Learn more about the Combined Physical Risk Category in EarthScan™
After reading this article, you will learn:
What is Combined Physical Risk?
As extreme weather events become more frequent and intense as a result of climate change, businesses are experiencing increasing exposure to their assets. This exposure comes from a combination of climate hazards, such as flooding, wildfire, drought and heat stress. Combined Physical Risk describes how an asset, portfolio, company or industry is exposed to, and impacted by, climate risks across multiple physical climate hazards.
What is the Combined Physical Risk Category?
The Combined Physical Risk Category is a synthesis of all individual Risk Categories in EarthScan to enable quick comparisons between assets. It is designed to be used as a starting point within your climate-related risk analyses, and highlights which assets have the greatest exposure to climate hazards, and therefore, need further investigation. You can then begin to explore each individual Risk Category and investigate your most detailed Insights.
What is the Combined Physical Risk EarthScan Rating?
The Combined Physical Risk EarthScan Rating is:
- a single, asset-level Rating.
- calculated based on the EarthScan Ratings for each individual Risk Category.
- designed to guide you towards the assets that have the highest levels of risk, so that you can quickly identify assets at greatest exposure to different climate hazards.
How should I interpret the Combined Physical Risk EarthScan Rating?
The EarthScan Rating for Combined Physical Risk indicates the probability of the climate hazard presenting the highest risk to your asset, based on your assets’ exposure to all climate hazards currently in EarthScan. (This means that the Rating does not indicate the probability of any climate hazard event happening at your asset’s location, but instead refers to the climate hazard your asset has the greatest exposure to.)
The assumption behind the Combined Physical Risk Rating methodology is that it’s important to know which climate hazard is driving the greatest level of risk to your asset. For example, if an asset has high risk exposure to flooding and medium risk exposure to both heat stress and wind risk, flooding risk is likely to be your biggest priority in terms of potential physical damage to your built asset.
The threshold for EarthScan Ratings across each Risk Category is based on the potential for physical damage to, and direct disruption to business continuity for, the asset. By selecting the climate hazard that presents the highest probability of exposure with the potential for damage, the Combined Physical Risk EarthScan Rating indicates which Risk Category presents the greatest risk to your asset.
However, the impact of climate-related risks varies significantly across regions. Furthermore, industries have varying levels of risk tolerance to different climate hazards, even where assets are subject to the same levels of climate hazard exposure. For example, drought represents a big financial risk for agricultural, energy and textiles industries, whereas real estate businesses may be more concerned about wildfire and flooding. The methodology behind the Combined Physical Risk EarthScan Rating places an asset's exposure across all Risk Categories in context. This enables you to identify, at an individual asset-level, which climate hazard has the highest level of exposure across all Risk Categories in EarthScan.
How is the Combined Physical Risk EarthScan Rating calculated?
To calculate an assets’ EarthScan Rating for Combined Physical Risk, EarthScan identifies the climate hazard with the highest risk level and standardizes it against a benchmark of assets, based on our geographical coverage in EarthScan.
For a selected asset of interest, EarthScan selects the highest EarthScan Rating score. Assets are given a score between 0-999. The score determines an assets rating between A (the lowest climate risk) to F (the highest, based on both exposure and impact metrics). EarthScan then calculates the lowest maximum risk across the benchmark, including EarthScan Ratings Scores for assets across all Risk Categories.
The lowest maximum EarthScan Rating calculated for the benchmark is subtracted from the highest value EarthScan Rating for the selected asset. EarthScan then applies a scaling factor to bring the Combined Physical Risk Rating back onto a 0-999 score. This standardization creates a score of the maximum risk at the asset, relative to other assets.