LRM7: Physical Risk Impact Assessment
Maximum Score
4 points
Prefill
Not eligible
Validation
Evidence is manually validated
Does the lender have a systematic process for the assessment of material financial impact from physical climate risks on the business and/or financial planning of the loan portfolio?
Assessment Instructions
Intent: What is the purpose of this indicator?
The intent of this indicator is to assess whether and how the entity uses a systematic approach for assessing the impact of physical risks on the business, operations, and/or financial planning of an entity.
Impact assessments are critical to understanding how specific risks manifest themselves on business, operations, and/or financial planning of an entity. The most sophisticated of these assessments address elements of probability and uncertainty, and translate them into financial outcomes that may then be used to inform strategic and tactical decision making.
Input: How do I complete this indicator?
Select yes or no. If yes, select all applicable sub-options.
Terminology
Entity-level
Explicitly applicable to the reporting entity as identified in EC1. Note that references to the overarching fund and/or group of which the reporting entity is part do not imply entity-level applicability.
Material financial impact:
In the context of this indicator, material financial impact is used in accordance with its use by the TCFD to express information about impacts on an entity and its financial manifestations insofar as such information is deemed to be material. As per the TCFD, “in determining whether information is material ... organizations should determine materiality for climate-related issues consistent with how they determine the materiality of other information included in their financial filings.” Furthermore, “asset managers and asset owners should consider materiality in the context of their respective mandates and investment performance for clients and beneficiaries.”
Systematic risk identification process
A process for identifying risks that is structured, repeatable, undergone at regular intervals, and designed in such a way that it can capture the potential risks that could prove financial material to the entity. It may be a standalone process, or it may be a step within another larger risk assessment process. Furthermore, it may leverage quantitative methods (e.g., use of modeling, data analysis, quantitative thresholds) and/or qualitative methods (e.g., expert consultation, working groups).
Validation: What evidence is required?
Evidence
The evidence and text box provided will be subject to manual validation.
The provided evidence must cover the following elements:
Demonstrates there is a systematic risk impact assessment process for physical risks in place and not simply a generic “climate-related risk” assessment.
Demonstrate financial outcomes of the physical risk impact assessment. It is expected that the document list/state which risks, or lack thereof, were identified as a consequence of the risk assessment having been carried out.
The outcome-based information must pertain to the entity/portfolio in question and not only to the manager/group/business-unit level. Note: For fund-of-funds, entity-level applicability must be explicitly established.
The risk assessments must be applicable to the reporting year, or two years prior (2025, 2024, 2023). For 2025, a grace period allows participants to use assessments up to four years old, if previously accepted in 2024.
Text box: Describe how the lender’s processes for identifying, assessing, and managing physical risks are integrated into its overall risk management.
Examples of appropriate evidence include, but are not limited to:
For Process: A document describing the entity’s proceess towards physical risk assessments or other tangible proof of the entity's risk assessment activity. This process-based information can include information akin to materiality determination, scenario analysis, modeling or review of legislation.
For Outcomes: Acceptable evidence may include an extract of a procedure undertaken such as register or matrix, checklists, scenario analysis or a section of a risk framework or risk management plan addressing physical risks. Such documents can help exhibit the outcomes of the risk assessments, such as financial costs of the risks found in the reports.
For Entity-level Outcomes: Entity-level documentation that highlights specific physical risk impacts identified for the entity. If using group-level documentation, ensure the outcomes relevant to the entity are explicitly highlighted within the broader assessment.
Other Answer
The other answers will not be subject to manual validation. It is used for reporting purposes only.
Under Has the process concluded that there are material impacts to the loan portfolio?, state the other material financial impact resulting from physical risk.
Under In the absence of a systematic impact assessment process, does the lender at minimum verify borrower insurance coverage for physical climate risks?, state the other moment when this is verified.
Scoring
Scoring: How does GRESB score this indicator?
Scoring for this indicator is based on the existence of a systematic process for assessing the impact of physical climate risks.
Evidence: The evidence is manually validated and assigned a multiplier, according to the table below. The evidence must support the validation requirements.
If any requirements are not met, the evidence may be partially accepted or not accepted depending on the level of alignment with the requirements.
Accepted
2/2
Partially Accepted
1/2
Not Accepted
0
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