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Transition risk framework: Managing the impacts of the low carbon transition on infrastructure investments

22 February 2019 – The ClimateWise Transition Risk Framework provides an open-source, step-by-step methodology on how to manage the risks and capture emerging opportunities from the low carbon transition.

Download the report and ClimateWise Infrastructure Risk Exposure Matrix.

Transition Risk FrameworkGlobal efforts to tackle climate change by reducing carbon emissions will result in a transition to a low carbon economy.  This transition, already underway, presents both risks and opportunities for the financial sector.  Transition risks include market and technological shifts, policy and legal changes and reputational damage, whilst opportunities may include falling costs of renewable technology and the need for investment in low carbon alternatives e.g. the expansion of mass transit networks and high-speed rail links.

The ClimateWise Insurance Advisory Council has developed the ClimateWise Transition Risk Framework, an open-source model which explores how to quantify these risks and opportunities within infrastructure investment portfolios.

The framework is set out in three steps, which can be used independently or combined to explore transition risks and opportunities. Specifically, the framework is designed to help investors:

  1. Assess the breadth of asset types exposed to transition risk at portfolio level (across different subsectors, regions and timeframes)
  2. Define the potential financial impact of the low carbon transition down to asset level
  3. Incorporate transition impacts into asset financial models.

Each of the three steps highlights practical actions investors might take in order to manage risks and capture opportunities. The framework applies this analysis to an array of global infrastructure asset types.

The framework has been aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) and guides investors through assessing the exposure of their assets to transition risk and opportunity, defining the potential impacts and incorporating transition impacts into their financial models.

About

ClimateWise is a global network of leading insurers, reinsurers, brokers and industry service providers who share a commitment to reduce the impact of climate change on the insurance industry and society. It is a voluntary initiative driven directly by its members and facilitated by the University of Cambridge Institute for Sustainability Leadership (CISL).

Citing this report 

Please refer to this report as: Cambridge Institute for Sustainability Leadership (CISL). (2019, February). Transition risk framework: Managing the impacts of the low carbon transition on infrastructure investments. Cambridge, UK: Cambridge Institute for Sustainability Leadership.

Published: February 2019

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Authors and acknowledgements

The study design and editorial process was led by Dr Tom Herbstein, Rachel Austin, Amy Nicholass, Dr Bronwyn Claire and Kajetan Czyz with input from Adele Williams and James Cole at the University of Cambridge Institute for Sustainability Leadership. The authors of this report and the accompanying framework were Tara Schmidt, Charles Allison, Molly Iliffe, Max Crawford and Ivet Manolova at ERM, with input from colleagues James Stacey, Alex Cox and Lee Solsbery. We are grateful for the guidance of the ClimateWise Insurance Advisory Council and for the advice and feedback received from members of the Advisory Panel which was established for this project. With special thanks to Finance Dialogue for their support.

Disclaimer

The views expressed in this report are those of the authors and do not represent an official position of CISL, ClimateWise or any of its individual business partners or clients.