Professional services group Aon plc, a leading global professional services firm, has announced a collaboration with data and analytics specialist Jupiter for greater understanding of climate risk.
Financial institutions are increasingly required to report on portfolio climate risk but operational support for the field is nascent.
Jupiter and Aon (NYSE: AON) collaboration will combine modelling expertise with climate data analytics.
Financial institutions are going to play a critical role in low carbon transition and must learn to navigate complex and volatile first and third-party risk.
Quantifying, disclosing and managing climate-related financial risks
The global economy is increasingly exposed to climate change risk, creating unpredictable business and operational environments for financial institutions.
Yet financial institutions in many jurisdictions are now expected by regulators to quantify, disclose and manage the climate-related financial risks that exist in their investment and loan portfolios.
The physical risks alone of climate change are severe: adverse and extreme weather events will – and indeed already are – causing havoc on business operations, across supply chains and wildfires, flooding and extreme heat are likely to cause population displacement.
The impact of natural catastrophes is likely to be multiplied by the interconnected nature of climate risk. In 2021 natural catastrophes caused $343 billion of global economic loss – nearly 30% above the 21st century average, according to Aon’s 2021 Weather, Catastrophe and Climate Insight report.
Jupiter’s climate risk solutions
Jupiter’s solutions, which include climate risk analyses for chronic and acute perils for individual assets and portfolio-level aggregation, will augment Aon’s extensive catastrophe modelling capabilities and ongoing climate research partnerships with academic institutions – such as Columbia University and the Karlsruhe Institute of Technology (KIT), among others.
Joe Monaghan, global growth leader at Aon’s Reinsurance Solutions, said: “This collaboration is designed to enable financial institutions to make better business decisions by combining Aon’s capabilities in risk and holistic financial analysis with Jupiter’s leadership in climate risk analytics.”
The Jupiter collaboration is intended to increase clients’ experience when engaging with Aon, while also having access to the firm’s catastrophe modelling and risk consulting capabilities. With such comprehensive service, financial institutions should be able to re-evaluate capital needs, address volatility and build business resilience while satisfying regulatory requirements.
It will calculate the range of potential impacts of climate change on financial institutions’ balance sheets, assisting them to identify risks and opportunities and to respond to the increasing volume, specificity, and quantification of climate regulations and disclosure requirements.
As both a model developer and user of vendor models, Aon is able to take a broad perspective in its recommendations to clients around how climate change could materially impact their risk exposures, connecting solutions to their individual needs.