Sustainable finance
Climate Value at Risk (Climate VaR)
An estimate of how much portfolio or asset value is at risk from climate change — physical damage and transition shocks priced into financial terms.
Definition
Climate value at risk adapts the financial risk metric value at risk to climate change: an estimate of the potential loss in value of a portfolio, asset or economy under defined climate scenarios, with a given horizon. Models combine physical risk (asset damage and productivity loss from hazards under warming pathways) and transition risk (repricing from policy, technology and demand shifts); MSCI's Climate VaR, NGFS scenario outputs and insurer catastrophe models are leading implementations.
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