Assessing climate risk quantification tools - Mere fullfillment of duty or actually benefical

We present an assessment of contemporary climate risk quantification tools utilized by the real estate industry. Given the escalating frequency and severity of extreme weather events, it is imperative for market participants to employ reliable and robust risk quantification methods to manage their portfolios. Our study evaluates the methods currently used against multiple criteria, including database quality, quantification methodology, transparency, actuality, scope, geographical suitability, and others. We employ publicly available information and the outcomes of a questionnaire sent to providers of risk quantification software. Furthermore, we calculate the physical climate risk for a pre-defined portfolio using the identified climate risk quantification methods. Our findings indicate that many of the available tools lack transparency in their methodology and that there are significant discrepancies in the physical risk quantifications. This paper contributes to the given objective in various ways. Specifically, it offers an overview of the available tools used by market participants, it defines criteria that can be employed to assess climate risk tools, with an emphasis on the real estate industry, and it identifies the weaknesses and strengths of the different approaches.