PCRAM 2.0
Infrastructure systems must become resilient against climate change to be sustainable.
PCRAM is helping owners, operators and investors to understand and act on the physical risks of climate change for infrastructure assets by providing applicable, open and consistent guidance.
The infrastructure we all depend on faces growing climate risk. Through climate shocks, such as increasingly severe and frequent storms, heatwaves and floods, and climate-related stresses like biodiversity loss, the results of climate change jeopardise the infrastructure systems and services society needs to thrive.
For asset owners, operators and investors, climate risk means increasing business risk, including financial and reputational challenges, and requirements for disclosure and management.
It also requires the public and private sector to quickly adopt new standards, build improved knowledge and develop approaches to managing climate risks. With current practices, it’s challenging to reliably scope the challenge and interpret climate data, understand the material impact of those risks, and then identify the most effective and valuable options for resilience. This then limits the ability to confidently deploy limited resources toward the right adaptation measures.
Improving resilience with PCRAM
By providing a consistent and evidence-led approach to assessing and quantifying climate risk, PCRAM is enabling investors, asset owners and operators to better align their practices and metrics and establish a more confident case for investing in infrastructure resilience.
The shared understanding it helps create enhances predictability, encourages comprehensive risk management, and ensures efficient resource allocation.
First launched in 2022 with the Coalition for Climate Resilient Investment (CCRI), Mott MacDonald is continuing to progress PCRAM with the Institutional Investors Group on Climate Change (IIGCC).
PCRAM enables its users to better harness multi-disciplinary services to achieve better results, including climate science, engineering, and finance. It’s also part of IIGCC’s Climate Resilience Investment Framework (CRIF), a comprehensive framework to inspire investors in the development of their own individual plans to manage physical climate risk.
Mott MacDonald supported the development of the first practical real-world PCRAM case studies, and has used PCRAM to understand clients’ physical climate risk at the portfolio level. The insights gained and lessons learned in those early case studies have helped to further establish and expand PCRAM toward the latest 2.0 version.
Offshore wind farm
For an investment for a ~50Mw offshore wind farm in South East Asia, PCRAM was used to understand potential physical climate risks affecting energy generation and impacting on its financial model. As part of the appraisal PCRAM was used to quantify the value of relocating the asset’s substation away from an identified flood risk. It found a ‘resilience premium’, where the efficient allocation of capital at the project’s outset to deliver this resilience option outperformed the likely losses and repair costs if no action were taken.
Hydropower asset
For a 42Mw hydropower asset, PCRAM was used to analyse and identify potential climate hazards. Drawing on a review of climate data and the resulting climate risks, a materiality assessment of drought risk found that rising acute drought risk would mean previously unanticipated changes in energy production. Resilience actions were identified to enhance the asset’s management, efficiency and recovery, with an economic and financial analysis identifying the costs and benefits of implementation.
Introducing PCRAM 2.0
Building on its successful first iteration, Mott MacDonald is working with the IIGCC to support the development of PCRAM 2.0. Additions and improvements to the methodology will help more organisations to understand, invest in and improve the management of physical climate risk.
Find out more about PCRAM 2.0 in its newly released guidance documents:
Risk disclosure and management
As mandatory climate-related disclosures become more prevalent in infrastructure, organisations need to act now to set up the systems and processes to quantify their exposure to physical climate risks.
The Task Force on Climate-related Financial Disclosures (TCFD) was established by the global Financial Stability Board in recognition of the threat posed by climate change to capital and the worldwide financial system. It was tasked to develop a reporting framework that would help investors understand their exposure to risk and plan investments – or disinvestments – accordingly. TCFD reporting has already become mandatory for large companies in Canada, Hong Kong, New Zealand, Switzerland and the UK; while China, the EU, the USA and other G7 leading economies say they plan to adopt the framework.
TCFD requires companies to demonstrate understanding of the climate risks they face, how severely they could be impacted, and the financial consequences. They must also spell out how they plan to mitigate their exposure to risk. Companies that fail to adequately quantify risk and manage it will see investor confidence ebb away – and potentially the confidence of other stakeholders too, including government sponsors, regulators, civil society organisations and customers.
PCRAM dovetails with TCFD reporting, by helping organisations to both understand and quantify the climate risks they face, and to prioritise them as part of a climate risk management strategy.