Climate Risk and Corporate Valuations Assessment

This technical report by Allianz Research examines the impact of climate risk on corporate valuations, focusing on both transition and physical risks that investors face. Transition risks arise from rapid policy changes and technological advancements, while physical risks include the effects of extreme weather and rising sea levels. The report identifies various sectors, including fossil fuels, real estate, automotive, agriculture, and heavy industry, as increasingly vulnerable to these risks. It outlines a climate-adjusted valuation risk framework that integrates three scenarios from the Network for Greening the Financial System (NGFS): Baseline, Net Zero 2050, and Delayed Transition. Each scenario presents different implications for asset valuations, emphasizing the need for investors to reassess their portfolios. The findings indicate that proactive risk management strategies are essential for safeguarding long-term portfolio value in an era of rapid climate change. The report concludes that tailored risk management approaches can enhance resilience and support informed investment decisions.