Downscaling of Physical Risks for Climate Scenario Design White Paper

A new white paper published by the Singapore Green Finance Centre in collaboration with the CCFI discusses how global climate model outputs can be downscaled to spatial resolutions of interest to market participants and asset owners in Asia.

Examples are provided for the evolution of temperature, rainfall, wind speed and coastal surge along an adverse climate scenario for Indonesia, Malaysia, Thailand and the Philippines. The downscaling technology allows market participant to differentiate between climate-induced shifts in the average vs. tail distribution of target variables.

The results demonstrate considerable spatial heterogeneity of risk profiles across and within countries. More granular analysis is provided for four urban clusters of interest, demonstrating the importance of local topography and weather systems in gauging climate risk exposures.

In addition to providing a novel simple model for coastal surge, the paper also discusses the challenges of downscaling typhoon risk.

Key takeaways:

·       Downscaling global climate outputs to spatial resolutions of interest is crucial to properly carry out climate stress testing and climate sensitive valuation of exposures at location.  

·       Differentiation between shifts in average and tail distribution of variable of interest reveals considerable heterogeneity in exposures across a sample of Southeast Asian countries.  

·       Provision of simple, yet effective examples of country risk scoring based on aerial surface experiencing changes in average vs. tail risk profiles in target variables.