How Capgemini Minimises Climate Risk in the Finance Sector
Climate change is a huge threat to the global economy, as well as the planet itself.
A 2023 study found that climate-related disasters cost the global economy US$16m per hour, with annual losses projected to reach between US$1.7tn and US$3.1tn by 2050.
The financial services sector - including banking, asset management and insurance - is particularly exposed to these risks.
Failing to account for climate-driven disruptions could weaken portfolio performance, reduce competitiveness and leave firms vulnerable to mounting regulatory pressures.
Franco Amalfi, Director of Sustainability Strategic Initiatives and Partners at Capgemini North America, outlines these challenges in a recently published blog post.
“Understanding climate shifts has become essential to assess their financial impacts, and the physical risk on banking and insurance portfolios,” he explains.
However, the vast climate volume of data — from macroeconomic trends to individual asset risks — is significantly more difficult to decode than it might seem.
How we can harness technology to mitigate risk
Fortunately, the rise of advanced technologies is transforming how institutions assess climate risks and process climate data.
Thousands of satellites provide near-continuous Earth observation, while sensors track temperature, precipitation and wind patterns in real time.
We have more knowledge at our disposal than ever before, offering financial institutions an unprecedented opportunity to forecast the future.
Capgemini, in partnership with Google Cloud, has developed a programme that allows users from financial institutions to do just that.
It's called Business for Planet Modelling (BfPM), a suite of advisory services and technology solutions designed to bridge the gap between corporate financials and climate impact.
BfPM uses Google Cloud's geospatial analytics and extensive datasets, allowing users to simulate climate risks and incorporate these insights into their forecasting models.
“At Google Cloud, we are dedicated to leveraging our advanced technologies to drive sustainability and address climate change,” says Denise Pearl, Global Partner Lead for Sustainability and New Energy at Google Cloud.
“By integrating our geospatial analytics, Vertex AI, and Earth observation technologies, we empower organizations like Capgemini to bridge the gap between corporate financials and climate impact.”
A different approach to modelling
It's possible that this kind of modelling could solve a lot of the problems with current modelling techniques.
Traditional climate risk modelling often falls short when it comes to integrating vast and varied data sources, but, with the help of AI, there is hope that information overload will cease to be an issue.
Many financial institutions struggle to connect macroeconomic indicators with granular asset-level risks, leaving gaps in their ability to anticipate the true cost of climate change.
BfPM aims to address these challenges through a hybrid approach that combines economic, climate and energy variables with detailed physical risk assessments.
Unlike conventional models, BfPM employs digital twin technology to create stress-tested climate scenarios.
This technology allows users to visualise potential future states, ensuring that sustainability and financial strategies are backed by robust data that is grounded in science.
Data really is the key to Capgemini and Google Cloud's system.
The software harmonises data from over 300 models and 265,000 variables, using machine learning to refine climate risk assessments.
The impact on financial services
For financial services institutions, integrating climate risk into financial planning is no longer optional.
Regulatory bodies worldwide are demanding stress testing and sustainability reporting, increasing the urgency for more reliable climate predictive models.
BfPM offers a scalable, secure solution that seamlessly integrates into existing financial systems, making it easier for companies to comply with evolving regulations while improving their risk management strategies.
With capabilities that include climate stress testing, scenario analysis, and sustainability reporting, BfPM provides a comprehensive view of climate risk at both macro and asset levels.
Financial institutions can use these insights to adjust their portfolios, invest in more resilient assets, and develop sustainable-driven strategies that enhance long-term returns.
By combining advanced technology with data-driven modelling, Capgemini and Google Cloud are helping financial institutions take a proactive stance against climate risk.
As climate-related costs continue to rise, the integration of sophisticated modelling tools will be crucial in safeguarding both financial stability and environmental sustainability.
“By leveraging this vast and ever-growing amount of data,” Franco says, “we have the potential to unlock critical insights that can empower decision-makers to address climate change more effectively and shape a sustainable future.”
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