capco institute journal #56

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RAKHI KUMAR | Senior Vice President of Sustainability Solutions and Business Integration,
Office of Sustainability, and co-chair of the Climate Transition Center, Liberty Mutual Insurance
KELLY HEREID | Director of Catastrophe Research, Liberty Mutual Insurance
VICTORIA YANCO | Sustainability Consultant, Liberty Mutual Insurance

Climate change poses an interconnected set of risks to the economy, from both the transition to a new mix of renewable energy sources and the physical hazards driven by a warming planet. The complexity of the upcoming transition requires a systems-level approach that leverages the strengths of existing modeling tools, paired with a strategy built on proactively identifying gaps and silos in out-of-the-box analytical solutions. Liberty Mutual brings a unique view from the insurance space on breaking down modeling silos, pairing the physical implications of climate disasters derived from catastrophe and climate modeling along with macroeconomic studies based on research from the Network for Greening the Financial System (NGFS). 

This paper details the challenges presented by this current climate risk modeling environment and suggests practical strategies for making climate risk actionable as organizations plan their transition to a low-carbon future. We find a clear mismatch between the disparate and path-dependent energy transitions expected across global economies and common climate commitments found in the financial services sector, which risks unintended adverse effects in the speed
and equity of the climate transition. Developing a holistic view of climate impacts that ties physical, economic, social, and biodiversity impacts together and places them at the point of decision-making is a strategy that is broadly applicable both within and beyond the insurance sector.