Global warming increases scrutiny over the long-term value of investments: Climate change risks are intensifying all around the world. Asset Managers (AM) are under increased scrutiny from all stakeholders - investors and market regulators alike – to identify, evaluate, manage and disclose climate change risks.
Asset manager struggle to assess the physical risk due to lack of forward-looking data and methodologies. What is my portfolio value/return going to be in 10, or 50 years from now?
PRAAM - Physical Risk Analytics for Asset Managers, provides powerful analytics at ▪ portfolio and ▪ asset level to evaluate physical climate risks, manage these risks through adaptation and mitigation measures, report and disclose internally and externally and drive investment decisions over time.
Integration in Finastra’s Fusion Invest front-to-back investment management solution addresses AM needs. PRAAM solution is particularly fit for Private Equity, Real Estate and Infrastructure asset managers, which are not currently covered by large climate analytics providers.
In a context where Global Asset under Management (AuM) are shifting to alternatives (Private Equity, Real Estate, Infrastructure), PRAAM addresses asset manager needs and provides an opportunity to help them protect the long-term value of their investments.
What it does
Outputs of the PRAAM – Physical Risk Analytics for Asset Managers (Image 1) include:
1. Portfolio Analytics
- Heatmap of high-risk areas overall and per type of climate hazard
- High – Medium – Low VaR Dashboard for a portfolio
- Other – e.g., regional or country risk heatmap
2. Asset-level Analytics
- Value at Risk (% of the Replacement Cost of the Asset)
- Technical Insurance Premium (annualized cost of climate hazards)
- Damage projections per type of hazard for each decade up to 2100, under various climate scenarios
- Materials vulnerability assessment – which can be tailored to represent the actual asset
- Adaptation planning evaluation tool
Fusion Invest is Finastra’s flagship solution for cross asset Front-to-back Investment management. It enables in particular Portfolio Managers and Risk Managers to get a consolidated view on their asset exposures and financial risks according to various groupings (i.e. country, sector). Partnering with Impact+, official reseller of XDI in Europe, Fusion Invest can integrate sources physical risk analytics into the portfolio manager dashboards and consolidate all the information needed. where the asset manager has Portfolio Manager has transparency down to individual asset to do analyses and take corrective actions. He can increase the allocation to less risky less asset areas (regards to climate risk scoring) and reduce the exposure to the ones that ose that are expected to underperform.
Integration flow description (Image 2 in the gallery)
- XDI Physical Risk Analytics consume an OpenAPI (Fusion Invest Reporting API) on FusionFabric.cloud to load the assets of the Investment Manager portfolios (Real estate, infrastructure addresses and types).
- XDI Physical Risk Analytics Inputs/Outputs are described above (Images 1 and 3 in the gallery)
- Using an SPI, the Fusion Invest user retrieves the physical risks scores and analytics associated with the assets and aggregates them at portfolio level.
- Analytics are available for export into dynamic reporting applications (such as Microsoft PowerBI) for manager internal reports and client reports.
How we built it
XDI was created in 2006 and co-founded by a PhD in Climate and an ex-climate change adaptation advisor of the Australian Government. Their analytics are scientifically reviewed and powered by award-winning technology and powerful computational Climate Risk Engines. Its strengths rely on the use of forward-looking climate models that provide detailed analytics at a high resolution for different asset types and climate hazards.
IMPACTplus is a start-up that assists financial institutions implement climate change and sustainability regulations in origination, risk management and disclosures, leveraging advisory, data analytics and fintech solutions. IMPACTplus discovered XDI Analytics 9 months ago while doing demos with large providers (S&P, Moodys). Recognizing XDI’s strengths, IMPACTplus offered to bring XDI to the EU market and better adapt it to AM needs.
Finastra contacted IMPACTplus for the hackathon. Impactplus and Finastra decided to team up to present a common project around XDI Analytics integrating them into Fusion Invest dashboards.
The team started to brainstorm on March 8th for the first time. Through several remote interactions, IMPACTplus and Finastra got introduced to XDI Analytics solution and Fusion Invest. From there, they decided to transform the idea into an impactful project:
- Confirm the right team to support the project
- Frame the use cases that could be more relevant for asset managers
- Define potential target clients, leveraging IMPACTplus “go to market” strategy and positioning
- Analyze the input/output from XDI and leverage IMPACTplus and XDI aggregation / portfolio analytics dashboards
- Define the information technology building blocks to be used: existing APIs, etc.
- Create the best video to present this project
Challenges we ran into
- Slow start due to lack of clarity on the objective of the project at start
- Late refinement discussions on our pitch and target persona
- Delivery under short time constraints and working remotely (document sharing, virtual coordination and communication between two teams from two companies)
- Understand the analytics provided by XDI (for instance, can they be aggregated or not)
Accomplishments that we're proud of
- All members of the team contributed to this project and to the delivery of the video
- Creation of a team and of a path for a new partnership from scratch in less than a month
What we learned
- Align the storytelling based on clients needs and internal capabilities
- Need to clarify common objectives and interests upfront of a project
- How to communicate the importance of climate risk awareness and how pressing this topic is in regions particularly prone the physical risk
What's next for PRAAM- Physical Risks Analytics for Asset Managers
- Promote and benchmark the solution to existing and new clients in production on Finastra Fusion Invest
- Plan required developments and release a version of Analytics API allowing post from XDI
- Enhance the use case with all the stakeholders of this projects (for instance feeding financial analytics to XDI to support production of regulatory reporting).