Climate-savvy scenarios sets for strategic investment decision-making
The Ortec Finance climate-savvy scenarios sets & balance sheet simulation software is one of the first tools of its kind to integrate quantified risks and opportunities associated with climate change into traditional forward-looking financial scenarios sets that drive strategic investment decision-making.
Investors, such as pension funds and insurance companies, require enough returns to meet financial obligations such as paying pensions and claims. Empirical research shows that over 80% of investment returns are determined by how investors decide to divide their assets over different asset categories such as listed equity, fixed income or real estate. Traditional financial models that inform investors of how to best allocate their assets currently do not include information on climate-related risks – even though climate change is increasingly recognized as being a financial risk driver. Ortec Finance is tackling this gap by pioneering a climate-savvy scenarios set. This climate-adjusted economic and financial outlook will allow investors to analyze the impacts of various global warming pathways on their balance sheet simulation (ALM/SAA).
This paper provides an overview of the innovation approach to generate the Ortec Finance climate-savvy scenarios sets, to reflect the impact of various global warming pathways on forward-looking economic and financial risks and returns. It starts with the introduction of the existing ‘climate neutral’ Ortec Finance stochastic scenario set. Followed by the climate integration logic: linking up climate, economic & financial modelling. Finally, a deeper understanding of the scope and technical methodology is provided. The climate-savvy OFS methodology includes impacts stemming from both the energy transition-related risks and opportunities, as well as the physical risks experienced because of global warming.