Photographer: Darryl Dyck/Bloomberg

Deutsche Bank Deploys Tool to Map Climate Investment Risks

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  • Data to be used for passive investment indexes debuting in ’18
  • Maps can show how heat waves, wildfires may affect operations

Deutsche Bank AG’s asset-management unit is using a detailed map to determine where natural disasters spawned by climate change may pose the greatest risks to its investment portfolios.

Deutsche Asset Management is using data from Four Twenty Seven, a California climate advisory firm that mapped the locations of more than 1 million corporate, manufacturing and retail sites globally to gauge companies’ exposure to hazards such as hurricanes, heat waves, floods, droughts and wildfires.

Source: Deutsche Asset Management, Four Twenty Seven, Inc.

While such models previously have been used to predict catastrophic damage to insured assets, this is the first time it has been done for investment purposes, Frankfurt-based Deutsche Bank said Wednesday in a report.

“We were feeling that all of the assets and energy going into carbon footprinting were not addressing the immediate risks to us,” said Michael Lewis, head of ESG thematic research at Deutsche Asset Management, which oversees 711 billion euros ($824.5 billion).

The firm plans to use the information for passive investment indexes, to debut next year, and as a tool for its analysts and portfolio managers, Lewis said. The indexes will be based on physical climate risk asset scores generated by the maps for individual holdings.

The maps can show how heat, wildfires and rising sea levels may affect operations, quantify demands on natural resources from corporate supply chains and predict how weather events could influence consumer behavior in particular countries.

Heat waves, for example, can increase energy costs, cause power outages and hurt productivity because workers are more stressed in high temperatures, according to the report.

The mapping also evaluated the 2011 Thai floods, noting the effect on global automakers from suppliers concentrated in the region, Lewis said. In the firm’s research, Korean automakers with most of their supply chains in Thailand underperformed peers after the floods.

“The more geographic exposure you had to Thailand, the more you were punished,” Lewis said. Bangkok and 12 other Asian cities are expected to experience the largest growth in annual flood losses from 2005 to 2050, according to the report.

More Disclosure

The maps initially focused on risks in far-east Asia because research shows that 5 out of 6 people in the world’s highest climate-risk zones live on that continent. The firm also evaluated exposures in France, as Western companies can be significantly affected by climate risk depending on the location of their suppliers, Lewis said.

Lewis said he hopes the bank can use the maps to encourage more disclosure from companies on asset and supply-chain risks tied to climate change. Earlier this year, the Financial Stability Board’s Task Force on Climate-related Financial Disclosure urged financial firms to start disclosing such risks.

“With all the floods and hurricanes we’ve seen this year, this is really about becoming much more knowledgeable and aware of the exposures we face,” Lewis said.

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