Frankfurt and The CO-Firm
In the workshop participants will become acquainted with basic elements for the implementation of the TCFD recommendations. The focus here is on integration into the organisation and, for reporting in particular, on initial insights into the scenario-based assessment of climate risks and the identification of differences in disclosing practices up to now. For more information, click here.
The CO-Firm’s Dr Nicole Röttmer discusses the topic “What does the financial industry contribute to achieve climate targets? The event is hosted by Deutsche Bank on the occasion of EarthWeek 2018. An article about the event has been published in ener | gate messenger plus.
Our experts will give a presentation on “Innovative Instruments for the Risk and Return Assessment of Commercial Real Estate”.
The CO-Firm is present at two CDP Spring Workshops in Frankfurt and Amsterdam on 06th April 2018 and 10th April 2018
Discuss with us the possibilities of implementing the TCFD recommendations on disclosures of climate risks and opportunities as well as SBT initiatives on a “marketplace”.
The CO-Firm speaks at Edinburgh Conference of UK Sustainable Investment and Finance Association 22 March 2018
The CO-Firm’s Dr Jean-Christian Brunke explains various tools at the Edinburgh conference to assess the risks of climate change in the energy sector for the financial industry.
Together with Kepler Cheuvreux, Carbon Tracker Initiative, I4CE, Oxford Smith School Sustainable Finance Programme, S&P Global, S&P Dow Jones Indices, and 2° Investing Initiative, The CO-Firm unveils the ET Risk Toolbox: Scenarios, Data, and Models for Risk Assessment.
The speakers will present recent developments on transition scenarios, asset level data and risk assessment models and provide insights on the integration of climate-related risks in company and valuation models.
The CO-Firm is a member of the organizing committee: Inaugural Conference of the new Northern European Partnership for Sustainable Finance
The CO-Firm as a member of the organising committee takes part in the inaugural conference on 6th March 2018 in London. The Northern European Partnership for Sustainable Finance (NEPSF) is an international collaboration of organisations and representatives from now 13 European countries aiming at aligning finance with sustainability. NEPSF intends to be open to financial institutions, regulators, policymakers, civil society, researchers and investor coalitions. We would be very happy to meet you at the conference.
According to the FSB Task Force on Climate-related Financial Disclosures (FSB TCFD) recommendations, we put a greater emphasis on scenario analysis to assess the opportunities and risks from measures taken to limit temperature change. Given the uncertain nature, probability and magnitude of these issues, scenario analysis is a particularly well-suited method to complement traditional financial analysis. We build on pilot models developed by The CO-Firm, KECH climate research and a growing body of literature to suggest ideas as to how scenario analysis could be performed and included in company valuations and investment decision-making. A series of reports will examine these insights on a select number of sectors and companies, starting with utilities. You can read the report here.
Since the FSB Task Force on Climate-related Financial Disclosures (FSB TCFD) published its recommendations, there has been a greater emphasis on scenario analysis to assess the opportunities and risks from measures taken to limit global warming. Building on our Investor primer to scenario analysis, this report has two climate scenarios for the utilities sector, and specifically for Engie, ENEL, and EDF. We demonstrate the implications for these companies’ valuations in using two examplary strategic choices. We provide insights in company engagement and financial performance with their regional and technology contributors as well as sensitivities. You can read the report here.
Berlin, Hamburg, January 2018
Referring to the renewal, CDP Managing Director Steven Tebbe commented that “CDP is pleased to renew the consultancy partnership with The CO-Firm GmbH. The CO-Firm GmbH has a strong track record, working with companies responding to CDP and helping them to implement both good carbon management practices and sustainability into their organizations. We hope our partnership will continue to be a valuable resource to our responding companies.”
The conference on climate scenarios, financial risk and strategic planning was held in London from 31st until 01st November 2017. We introduced climate scenarios for improved strategic and financial risk analysis. You can find our presentation here.
The CO-Firm develops free toolbox for profitable investments in climate protection for commercial properties
For a joint project of owners of commercial properties, financial services providers and companies from the energy efficiency sector (“Financial Forum Energy Efficiency in Buildings), The CO- Firm developed a free toolbox with five tools. With these tools, you can identify climate protection measures and put them into practice. You can get the tools here. Immobilien Zeitung IZ used the Toolbox as an opportunity to interview Bertolt Goeke from the Federal Ministry for the Environment, Jan von Mallinckrodt from Union Investment Real Estate and Martin Bornholdt from DENEFF. You can read the interview here.
The CO-Firm introduces new approaches for climate reporting according to the requirements of G20 and the Task Force Climate-Related Disclosures at the “40 days till COP23” conference organised by thyssenkrupp, Bosch and ICC in Essen.
The GFSG asked a group of experts to review nine case studies, among them our climateXcellence model. The results suggest that if financial firms do not effectively take environmental factors into account, they may underrate short- and long-term environmental related financial risks.
You can read the report here. For further reading, we recommend the GFSG’s background paper “Enhancing Environmental Risk Assessment in Financial Decision-making”.
The CO-Firm publishes report: Changing Colors; Adaptive Capacity of Companies in the Context to a Transition to a Low Carbon Economy
In this report, co-authored with 2° Investing Initiative with the support of Allianz Global Investors and Allianz Climate Solutions, we developed a framework for understanding adaptive capacity of companies and the external and internal drivers that may contribute or detract from this capacity. It demonstrates the challenges around anticipating the winners and losers of this game both in the short- and long-run and how adaptive capacity is a zero-sum game.
The CO-Firm, on behalf of the German enterprise’s initiative for energy efficiency (DENEFF), supported by the Federal Ministry of Environment, Nature Conservation, Building and Nuclear Safety uncovered why investments in climate protection measures take place (or why they do not) and what property owners need to be able to make better decisions in the future regarding climate protection. We developed a toolset of innovative projects that targets the needs of property owners and enables moving towards a sustainable building stock.
The Federal Government aims at reaching a virtually climate neutral building stock until 2050. Commercial properties – although the number is comparatively small – are responsible for almost half of building related emissions in Germany. At the same time, climate protection measures do not play an important role for this sector. In order to move towards a climate neutral transition pathway and meet the Federal Government’s targets in the Paris agreement, billions of investments in the building sector and in commercial properties are necessary. This opens up great opportunities for the commercial property sector, energy efficiency sector and Financial service providers. Property owners, on the other hand, who do not invest, face great risks.
You can read the Study (German) “Climate friendly commercial properties: property owners, investment processes and new tools for more investments in climate protection” here.
The CO-Firm and 2ii release “Transition-risk-o-meter”
An increasing number of actors demand (voluntary) disclosure of climate transition related risks. These comprise national governments, as in the case of France, and organizations such as the Task-force on Climate-related Financial Disclosures (TCFD).
Within the Energy Transition (ET) Risk project funded by the Horizon 2020 research and innovation programme The CO-Firm models financial climate transition-related risk for a number of selected sectors and companies, in a consortium with 2° investing initiative, Carbon Tracker, Kepler Chevreux, Institute for Climate Economics (I4CE), University of Oxford and S&P Global.
Building on the TCFD’s recommendations, The CO-Firm and 2° investing initiative developed a „Limited Climate Transition“- and a „Ambitious Climate Transition“-scenario. These scenarios complement and detail assumptions taken by IEA with additional parameters and country-level assumptions, so that the scenarios can lend themselves to climate risk analysis. Key risk drivers comprise production and technology, commodity and market prices, policies and cost incentives up to 2050.
You can read the report here.
On 29th June 2017, the TCFD, initiated by the Financial Stability Board, published their recommendations report for disclosing climate-related data. You can read the report here: Final Report Recommendations of the Task Force on Climate-related Disclosures.
Stuttgart, Hamburg, June 2017
The CO-Firm, among others, supported the Institute of Energy Efficiency of the University of Stuttgart with its network for the summer survey 2017, so, that for the first time more than 1.000 companies took part. Since 2013, German industry is asked to name and number ongoing and planned energy efficiency activities twice a year. 75% of German production companies take energy efficiency seriously and make use of very different means to direct their employees’ attention. You can find more details here: http://www.eep.uni-stuttgart.de/eei/
Together with this year’s host Deutsche Bundesbank, UNEP FI and VfU set up a roundtable for the twelfth time on 1stand 2nd December 2016. More than 150 representatives of the banking and insurance sectors, politics, sciences and numerous NGOs took part. This year, the event’s motto was „Closing the gaps. Integrating Sustainability in the Core Business of Financial Institutions”.
WWF Germany and we presented our project “Transition-adequate Banking”. It is our goal to create an easy to apply approach to assess and evaluate the 2°C-compatibility of companies. This approach improves the process of determining the financial impacts of climate related risks and opportunities and enables banks to intensify contacts with credit receivers.
Introduced in Brussels 30 November 2016
As a member of EEFIG (Energy Effiency Financial Institutions Group), we were delighted about the official launch of the largest pan-EU database for energy efficiency projects: De-risking Energy Efficiency Platform (DEEP). This database contains detailed information and analysis of over 7,800 industrial and buildings related energy efficiency projects. DEEP was realised as a cooperation between EEFIG, the European Commission and UNEP FI.
„How much is the world? Climate protection investments in buildings – between risk prevention and performance management”
BMUB and DENEFF Conference in Berlin: 29 November 2016
Dr. Nicole Röttmer, CEO of The CO-Firm gave a speech at the joint conference of Finanzforum Energieeffizienz and the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety. The topic of her speech was climate protection for commercial properties. What is more, The Co-Firm, together with DENEFF, organised workshops in which ideas to increase investments in climate protection measures are collected and discussed. The welcoming speech of the conference wasbe held by Federal Minister Dr. Barbara Hendricks (BMUB), followed by Caio Koch-Weser, Chairman of the Supervisory Board of the European Climate Foundation.
The CO-Firm at OECD’s inaugural meeting of the Green Action Programme 24 – 25 November 2016 in Paris
Since the early 1990s, the OECD has supported primarily Eastern European, Caucasian and Central Asian countries in reaching economic growth while at the same time taking the protection of the environment into account. Based on the results, the Green Action Programme continues this work. The aim of this meeting in Paris was to provide insights on the near and long-term macroeconomic impacts of climate mitigation and adaptation actions across different G20 economies. With our presentation “Company- and sector-level financial risks and opportunities in the transition to (well below) 2°C” we contributed to OECD’s discussion of relevant transition risks. We wanted to help answer questions on financial risks and opportunities for the real economy and the financial sector during the transition. Furthermore, we presented our ClimateXcellence model that enables stakeholders to quantify financial risks and opportunities.