Evan Kodra, head of research at ICE Climate, joined me on a recent episode of The Impact to discuss ICE Climate’s new physical risk tool designed to assess climate risks in global debt markets.
Jeff Gitterman: So I love the conversations that we get to have about all things climate, but you guys have a new physical risk tool that you’re unveiling. Can you tell us a little bit about it?
Evan Kodra: It looks at physical climate risk to global debt markets, so that includes sovereign debt and corporate debt, and then we also have had a longstanding specialization with U.S. debt products, so mortgage debt, the mortgage bond universe and municipal bonds. This new product unifies all of that.
What we mean when we say physical climate risk, it looks at things like wildfires, hurricanes, floods, extreme heat events, those things that put pressure on asset values one way or another. We also inject climate change into those models — not only looking at statistical risk now but also in the future and how that maps to different maturities for different debt instruments.
JG: Are the debt markets open to really understanding this risk? Because ICE is one of the leading companies in trying to get credit facilities and different banks to understand that risk that’s on the table?
EK: For the debt markets, this is still a nascent topic. The debt markets are very dependent, ultimately and implicitly maybe, on the stability and growth of real estate values. Climate can completely upend that by the end of the century.
It’s not like we’re going to wake up at the end of the century and all of a sudden this is going to have happened. This is a transient phenomenon that’s going to take place, and it’s going to accelerate according to climate models.
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