Aon is to enter into a new partnership to examine how clients can better understand and manage the threat of climate change.
The broker is to collaborate with climate analytics firms The Climate Service (TCS) to create a system which will allow its clients to better manage current and future climate change impacts.
It comes as financial regulators across the world, including in Canada, the European Union, Hong Kong, Japan, Singapore and the UK, are setting guidelines to manage the effects of climate change on financial stability and build on the work of the Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures (TCFD).
The result is greater pressure on businesses to measure and manage climate risk, however, all too often they do not have the tools to quantify the key parameters.
COVID-19 has also tested the resilience of economies and is providing a good example of how systemic changes can impact financial, economic and social stability.
Aon’s exclusive broker relationship with TCS is designed to combine science and technology to measure, monitor and manage the financial impacts of climate on business and investments.
The combined service brings together analytics with a climate focus and comprises:
- Scenario Analysis: Firstly, client data such as property location, type, value and greenhouse gas emissions are uploaded to The Climate Service’s Climanomics® It then runs different climate scenarios to explore the impact of physical risks such as changes in temperature, flooding and wildfire as well as ‘transition’ risk including shifts in carbon pricing, law and reputation – which are aligned to the TCFD framework.
- Customised Recommendations: Aon’s analysts interpret the data to create a customised risk framework with actionable recommendations, outlining how changes in financing strategies can help mitigate climate-related impacts.
- Balance Sheet Optimisation: Aon will look to optimise the client’s long-term balance sheet resilience using capital through risk transfer and/or asset placement. Aon will also explore new capital solutions where the Climanomics® platform has raised challenges that are not addressed by the traditional markets.
While the Climanomics® platform is currently used by asset managers, Aon identified an opportunity to broaden the reach of these insights to risk managers and accelerate the firm’s ability to support clients in a broader set of industries.
Greg Lowe, head of resilience and sustainability at Aon, explained: “As we support our clients with their insurance placements, we are very much aware of the immediate physical damage to an asset and the financial impacts to supply chains, customers and investors. We are excited that our collaboration with The Climate Service will drive greater awareness of climate risks and the opportunities for clients to reduce earnings volatility and improve balance sheet resilience.”