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Quantitative assessment of the financial materiality of climate physical risks: a case study

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Abstract

We offer an applied approach to the double materiality assessment of environmental, social and governance (ESG) matters, which could serve as practical guidance to the 60K companies required by EU regulation (CSRD) to carry out this assessment. Focussing on the financial materiality of climate physical risks, due to its regulatory priority, we provide numerical examples, developed in compliance with all relevant regulatory requirements (ESRS). These examples are based on a generalised methodology, which allows to perform both impact and financial materiality assessments on any sustainability matter, adopting the most suitable sources of information: publicly available scientific data to perform fully transparent ESG risk estimates and expert judgment (of firm managers and/or advisors) to consider the significant idiosyncratic features characterising the financial effects of ESG matters.

Suggested Citation

  • Alessi, Lucia & Giacomelli , Andrea, 2024. "Quantitative assessment of the financial materiality of climate physical risks: a case study," JRC Working Papers in Economics and Finance 2024-05, Joint Research Centre, European Commission.
    • Handle: RePEc:jrs:wpaper:202405
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    File URL: https://publications.jrc.ec.europa.eu/repository/handle/JRC139793
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    1. Riccardo Torelli & Federica Balluchi & Katia Furlotti, 2020. "The materiality assessment and stakeholder engagement: A content analysis of sustainability reports," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(2), pages 470-484, March.
    2. Gourdel, Régis & Monasterolo, Irene & Dunz, Nepomuk & Mazzocchetti, Andrea & Parisi, Laura, 2024. "The double materiality of climate physical and transition risks in the euro area," Journal of Financial Stability, Elsevier, vol. 71(C).
    3. Christian Nielsen, 2023. "ESG Reporting and Metrics: From Double Materiality to Key Performance Indicators," Sustainability, MDPI, vol. 15(24), pages 1-15, December.
    4. repec:eme:mfppss:eb018580 is not listed on IDEAS
    5. Simona Fiandrino & Alberto Tonelli & Alain Devalle, 2022. "Sustainability materiality research: a systematic literature review of methods, theories and academic themes," Qualitative Research in Accounting & Management, Emerald Group Publishing Limited, vol. 19(5), pages 665-695, September.
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    More about this item

    Keywords

    Sustainability reporting standards; double materiality assessment; ESG sustainability report; environmental sustainability; ESG risk management; climate physical risk; idiosyncratic forward-looking information;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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