Sustainable finance

Climate Value at Risk (Climate VaR)

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Definition

Climate value at risk adapts the financial risk metric value at risk to climate change: an estimate of the potential loss in value of a portfolio, asset or economy under defined climate scenarios, with a given horizon. Models combine physical risk (asset damage and productivity loss from hazards under warming pathways) and transition risk (repricing from policy, technology and demand shifts); MSCI's Climate VaR, NGFS scenario outputs and insurer catastrophe models are leading implementations.

References

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This reference provides supporting context for how “Climate Value at Risk (Climate VaR)” is defined and used.

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Overview

How it is used

The metric structures portfolio climate risk reporting, stress testing by central banks and supervisors, TCFD/ISSB scenario disclosure, and asset allocation debates.

Why it matters

Climate VaR is finance pricing its own future — the point where climate change became a number on the risk dashboard.