Headquartered in Asia, this company produces and distributes a diverse portfolio of beverages around the world. In 2019, the company expressed its support for the Task Force on Climate-related Financial Disclosures (TCFD).
The mission of the sustainability team is to understand potential climate-related hazards that could disrupt supply chains and negatively impact important revenue streams for the company. This intelligence is then used to work with internal stakeholders to formulate appropriate mitigation strategies. Given the growing frequency and intensity of climate-related events, team members wanted to put in place a more sophisticated approach for identifying potential climate risks to the business. To move forward, the team needed the assistance of climate specialists who could provide the necessary data and analytical tools to better understand a wide range of threats.
The team decided to work with The Climate Service (TCS) that has received multiple awards for its innovative approach to analyzing climate risks. Early in 2022, TCS was acquired by S&P Global and became part of the Sustainable1 division, which serves as the company’s single source of essential sustainability intelligence. TCS’s climate modeling expertise combined with S&P Global’s data and risk analysis capabilities is enabling many new capabilities to be developed.
Members of the sustainability team prioritize their efforts by focusing on ingredients for beverages that are extremely important for the company’s business. They had been reviewing scientific research papers to understand the potential impact of climate hazards on different crops, but found it hard to do an apples-to-apples comparison when one paper focused on corn, for example, and another on wheat. The team wanted:
- A more comprehensive and aligned approach for assessing climate risks across crop types.
- A view on how and when hazards could impact different locations around the world.
- If expansion into low-carbon opportunities was feasible.
- A scenario analysis tool to consider different views of the future given the many uncertainties with long-term planning.
- The ability to quantify the financial impacts of these events to better understand what could be at stake.
These insights would enable members of the team to determine where to spend their time and help them strategize about steps that could be taken today to reach tomorrow’s desired outcome.
“We wanted to better understand the type of longer-term climate-related risks we could be facing to take appropriate mitigation actions today — whether it be breeding new varieties of inputs or working with suppliers to install different irrigation solutions.”
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Sustainable1’s capabilities are enabling the team to:
• Identify a range of longer-term physical climate risks for different locations throughout the world, including extreme temperatures, drought, multiple types of flooding, water stress, tropical cyclones and wildfires.
• Evaluate how these risks could impact different crops, in particular key ingredients such as barley, wheat and corn.
• Quantify the financial impact due to increased operational costs, damages needing repair and/or the loss of ongoing revenue.
At the center of the analysis is the easy-to-use S&P Global Climanomics platform that measures physical risks in financial terms under different climate-change scenarios. A user inputs three details for each farm-based asset under consideration: (1) the specific type of crop, (2) the location, and (3) the value. The Climanomics platform then computes the impact of the major physical hazards on each agricultural asset, taking into account a sophisticated analysis of a crop’s unique vulnerabilities to each hazard.
To quantify the financial risk, Climanomics maps expected losses from specific vulnerabilities to business impacts. For example, how would an increase in temperature affect irrigation costs or a flood affect clean-up and repair costs? Of course, this would depend on the type of crop and if it was highly vulnerable or not.
The vulnerability of each crop to each of the various hazards is computed individually; this is called the average annual loss, and it is the projected cost and/or lost revenue expressed as a percentage of the crop’s value and in dollar terms. The total average annual loss is the sum of the financial impact of all hazards, also expressed in both dollar and percentage terms. Users can view this metric on aggregate across all crops; by individual crop; further disaggregated by type of hazard; and, within each hazard, by type of expense. The loss data is available for each decade out to 2100 and for four greenhouse gas (GHG) concentration scenarios that align with the recommendations of the TCFD.
The Climanomics platform and support from Sustainable1 enables the team to obtain:
A deep analysis of physical risks
Sustainable1 utilizes publicly available raw climate data from sources such as NASA, the Intergovernmental Panel on Climate Change (IPCC), the National Oceanic and Atmospheric Administration, the World Wildlife Fund HydroBASINS and much more. The data may include information on temperatures and precipitation, which expert Sustainable1 scientists use to build and refine their own climate models. For example, while precipitation is important for flooding, so is topography, land use and basin area, variables that are included in the hazard models.
Sustainable1 has a growing library of proprietary impact functions that model the vulnerability of 270+ individual physical and farm-based assets to climate-related hazards based on a wide range of factors specific to each asset type. New impact functions are continuously developed in response to specific client needs.
Scenario analysis to test alternative futures
Scenario analysis provides actionable insights about potential future outcomes. Sustainable1 incorporates four climate scenarios based on the Representative Concentration Pathways (RCPs), a greenhouse gas (GHG) concentration trajectory adopted by the IPCC. The pathways describe different climate futures, all of which are considered possible depending on the volume of GHGs emitted in the years to come.
A price on climate change
The Climanomics platform quantifies physical risks in financial terms (average annual loss), in line with TCFD recommendations.
Transparency into the assumptions
Detailed white papers outline all the assumptions that are used to calculate the probability of a physical risk occurring.
Inputs for presentations
The Climanomics platform delivers simple charts, graphs, narrative and data for export that provide insights into the location, severity and timing of climate-related risks.
Members of the sustainability team now have the critical ‘what, where and when’ information they need as a starting point to consider different future scenarios, implications for the business and actions to be taken today. Working with Sustinable1, they are benefiting from having:
- Access to experienced climate specialists and a best-in-class climate modeling capability with Climanomics.
- Detailed, science-based information that provides credibility for discussions with internal stakeholders.
- Vulnerability analysis for a range of farm-based assets.
- An estimate of the average annual financial loss for each asset to support meaningful mitigation and adaptation planning.
- An easy and secure platform for running scenario analysis to look at low- and high-emission worlds and the work that needs to be done in both cases to reach an ideal state.
- A transparent methodology with a detailed explanation of the assumptions behind the risk analysis.
Members of the team are now in discussions about using Climanomics to look at the company’s different locations around the world and the potential vulnerability of these assets to climate hazards.
“We now have detailed data backed by science that we can use to start thinking about climate-related hazards. The financial estimate is a good starting point for internal discussions. We can ask: if this is what it could be, how do we cut that back?”