Principles of Index-based Country Level Climate Risk Assessment (Briefing Note)

Regulations around the world are making it increasingly necessary for boards to become familiar with the concept of climate risk. Across asset classes, such assessments of physical and transition risk are usually at a corporate and transaction level where they can be looked at by sector. However, some risks present themselves more consistently at a regional level; extreme weather events impacting certain areas or policies limited to national boundaries. Therefore, it is also necessary to assess these risks at a country level, and a common method to have such a parallel point of reference is to create an index where countries are scored based on their climate risk (or alternatively in two indices for physical and transition risk), and then grouped in quartiles based on the severity.