Using the MSCI Real Estate Climate Value-at-Risk (Climate VaR) model we demonstrate how the nature and magnitude of physical risks may differ across assets and portfolios; and highlight the importance of considering transition risk.

MSCI Real Estate Climate Value-at-Risk (Climate VaR) Methodology

Creator: MSCI & Climate-KIC
Type of methodology: Rating or Index system
Approach type: CVRA (Climate Vulnerability and Risk Assessment)
Short description: The physical risk impact on an asset is quantified by assessing the exposure of a property to a hazard and computing the costs associated with that risk usingvulnerability functions specific to the real estate market.
URL to access information about the tool: https://www.msci.com/documents/1296102/19288350/ClimateVaR_RealEstate_Methodolo…
Hazards covered: Coastal floodings
Audiences: Architects and engineers
Assessment level: Building
Evaluation system:

 

Expected cost = vulnerability * hazard * exposure

Strengths:

Clear, detailed methodology for use in practice

Limits:
  • Not specific to buildings
  • Vulnerability definition does not factor in building inhabitants or the use of different buildings

To quantify physical risks and opportunities, MSCI applies a process used in most hazard models in the insurance industry, which can be represented as follows: Expected cost = vulnerability * hazard * exposure.

The physical risk impact on an asset is quantified by assessing the exposure of a property to a hazard and computing the costs associated with that risk using vulnerability functions specific to the real estate market.