ESG SDDS Wiring-Guide

Share of investments that are categorised as low risk based on the climate risk identification methodology used by the manager (eg IPCC SSP5-8.5, Climate explorer, etc.). Climate-related physical hazards may include extreme weather events such as heatwaves, heavy rain, drought and associated wildfires, coastal flooding (Source: IPCC report). Please specify in the comment box how the assessment was conducted. If not assessed, please provide the reason in the comment box.
 

"Low risk refers to assets that, when assessed under a documented climate risk scoring methodology, show minimal projected exposure and impact from physical climate hazards even under a severe high-emissions scenario such as IPCC SSP5-8.5. 
Methodologies typically assess both the probability and severity of hazards (e.g., heatwaves, floods, droughts, wildfires, coastal flooding) using a combination of climate models, historical data, hazard mapping, and forward-looking projections. Scores are often expressed on a scale (e.g. 1–100) with thresholds defining low, moderate, or high risk.
A systematic process should underpin the assessment, which may include.
•    Hazard identification: Define relevant hazards based on location, asset type, and exposure.
•    Data integration: Combine climate model outputs, historical records, and asset-specific data.
•    Impact assessment: Evaluate potential financial impacts (e.g. insurance costs, asset impairment, revenue loss).
•    Scoring metrics: Translate exposure/vulnerability into quantitative or qualitative scores.
•    Thresholds: Apply consistent cut-off points, such as defining ‘low risk’ under severe scenarios (e.g., SSP5-8.5).
•    Portfolio consistency: Apply a single methodology or provider across the vehicle to ensure comparability.
The EU Taxonomy (Appendix A: Climate and vulnerability risk assessment) specifies minimum criteria for such processes, including the use of recognised climate scenarios, multiple time horizons, asset-specific screening, and consideration of adaptation measures.  
The manager is responsible for selecting tools, defining thresholds, and documenting the methodology (hazard types, data sources, time horizons, and scoring criteria).
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"Note 1: The ESG SDDS does not prescribe fixed thresholds for ‘low’, ‘medium’ and ‘high’ risk categories. Investment managers should adopt thresholds consistent with their chosen methodology or provider (e.g., quantitative score ranges or qualitative categories) and apply them consistently across the portfolio. For illustration (non-prescriptive):
•    Low risk: 0–5 or 0–20
•    Medium risk: 6–15 or 21–50
•    High risk: >15 or >50

Note 2: A high share of AUM categorised as low risk under recognised hazard models (e.g. flood, heat stress, drought, wildfire) is generally viewed positively by investors, as it indicates portfolio resilience to physical climate risks.

This indicator is one of the six environmental factors considered most relevant for underwriting (see INREV (2025) Integrating environmental considerations in real estate underwriting paper).
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