Sustainability Language

Sustainable Finance & Investment

Climate Value at Risk

A forward-looking financial metric estimating the present-value impact of climate change on a company or portfolio.

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Definition

Climate Value at Risk expresses the potential change in the value of an asset, company or investment portfolio arising from physical climate hazards and transition risks, typically modelled as a function of vulnerability, hazard and exposure and discounted to a present value. Commercial implementations, such as MSCI's Climate VaR, cover tens of thousands of companies.

References

Continuuiti

vulnerability × hazard × exposure formulation; physical vs transition CVaR; MSCI coverage; regulatory stress tests

Overview

What it means

It translates scenario-based climate analysis into a single percentage of value at stake, making climate risk comparable across holdings.

How it is used

Investors use it for portfolio screening, TCFD/ISSB-aligned reporting and regulatory climate stress tests such as those run by the ECB and the Bank of England.

Why it matters

It is becoming a standard language between climate science and financial decision-making. - **Note:** It is a screening metric built on modelled scenarios and assumptions, not a forecast; results differ materially between providers and should not be read as precise predictions.

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