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Practice paper

Quantifying climate risk uncertainty in competitive business environments

Jorge R. Sobehart
Journal of Risk Management in Financial Institutions, 15 (1), 26-37 (2021)
https://doi.org/10.69554/MXJU8050

Abstract

As the impact of climate change and CO2 emissions gain more visibility globally, there is increased interest in understanding how the industry landscape will be reshaped in response to the changing physical, economic and political environment. This paper introduces an approach for quantifying the risks associated with the release and adoption of competitive products and services for the long-term uncertainty generated by climate risk scenarios. Our approach can be used for assessing the risks of business strategies whose revenues are used for the repayment of obligations in industries affected by climate risk or CO2 emission costs, and for estimating the probability of default on those obligations under different scenarios. Our approach can also help gain insight into the uncertainty of different net-zero emission strategies and into the uncertainty of outcomes due to nonlinearities, synergies and model misspecification.

Keywords: Climate risk; transition risk; competitive environments; earnings uncertainty; credit risk; disruptive technologies

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Author's Biography

Jorge R. Sobehart is Managing Director and Head of Citi’s Credit and Obligor Risk Analytics, where he manages analytics for risk rating processes and models, credit and climate risk stress testing, CCAR/DFAST, ICAAP, CECL and IFRS9 credit reserves and loss likelihood and loss severity approaches for regulatory capital. During his career, he has worked for several prestigious institutions making contributions and publishing technical papers in multiple fields. He also acted as a reviewer for several professional journals and book editors in risk management, finance, physics, computation and mathematical modelling. Dr Sobehart has advanced degrees in physics and postdoctoral experience at the US-Los Alamos National Laboratory.

Citation

Sobehart, Jorge R. (2021, December 1). Quantifying climate risk uncertainty in competitive business environments. In the Journal of Risk Management in Financial Institutions, Volume 15, Issue 1. https://doi.org/10.69554/MXJU8050.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 15 / Issue 1
© Henry Stewart
Publications LLP

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