Transition strategy for a modern port: Climate risk modeling

The challenge

A large global port with a strong focus on sustainability and innovation had a number of initiatives in place — from alternative fuels to smart digital solutions — to reduce its carbon footprint and improve efficiency. Like many marine organizations, the port had questions regarding the potential financial impacts as it developed a strategy that would encompass the ongoing energy transition and other climate related risks. While the port had a number of risk mitigation measures in place, it wanted to determine if they made financial sense as part of an ongoing strategy, which it wanted to refine and simplify.

The solution

Marsh’s Advisory team developed a financial impact modeling plan for the port. This type of modelling provides businesses with a comprehensive understanding of how climate change may affect their financial performance, in both the short- and long-term. By identifying and quantifying these risks and opportunities, businesses can develop strategies to manage and mitigate the risks, while also capitalizing on the opportunities presented by a changing climate.

Taking into account the port’s unique circumstances, we developed a transition risk assessment with four critical components:

• Economic understanding: Targeted analysis of the company’s sector to confirm the international, sectoral, and business economic context. We also identified how transition risk would materialize across the company’s value chain.
• Risk and opportunities identification: Identified short- and long-term “what-if” scenarios for the assessment of climate shocks and future transition scenarios; designed scenarios for transition risks; and mapped each scenario to the company's business value chain.
• Build business impact model: Created a model to be used for business climate risk forecasting and built a tailored climate risk quantification model including base case, risk scenario modules.
• Quantify business impacts: For each identified climate risk scenario, quantified a range of potential financial and business impacts to activities, sites, critical suppliers, cost base, and profits against the base case.

The results

Our process enabled the client to become self-sufficient in their ability to model climate risks and make informed decisions.