Account for Climate Risk
There are two types of risk imposed by climate change: climate impact risk - where investments can be affected by the physical impacts of climate change, and climate asset risk - where policies create pricing that devalues the investment.
Increasingly, shareholders are asking companies and financial institutions to account for both of these types of risk, particularly in sectors associated with high potential exposure. IFC is working to develop systems that better understand these risks and will eventually be able to screen the portfolio and new investments for future threats.
Another important piece of IFC’s work with climate risk is acknowledging the impact that global and local policies and behavioral changes will have on carbon-intensive investments. As the world moves towards de-carbonization, these assets face becoming stranded, and IFC is dedicated to evaluating risk faced by its current portfolio as well as its new investments.