Climate Value-at-Risk (Climate VaR) answers a specific question: what is the worst-expected financial loss to an asset or portfolio over a defined horizon, at a defined confidence level, driven by climate hazards? It is built on the same statistical framework as market and credit VaR, with climate scenarios as the driver instead of price volatility or default probability.
How Climate VaR Is Calculated
Floodlight calculates Climate VaR at the asset level in three steps. First, each of ten physical hazards - coastal surge, riverine flooding, seismic, wildfire, wind, heat, cold, drought, snow, and ice - is mapped to a probability distribution for that specific location. Second, published damage curves convert hazard severity into an expected loss for that asset's construction and use type. Third, results are expressed as Expected Annual Loss (the average annual expected loss) and percentile VaR at 95%, 99%, and 99.9% confidence (the loss in a severe, near-worst-case year).
The Three Outputs
Expected Annual Loss (EAL)
The probability-weighted average annual loss, useful for insurance pricing, reserve setting, and long-run budgeting.
Percentile Value-at-Risk
The loss threshold at 95%, 99%, and 99.9% confidence - the tail-risk figure a risk committee or regulator asks for.
Climate-Adjusted Asset Value
A forward-looking adjustment to asset value that reflects expected climate-driven loss, useful for underwriting and disposition decisions.
Why Express Risk This Way
Sustainability teams and risk committees speak different languages. A hazard score or a qualitative rating does not translate into a capital allocation decision. Climate VaR closes that gap: it is the same statistical language your treasury and risk functions already use for market and credit exposure, so climate moves from a narrative into the financial risk agenda with a number a CFO or CRO can act on directly.
Scenario Alignment
Floodlight's Climate VaR is modelled across the NGFS Phase V reference scenarios (Net Zero 2050, Below 2°C, Delayed Transition, and others), so results can be reported directly against the pathways regulators and frameworks like TCFD and CSRD expect.