Physical Risk methodology complete

Emmi’s new Physical Risk analytical framework transforms raw climate and financial data into company-specific climate risk metrics through eight integrated steps:

1. Stock Price Impact Analysis: Analyzing historical stock price reactions to extreme weather events
2. Company Sector/Industry Mapping: Aligning companies with consistent classifications
3. Industry-Level Bayesian Analysis: Building models for industry-specific climate sensitivity
4. Sector-Level Bayesian Analysis: Creating broader climate sensitivity patterns
5. Model Selection for Each Company: Applying hierarchical selection for appropriate models
6. Climate Hazard Projection: Projecting future hazards using Monte Carlo simulation
7. Global Climate Hazard Extension: Scaling projections globally using country factors
8. Risk Factor Integration: Calculating company-specific climate risk factors for each hazard and country.

This integrated approach grounds climate sensitivity in observable market data, addresses data limitations through hierarchical modeling, captures the heavy-tailed nature of climate risks, and provides a consistent framework across companies and geographies.

Read our recent white-paper on what's wrong with the existing physical risk methods for investors.