Reducing financial risks of climate change with advanced data and modeling

Capgemini Business for Planet Modeling uses the intelligence of Google Cloud capabilities to assess the impact of climate change on corporate financials and accelerate sustainable growth.

A 2023 study calculated that climate change costs the world $16 million per hour, with the global annual cost estimated between $1.7 trillion and $3.1 trillion by 2050. These costs include infrastructure, property, agriculture, and human health and they are expected to increase over time as climate change becomes more severe.

Big costs mean big impacts on the financial services industry. Banking, asset management, and insurance companies are facing increasing financial risks due to climate change. Understanding climate shifts has become essential to assessing their financial impacts, and the physical risk on banking and insurance portfolios. But there are a huge number of data points to consider at macro, sector, company and asset levels.

Failing to assess the impacts of climate risks could strongly undermine portfolio performance and competitiveness, especially when adding in the pressures from regulatory bodies to perform stress tests to model and mitigate the impact of climate change on financial services companies. These and other variables mean there is a need for reliable data and predictive models to make more informed business decisions.

The explosion of new technologies is transforming how we monitor Earth, presenting an incredible opportunity to better understand our planet. Thousands of satellites capture millions of images daily, and advanced sensors continuously gather data on temperature, precipitation, wind, and more-sometimes as often as every second. This unprecedented flow of information provides a comprehensive view of Earth’s systems like never before in history. By leveraging this vast and ever-growing amount of data, we have the potential to unlock critical insights that can empower decision-makers to address climate change more effectively and shape a sustainable future.

A different modeling approach

Most financial services institutions struggle with the complex data integration needed for modeling to assess how global variables like economy or energy evolution may be interconnected with climate change. To increase performance and competitiveness, the financial services industry must transform its approach to climate risk modeling. It needs to embrace new scenario generation capabilities and connect macro variables with granular asset-level risk assessment to produce financial statements that consider climate impact.

To help financial institutions overcome these challenges, Capgemini has developed Business for Planet Modeling (BfPM), a set of climate risk technology and advisory services built on the strength of Google Cloud and its partners. The solution embraces the power of Google Cloud’s geospatial analytics and artificial intelligence to simulate the financial impact of transition, the physical risks of climate change and global variables to enhance forecasting and support better decision-making to reduce risks and uncover new opportunities.

Unlike conventional methods, BfPM combines a holistic and granular analysis of climate risks, including those related to energy transition, leveraging extensive geospatial data and digital twin technology to stress-test scenarios. Additionally, BfPM’s customizable and scalable solutions seamlessly integrate into existing systems, enhancing forecasting capabilities, reducing risks, and accelerating the sustainability journey, ultimately leading to better financial and environmental outcomes.

We collaborate with Google Cloud and its partners to leverage Earth observation technologies in Google Earth Engine, Big Query, and Vertex AI, to understand their impact on physical assets. This partnership leverages 300 models and more than 265,000 variables to enable continuous climate risk monitoring and impact assessment. We aggregate and harmonize data from multiple sources, applying climate data science and machine learning on Google Cloud to deliver insights in Google Looker.  

“At Google Cloud, we are dedicated to leveraging our advanced technologies to drive sustainability and address climate change. By integrating our geospatial analytics, Vertex AI, and Earth observation technologies, we empower organizations like Capgemini to bridge the gap between corporate financials and climate impact. Together, we can create innovative solutions that not only mitigate financial risks but also promote sustainable growth and a healthier planet.”

Denise Pearl, Global Partner Lead, Sustainability and New Energy, Google Cloud

Designed to be secure and scalable, BfPM integrates into existing systems, providing easy access to rights management and a user-friendly environment. It harnesses the power of structured and unstructured data and insights to help accelerate the sustainability journey, reduce risk and unlock new opportunities to enhance returns.

How BfPM is different

Capgemini’s Business for Planet Modeling (BfPM) for Financial Services stands out by offering platform-based climate risk modeling services to address all use cases for financial services institutions’ including: climate stress testing, scenario analysis, financial planning, sustainability reporting, equity and loan portfolio management. By leveraging the power of Google Cloud’s analytics and AI, BfPM enhances the risk management and forecasting capabilities of financial institutions, enabling them to better understand and mitigate climate risks.

Key features and benefits:

• Integration services: BfPM services leverage an extensive ecosystem of specialized partners to integrate the best climate risk modeling solutions that will augment existing risk management tools for better business decisions.
• Integrated assessment models: BfPM uses a reliable and open-source integrated assessment model (IAM) to generate climate-influenced financial statements and financed emissions projections that will help drive portfolio transition and higher returns.
• Hybrid approach: by combining global variables such as economy, climate, energy, and carbon taxes with asset-level physical risk analysis, BfPM provides a holistic view of potential impacts on financial statements for equity and loan portfolios.
• Strategic digital twins: utilizing digital twin technology, BfPM can augment climate stress-testing capabilities and benchmark future business states against climate scenarios. This includes reliable forecast and models on climate, economy, energy, and planetary boundaries, ensuring secure and accurate simulations.
• Granular data analysis: by leveraging Google Cloud’s extensive data and partners, BfPM pinpoints the geolocation of all assets and analyzes the evolving impact of physical risks on them. This granularity allows for detailed market segment and asset-level analysis, making climate risk actionable.
• Customizable, scalable & modular solutions: designed to be secure and scalable, BfPM integrates seamlessly into existing systems. It simplifies the integration process, provides auditable outcomes and enhances returns.
• Advanced scenario generation: BfPM generates scenarios that integrate global variables and assess physical risks based onCoupled Model Intercomparison Project Phase 6 (CMIP6) data. Using NGFS and tailored scenarios co-developed with banks, it simulates climate change impacts on equity and loan portfolios, providing essential key performance indicators (KPIs) for risk executives.

By combining these advanced features, BfPM empowers financial organizations to dynamically analyze business scenarios and plans. This not only supports sustainable transformation but also enhances profitability while reducing the carbon footprint.