SD-07.8 — Climate Risk Analytics

Business Domain: BD-07 Investment Risk (Middle office) · Applies: BOTH

Purpose

Measures the portfolio’s climate exposure — the carbon footprint, the physical- and transition-risk measures, and the position against a low-carbon transition pathway. Climate risk is an investment exposure, and measuring an exposure against appetite is the defining purpose of the investment-risk function: SD-07.8 is the climate-risk lens of BD-07, the analogue of SD-07.1 Market Risk and SD-07.2 Credit & Counterparty Risk for the climate dimension. The TCFD and ISSB frameworks place climate analytics under the Risk Management pillar for the same reason.

It is distinct from SD-13.9 ESG & Sustainability Data, which manages the emissions data, climate indicators and taxonomy data as a data asset — SD-07.8 consumes that data and produces measures. It is distinct from SD-09.5 Investment Analytics & Insight, which consumes climate analytics as a forward-looking portfolio diagnostic — SD-09.5 informs the next decision, SD-07.8 measures the exposure. And the running of climate scenarios is not SD-07.8’s: climate transition and physical pathways are entries in the governed scenario library of SD-07.6 Scenario Analysis & Stress Testing, run through SD-07.6’s existing scenario machinery — SD-07.8 consumes SD-07.6’s scenario outputs as one of its inputs. SD-07.6 runs the scenario; SD-07.8 measures the climate exposure.

Service Operations

Carbon-footprinting — compute the portfolio’s financed-emissions footprint across the emission scopes (Scope 1, 2 and the material Scope 3), and the standard intensity measures — carbon footprint, weighted-average carbon intensity, financed emissions per unit of capital.
Emissions-data attribution — attribute issuer- and asset-level emissions to the institution’s holdings on a consistent ownership basis, and apply estimation models where reported emissions are absent (common for private and small-cap holdings).
Physical-risk modelling — model the exposure of holdings and real assets to physical climate hazards — acute events and chronic shifts — against the climate scenarios SD-07.6 runs.
Transition-risk modelling — model the exposure of holdings to the policy, technology and market shifts of decarbonisation — carbon-pricing sensitivity, stranded-asset risk, sector-transition exposure.
Net-zero pathway tracking — measure the portfolio’s position against a net-zero or Paris-aligned decarbonisation pathway, and track the implied temperature rise and the alignment gap over time.
Climate-analytics distribution and reporting support — publish the computed climate measures and support the climate-disclosure reporting the institution is obliged to produce.

Inputs and outputs

Inputs: holdings (E-04) and portfolio definitions (E-03); issuer and asset emissions data and climate indicators (managed and supplied by SD-13.9); the climate transition and physical scenario outputs run by SD-07.6; real-asset data (RA pack) for physical-risk modelling of directly-held assets.
Outputs: the computed climate-risk measures — carbon footprint, physical- and transition-risk measures, net-zero pathway position — consumed by SD-07.7 Investment Risk Reporting & Limits Governance, SD-09.5 Investment Analytics & Insight, BD-01 allocation, SD-12.12 stewardship, and the firm’s sustainability disclosure.

Entities

Consumes: E-04 Holding / Position (book = ibor for intraday measures, book = abor for period-end), E-03 Portfolio / Mandate, E-02 Instrument / Asset, E-01 Legal Entity (issuer emissions); the ESG and emissions data SD-13.9 supplies; RA-01 Direct Real Asset and RA-02 Asset Operating Record for directly-held physical-risk modelling; E-17 Scenario (the climate scenarios, owned by the co-domain SD-07.6).
Owns: E-19 Risk Measurement on the risk_type = climate partition — financed-emissions across Scope 1/2/3, transition-risk values-at-risk under named NGFS / ISSB scenarios, physical-risk exposures over RA-01/RA-02 directly-held assets, portfolio implied-temperature-rise. SD-07.8 is the sole authoritative source for this partition; the metric definitions live in the semantic layer (SD-13.8); SD-07.7 consumes for consolidated reporting.
Open question: whether the climate risk_type partition warrants splitting into a sibling Climate Measurement entity to carry the audit provenance (which scenario, which emissions vintage, which estimation model) at a finer grain than E-19’s common schema admits. Climate disclosure is increasingly assured, which strengthens the case.

Standards

PCAF (Partnership for Carbon Accounting Financials) — the standard methodology for measuring and disclosing financed emissions; the basis of the carbon-footprinting operation.
TCFD (Task Force on Climate-related Financial Disclosures) — the climate-risk framework; SD-07.8 sits under its Risk Management pillar.
ISSB / IFRS S2 — the climate-specific IFRS Sustainability Disclosure Standard; the converging global baseline.
GHG Protocol — the greenhouse-gas accounting standard defining the emission scopes.
NGFS scenarios (Network for Greening the Financial System) — the reference climate scenario set; SD-07.8 consumes them as run by SD-07.6.

Open extensions

The climate-measurement entity question above.
The emissions-estimation models for holdings without reported emissions.
Physical-risk modelling of directly-held real assets (RA pack) to full depth.