Physical Risk

Physical risk refers to risks associated with potential negative effects due to the physical impacts of climate change on an organization. There are two types of physical risks, namely, Acute and Chronic. Acute physical risks arise from weather-related events like storms, floods, drought, or heatwaves, which are increasing in severity and frequency. Meanwhile, chronic physical risks arise from longer-term shifts in climatic patterns including changes in precipitation and temperature which could lead to sea level rise, reduced water availability, biodiversity loss, and changes in soil productivity.

Oracle Financial Services Climate Change Analytics Cloud Service offers a robust data model to capture, store, and analyze physical risk across hazard types, events, and time classifications across time horizons.

For each As-of-Date (A0D), the solution expects a user input of ‘Level of Risk’ across each hazard type being classified into below risk buckets:

• Extremely High
• High
• Moderate
• Low
• Very Low

Based on the user configuration of Expected Impact (%) defined in Reporting Preferences UI, this cloud service then ascertains an estimated Exposure at Risk for each combination of AOD and Account Number. This financial impact is a product of Facility Value and Expected Impact (%). The ascertained financial impact is then aggregated at an Account Number and Counterparty ID level to arrive at the Physical Risk Level, expressed in %. This output is then used for various risk assessment processes like climate scorecards, heatmaps, etc. For more details on integrating physical risk into these processes, refer to the respective sections in this guide.

Users can also view and utilize various pre-built dashboards and reports on Physical Risk, hosted on Oracle Analytics. For more details, refer to theReports document.