Methodology: Climate Impact Margin
Companies are predominantly interested in how climate change affects their business operations. Our key concept to address this question is the Climate Impact Margin (CIM). The CIM gives companies a comprehensive set of numbers how climate-related risks and opportunities transfer into components of income and cash-flows, and finally into the overall performance of the company.
The Climate Impact Margin is a framework of additive components that take key identified risks and opportunities from climate change into account. The CIM framework aligns with the recommendations of the Task Force on Climate-related Financial Disclosures. Tāmaota develops technology to address each of the shown elements, translates modelling results of each element into a Climate Impact Margin, and combines all Margins to a comprehensive, dynamic impact on company performance.
Political and Legal. Tāmaota investigates regulatory risk by quantifying impacts of existing agreements (e.g. within the Paris Agreement) and by qualified scenario analysis of future legislative development. Clients benefit from this analysis by obtaining actionable and quantified insights on their current and future climate-regulatory risk exposure.
Technology. Access to clean technology for low-carbon production and business operation is not only a safeguard against climate-regulatory demands, but also a key cost saver impacting directly on the bottom line. Tāmaota addresses technological change by an advanced, automated innovation scouting module, analyzing patent and innovation databases with natural language processing technology.
Market. Risks such as changing customer behavior and increased cost of raw materials are analyzed by means of various proprietary and public sources and are strongly supported by scenario analyses. Market risks also combine elements from technology and reputation risks on a higher level.
Reputation. Reputational risks such as shifts in consumer preferences or stigmatization of entire sectors may materialize in reduced revenue from decreased demand for goods and services, in employee attraction and retention rates, and finally lower capital availability for the firm.
Immediate and seasonal weather impacts. Acute risks, such as an increased severity of extreme weather events such as cyclones and floods, directly result in reduced revenue from decreased production capacity and higher costs from rising insurance premiums or negative impacts on workforce. We employ state-of-the-art weather and seasonal climate modelling, grounded on strong partnerships with business and academic experts.
Mid-term local and global shifts in weather patterns. Effects such as rising mean temperatures and rising sea levels pose challenges on companies on a strategic level. Tamaota quantifies company-specific exposures to mid-term climate impacts and works with clients on strategic mitigation options.
Resource efficiency. Shifting to more efficient production and distribution processes, or moving to more efficient buildings directly reduces operating costs and increases production capacity, thus resulting in increased revenues. Tāmaota quantifies return-on-invests in resource efficiency measures with a proven modelling logic, but vastly expanded data originating from various qualified resources.
Energy source. Companies using of lower-emission sources of energy may participate in carbon markets and benefit from reduced operational costs, and reduced exposure to future fossil fuel price increases. As investor and customer focus is changing, clean energy usage may also increase capital availability and earn reputational benefits resulting in increased demand for goods and services.
Products and services. Using Tāmaota's quantitative approach, clients are enabled to diversify business activities and improve their competitive position to reflect shifting consumer preferences. Clients benefit from increased revenue through new solutions that fit market needs.
Markets. Climate change is an enabler to access to new markets, e.g., through partnerships with governments and development banks, or usage of public-sector incentives.
Resilience. Accounting for climate change in strategy and operation increases the market valuation of companies through resilience planning (e.g., infrastructure, land, buildings), increased reliability of supply chain and ability to operate under various conditions. Tāmaota offers detailed modelling solutions for quantifying a client’s resilience, thereby laying the ground for informed decision making.