A
Acute risks: see physical risks
Adaptation: The process of adjusting natural or human systems in response to the actual and expected impacts of climate change, including extreme weather events, sea-level rise, and changes in ecosystems. Adaptation measures aim to reduce harm, improve resilience, and capitalise on beneficial opportunities, such as building sea walls to protect against floods and rising sea levels. We adjust the CER and CRR ratings based on companies’ resilience measures (see ClimaTech).
Aggregate Damage Function: A mathematical relationship linking projected changes in Global Mean Temperature (GMT) to estimated macroeconomic losses at the global, national or regional level.
Asset pricing model: The model offers an approach to estimate the fair value of unlisted infrastructure and private equity investments using observable market data and systematic risk factors. The methodology adheres to the guiding principles of the International Financial Reporting Standards (IFRS) 13 – a framework for fair value measurements. The model allows us to calculate the Net Asset Value (NAV) in each climate scenario, thereby identifying the material risk factors associated with current and future climate change.
B
Benchmark: A quantitative or qualitative reference standard to compare an asset’s performance against a (selective) group of assets. In the context of the CER and CRR, we offer two types of benchmark comparisons:
Universe benchmark: A reference standard to compare an asset’s overall CER or CRR rating performance against all assets included in the CER universe or CRR universe, respectively.
Peer Group benchmark: A reference standard to compare an asset’s overall CER or CRR rating performance against assets within the most similar asset group, considering their TICCS sector group and climate zone.
C
Carbon costs: We define carbon costs for an asset as the product of its Scope 1 and 2 carbon emissions and a country’s carbon tax, based on the country in which the asset operates.
Carbon emissions (CO2 equivalent): Emissions from all types of greenhouse gases (GHG; carbon dioxide, methane, nitrous oxide, and water vapour) that are generated by asset operations, expressed in terms of their equivalent amount of CO2 to generate the same global warming effect. Following the GHG Protocol standards, carbon emissions are divided into three scopes:
Scope 1 (S1) emissions: Direct carbon emissions, including emissions from facilities and vehicles owned by a company.
Scope 2 (S2) emissions: Indirect carbon emissions from purchased electricity, steam, heating or cooling, ventilation, and lighting.
Scope 3 (S3) emissions: Indirect carbon emissions from other sources, including upstream and downstream activities (e.g., purchased goods and services, transportation and distribution, employees’ commute, generated waste, etc.).
Carbon footprint: The total amount of carbon emissions generated by an asset's operations. It is the sum of Scope 1, Scope 2, and Scope 3 emissions.
Carbon intensity: Provides insights into a company’s or sector’s carbon footprint. It is typically measured as the ratio of Scope 1 and 2 carbon emissions to an operation-related financial metric (e.g., production, revenues). In the context of the CER and CRR, we calculate carbon intensities per revenue in USD. For more details on this approach, refer to the technical documentation.
Carbon tax: The direct tax levied on an asset’s carbon emissions required to produce goods and services.
Cash Flow Available for Debt Service (CFADS): A key financial metric used primarily in project finance and infrastructure investments to assess a project’s ability to meet its debt obligations. CFADS represents the actual cash flow generated by a project that is available to service debt, including interest and principal repayments. CFADS excludes financing-related cash flows such as interest income, debt drawdowns, and repayments, making it a reliable indicator of a project’s underlying operating performance.
Chronic risks: see physical risks
CMIP6: Coupled Model Intercomparison Project, Phase 6. An internationally coordinated scientific exercise under which climate modelling groups worldwide run standardised simulations of the Earth's climate system under prescribed emissions scenarios.
ClimaTech: ClimaTech is a comprehensive initiative designed to assess and evaluate the effectiveness of infrastructure decarbonisation and resilience strategies in response to the increasing risks posed by climate change. The ClimaTech project distinguishes between decarbonisation and resilience strategies:
Decarbonisation strategies: These strategies aim to lower carbon footprints by employing technologies and practices that minimise the use of fossil fuels and enhance energy efficiency (e.g., integrating renewable energy sources or adopting low-carbon construction materials) to mitigate climate change.
Resilience strategies: These strategies ensure that infrastructure can withstand climate-related disruptions and continue functioning effectively in the face of extreme weather events (e.g., building flood defences, improving structural integrity, using fire-resistant building materials). Resilience is the main strategy to adapt to climate change.
We use the ClimaTech database to adjust the CER and CRR: If companies share their strategies, the database provides information on the extent to which our model-estimated carbon emissions, as well as expected damages and disruptions, can be reduced, and hence, the ratings adjusted.
Climate change (anthropogenic): A change of climate which is attributed directly or indirectly to human activity (including the burning of fossil fuels, deforestation, and industrial processes) that alters the composition of the global atmosphere. Anthropogenic climate change is distinct from natural climate variability and can be observed over large time periods.
Climate exposure: Exposure refers to the presence of assets that could be adversely affected by transition risks and physical risks from climate change. We measure and rate assets’ climate exposure in the CER.
Climate Exposure Rating (CER): A rating developed by Scientific Climate Ratings that reflects infrastructure companies’ sensitivity to present and future climate exposure. This measure of future climate exposure is provided for two time horizons – 2035 and 2050 – and incorporates transition risks as well as physical risks. Compared to the Climate Risk Rating (CRR), it focuses on physical damages and carbon costs, without a direct relation to companies’ cash flows and value. Accordingly, it represents an “exposure” rather than a “risk” rating. For more details on the CER, refer to the technical documentation.
Climate risks: Compared to climate exposure, climate risks describe the negative consequences resulting from an asset’s exposure and vulnerability to climate change. We measure and rate assets’ climate risks in the CRR, taking into account their financial materiality based on Net Asset Value.
Climate Risk Rating (CRR): A rating developed by Scientific Climate Ratings that reflects infrastructure companies’ sensitivity to present and future climate risks. This measure of future climate risks is provided for two time horizons – 2035 and 2050 – and incorporates transition risks as well as physical risks. Compared to the Climate Exposure Rating (CER), it reflects the financial materiality of physical and transition risks on companies’ cash flows and value. Accordingly, it represents a “risk” rather than an “exposure” rating. For more details on the CRR, refer to the technical documentation.
Climate scenarios: Climate scenarios are projections of future macroeconomic conditions influenced by climate change, based on various assumptions about greenhouse gas emissions, socioeconomic developments, and technological advancements. There have been various initiatives with different foci, for example, the Shared Socioeconomic Pathways (SSPs), Representative Concentration Pathways (RCPs), Network for Greening the Financial System (NGFS), and Oxford Economics. Overall, we consider three main climate scenario categories:
Orderly Transition: In these scenarios, immediate and coordinated climate policies are implemented, enabling the containment of physical risks while avoiding heavy transition risks. These scenarios aim to reach net-zero emissions and drive growth through beneficial innovations.
Disorderly Transition: In these scenarios, carbon taxes are applied late, governments act with less ambition, investments fall short, and climate actions are insufficient to reach net-zero. To compensate for the delay and political uncertainties while maintaining the goal of mitigating global warming, carbon taxes are introduced as a shock, entailing high transition risks.
No Transition: In these scenarios, climate policies remain unchanged from their current state. Transition risks are low but come at the cost of high physical risks.
Climate scenario probabilities: The EDHEC Climate Institute has developed a methodology to calculate the probability of each climate scenario happening. For more details on this methodology, refer to the technical documentation. In the CER, we calculate the climate exposure of infrastructure companies based on the projections in the scenario with the highest probability. In the CRR, we measure companies’ climate risks based on the weighted averages of all climate scenario projections.
Climate zone: The Köppen-Geiger climate classification categorises the world into five primary climate zones, based on temperature and precipitation. Following Beck et al. (2018), we differentiate between tropical, arid, temperate, cold, and polar. Additionally, we consider a sixth category – offshore – to include the specific climate conditions at sea. We use climate zones to weight physical and transition risks in the CER and to provide a more precise reference standard with our Peer Group benchmark.
Tropical: regions with temperatures above 18 degrees Celsius throughout the year and significant precipitation
Arid: regions with low precipitation that do not fit the polar criteria
Temperate: regions with a moderate climate with distinct seasons
Cold/continental: regions with at least one month averaging below 0 degrees Celsius and at least one month averaging above 10 degrees Celsius
Polar: regions with monthly average temperatures below 10 degrees Celsius throughout the year
Offshore: oceans or large water bodies characterised by marine conditions that differ from adjacent land climates
Corporate Sustainability Reporting Directive (CSRD): An EU directive that significantly expands and strengthens sustainability reporting requirements for companies. It replaces the Non-Financial Reporting Directive (NFRD) and mandates detailed disclosures on environmental, social, and governance (ESG) issues, based on the European Sustainability Reporting Standards (ESRS). The CSRD aims to enhance transparency and comparability of sustainability information, enabling investors and other stakeholders to assess a company’s performance and related risks. It applies to large companies and listed Small and Medium Enterprises (SMEs), with phased implementation having started with the 2024 financial year.
Counterfactual Baseline: The reference scenario against which all climate-induced damages in the Sovereign Risk Ratings framework are measured. The counterfactual is defined as a world in which no additional warming beyond the 2024 baseline exists. All projected GRP per capita losses reported are expressed as percentage deviations from this no-additional-warming counterfactual, not from current economic conditions.
D
Damage factor: The output of a damage function, typically defined as a ratio of repair to replacement costs. Additionally, the damage factor can be interpreted as the extent of the damage to an asset. This is presented in the percentage of the asset damaged.
Damage function: A function that translates the magnitude of hazard events to quantifiable damage by factoring in an asset’s exposure and vulnerability to such hazard events.
Data Quality Score (DQS): The DQS system is part of the methodology developed by the Partnership for Carbon Accounting Financials (PCAF) to assess the reliability and accuracy of carbon emissions data linked to financial assets. This scoring system is a central feature of PCAF’s approach to financed emissions accounting. The scores range from 1 to 5, with 1 indicating the highest quality of (reported) emissions data, while 5 represents estimated emissions based on generalised data or proxies. For more details on how Scientific Climate Ratings includes DQSs, refer to the technical documentation.
Discounted Cash Flow: A finance method used to value a security, project, company, or asset that incorporates the time value of money. The result is the Net Asset Value (NAV).
Disruption: Compared to expected damages, disruptions are interruptions of normal operations, services, and asset functioning that are directly caused by hazard events. The calculation of business-day disruption enables the evaluation of impacts on companies’ revenues in the event that their activities are disrupted by climate hazards that damage their assets. We consider both damages and disruptions when calculating physical risks for the CRR.
DOSE: MCC-PIK Database of Subnational Economic Output. A dataset providing harmonised historical gross regional product (GRP) per capita records for sub-national regions across 166 countries, covering the period from the early 1970s to 2018. DOSE is the primary macroeconomic data source used in the Scientific Climate Ratings econometric estimation of regional temperature–output response functions in the Sovereign Climate Risk Rating.
E
Emission Factor (EF): A modelling factor that expresses the amount of carbon emissions generated by an activity of a given technology, hence measured in reference to an operational variable. For example, the EF for a car represents the car’s emissions for a given amount of distance travelled, and the EF for a power plant specifies the plant’s emissions for a given amount of MWh of electricity produced.
European Sustainability Reporting Standards (ESRS): A comprehensive set of mandatory standards developed by the European Financial Reporting Advisory Group (EFRAG) under the Corporate Sustainability Reporting Directive (CSRD) to harmonise corporate sustainability disclosures across the EU. The ESRS covers topics such as climate change, biodiversity, social matters, and governance, ensuring consistency, comparability, and reliability of sustainability information.
EU Taxonomy for Sustainable Activities: A classification system established by the EU to define what qualifies as an environmentally sustainable economic activity. It aims to prevent greenwashing and helps investors, companies, and policymakers identify and compare green investments based on six environmental objectives, including climate change mitigation and adaptation.
Expected damage: A metric the EDHEC Climate Institute developed for all physical hazards covered in our CER and CRR ratings. While the expected damage from floods, storms, and wildfires is calculated as the Physical Damage at Risk (in percent), the expected damage from heat (see thermal stress) focuses on operational revenue loss (in percent) due to impacts on workers' productivity. We use these baseline metrics for our physical damage exposure and risk metrics, which we then translate into respective scores and ratings.
Expected Scenario: A probability-weighted composite of nine climate scenarios, using scenario probabilities derived from EDHEC Climate Institute's emulation framework, aligned with and extending the NGFS framework. The Expected Scenario does not correspond to a single physical pathway; rather, it represents an unconditional expectation of climate-induced macroeconomic damage across the full distribution of plausible futures. In the Scientific Climate Ratings framework, the Expected Scenario serves as the common reference scale for regulated ratings definition and calibration.
Extreme Value Analysis (EVA): A statistical approach to model and estimate the probability of hazard events and calculate return periods. It focuses on the tail ends of probability distributions to assess the likelihood and magnitude of events that lie outside typical observations.
Exposure (to physical risks): The presence of infrastructure assets in places and settings that could be adversely affected by hazard events. Different from an asset’s vulnerability to physical risks.
F
Fixed-Effects OLS (Panel): A panel data econometric estimator used in the Sovereign Climate Risk Rating methodology to identify the causal relationship between climate variables and regional economic growth. By including region-specific fixed effects, the model absorbs all time-invariant characteristics of each sub-national region, enabling the identification of climate impacts from plausibly exogenous within-region variation over time rather than from cross-sectional differences between regions, which would conflate climate with other structural factors.
Flood: A type of hazard event defined by the overflowing of the normal confines of a stream or other water body or the accumulation of water over areas that are normally not submerged. Different types of floods include fluvial, pluvial, and coastal floods. We include the exposure to and risks from floods in our CER and CRR ratings. For more details on this approach, refer to the technical documentation.
G
GADM: Database of Global Administrative Areas. An open geographic database providing sub-national administrative boundary shapefiles worldwide. GADM boundaries serve as the spatial reference for aggregating climate projections and economic data from gridded datasets (GLDAS, NEX-GDDP CMIP6) to the administrative region level.
GCM (Global Climate Model): A numerical model of the Earth's climate system used to project future climate change under specified emissions scenarios.
Geolocation: The process of identifying the geographic location of an object and associating it with geographic coordinates (e.g. in latitude and longitude).
Geospatial data: Data that relates to the geographic position and characteristics of features or phenomena on the Earth’s surface.
Geospatial transformation: This process refers to the cleaning, processing, and structuring of geospatial data for subsequent analysis.
GLDAS: Global Land Data Assimilation System. A NASA dataset providing spatially gridded land surface climate variables at 0.25-degree spatial resolution. In the Scientific Climate Ratings methodology, GLDAS serves as the source of historical climate observations used in the econometric estimation of regional GRP per capita growth responses to climate fluctuations over 1979–2018.
GMT (Global Mean Temperature): The global surface average temperature anomaly, expressed relative to a pre-industrial reference period (1850–1900). GMT is the primary climate variable used in the NGFS framework to characterise the degree of warming associated with each scenario pathway.
GPW (Gridded Population of the World): A globally gridded dataset of population density statistics produced by the Socioeconomic Data and Applications Center (SEDAC).
GRP (Gross Regional Product): The primary economic output metric used at the sub-national level in the Sovereign Climate Risk Rating framework, analogous to GDP at the national level.
H
Hazard event: A physical climate event or trend that may cause loss of life, injury, or other health impacts, as well as damage and loss to property, infrastructure, livelihoods, service provision, ecosystems, and environmental resources. Floods and storms are among the most impactful types of hazard events.
Hazard map: A map that illuminates areas that are affected by or exposed to a particular hazard. They are typically made for natural hazards and contain hazard values.
Hazard value: These values contain measurements of hazard events (e.g., the depth of a flood).
Heat: see thermal stress
I
IAM (Integrated Assessment Model): A class of large-scale computational models that integrate representations of the energy system, land use, economy, and (in some cases) climate system to generate internally consistent scenarios of future greenhouse gas emissions and their mitigation costs. In the NGFS Phase-V framework, three IAMs are used — REMIND, MESSAGEix-GLOBIOM, and GCAM 6.0 — each generating distinct emissions pathways that are then fed into the MAGICC climate emulator to produce GMT trajectories. The Scientific Climate Ratings framework reports results averaged across these three IAMs to handle inter-model uncertainty.
ICAAP: Internal Capital Adequacy Assessment Process. A supervisory framework under Basel III / CRD IV requiring banks to assess all material risks, including climate risk, against their capital resources.
Infrastructure universe: The Unlisted Infrastructure Universe is a database of tracked assets that represent the fair value- and risk-adjusted performance of the unlisted infrastructure asset class. It includes more than 9,000 unique infrastructure companies across the 27 most active national markets for infrastructure investors to define an investible universe of private infrastructure companies. These companies have a minimum of USD 1 million in total asset book value, are privately owned, and can be categorised using the Infrastructure Company Classification Standard (TICCS).
International Financial Reporting Standards (IFRS): A globally recognised set of accounting standards designed to bring consistency, transparency, and comparability to financial reporting across countries. IFRS governs how companies prepare and disclose their financial statements. In 2021, IFRS launched the International Sustainability Standards Board (ISSB) to create a comprehensive global baseline for sustainability disclosures. These include IFRS S1 (general sustainability-related financial disclosures) and IFRS S2 (climate-related disclosures aligned with TCFD recommendations).
M
MAGICC: Model for the Assessment of Greenhouse Gas Induced Climate Change. A reduced-complexity climate model emulator used by the NGFS framework (v7.5.3 in NGFS Phase-V) to derive GMT anomaly trajectories from IAM-generated emissions pathways. MAGICC operates at the global scale and provides percentile distributions of GMT projections across scenarios and IAMs. In the Sovereign Climate Risk Rating methodology, MAGICC's GMT outputs serve as the climate input to the aggregate damage function, enabling the translation of SSP-RCP-based regional damage estimates into NGFS-compatible projections.
Magnitude (of hazard events): A hazard magnitude scale measures the strength of a hazard event, considering the natural forcing phenomena and the severity of the event. The physical risk methodology adopts the description of magnitude based on the probability of occurrence of hazard events, also known as return periods.
Market preferences risk: We developed two market preference metrics for the CER and CRR ratings. These metrics serve as proxies for companies’ exposure to adverse risks from market preferences, shifts in consumer behaviours and values, and demands that lead to further policy regulations.
Mitigation: Mitigation refers to efforts and actions that limit the impacts of climate change. Mitigation measures aim to reduce or prevent the emission of greenhouse gases or enhance carbon sinks that help to absorb and store carbon. We adjust the CER and CRR ratings based on companies’ decarbonisation measures (see ClimaTech), such as switching from coal to renewable energy sources.
N
NACE: The Nomenclature statistique des Activités économiques dans la Communauté Européenne (English: Statistical Classification of Economic Activities in the European Community) is an industry-standard classification system used in the European Union. Oxford Economics uses the NACE classification for its sales projections.
Net Asset Value (NAV): The present value of an asset calculated through the discounted cash flow method. Accordingly, we define NAV more specifically as the present value of all net future cash flows to equity holders until maturity.
Network for Greening the Financial System (NGFS): A global network of central banks and financial supervisors committed to enhancing the role of the financial system in managing climate and environmental risks. Founded in 2017, NGFS shares research, guidance, and tools, such as climate scenarios, to promote sustainable finance and risk management. The NGFS scenarios combine socioeconomic projections, energy system models, and climate outcomes and align with frameworks like the Shared Socioeconomic Pathways (SSPs) and Representative Concentration Pathways (RCPs).
NEX-GDDP CMIP6: NASA Earth Exchange Global Daily Downscaled Projections. A dataset providing bias-corrected and spatially downscaled climate projections from 29 CMIP6 global climate models at 0.25-degree spatial resolution and daily temporal frequency.
O
Operational stress: see thermal stress
Oxford Economics: A global economic forecasting and analysis company that provides data-driven insights and models, specialising in climate scenario planning, macroeconomic modelling, and sectoral and regional forecasts. Compared to other climate scenario providers, Oxford Economics’ Climate Catastrophe scenario represents the potential risks of inaction against climate change more accurately.
P
Partnership for Carbon Accounting Financials (PCAF): A global initiative that provides a standardised methodology for financial institutions to measure and disclose the greenhouse gas emissions associated with their loans and investments. A key feature is PCAF’s focus on transparency and their Data Quality Score method, enabling institutions to disclose emissions with clarity about methodology and uncertainty. PCAF is widely adopted by banks, asset managers, and insurers and supports alignment with net-zero targets and climate-related disclosure frameworks (e.g., TCFD, IFRS).
Penn World Tables (PWT): Penn World Table version 10.01. A widely used macroeconomic database providing internationally comparable GDP, productivity, and price level data for 166 countries over the post-war period. In the Scientific Climate Ratings methodology, PWT serves as the national macroeconomic anchor for the DOSE sub-national dataset, ensuring consistency between regional GRP records and national accounts across countries and over time.
Physical Damage at Risk (PDaR): PDaR refers to the asset-level damage factor calculated during the modelling process. PDaR can be understood as the percentage of an asset’s area that is exposed and vulnerable to a hazard event.
Physical risks: Risks related to the physical and material impacts of climate change. Physical risks can be either acute or chronic, which can both disrupt supply chains, reduce asset values, and increase operational and maintenance costs for businesses and communities. In the context of the CER and CRR, we measure physical risks as the expected damages and disruptions caused by hazard events.
Acute risks: A type of physical risk referring to immediate, short-term hazard events, such as the increased severity of extreme weather events (e.g., floods, storms, or wildfires) that can cause sudden and significant damage to infrastructure assets and disrupt operations.
Chronic risks: A type of physical risk referring to long-term shifts in climate patterns, such as rising sea levels, increasing temperatures, and prolonged droughts, which can gradually affect asset values, operational costs, and overall economic stability.
Physical Value at Risk (PVaR): PVaR can be understood as the tangible value of an asset exposed and vulnerable to a hazard event. This is derived by multiplying the asset's financial information, specifically its tangible asset value, by the Physical Damage at Risk (PDaR). The quantified PVaR is the dollar amount that needs to be repaired or replaced, considering all potential hazard events of a given magnitude in a year.
Pillar 2 (Basel / CRD IV): The supervisory review pillar of the Basel capital adequacy framework, requiring financial institutions to assess all material risks not fully captured under Pillar 1 (minimum capital requirements). Climate-related physical and transition risks are increasingly integrated into Pillar 2 requirements. The ECB's SREP (Supervisory Review and Evaluation Process) cycle for 2026 mandates climate risk integration under Pillar 2. Scientific Climate Ratings Sovereign Climate Risk Ratings provide quantitative sovereign-level exposure metrics suitable for incorporation into Pillar 2 internal assessments and regulatory disclosures.
Policy and technology risk: We developed two policy and technology metrics for the CER and the CRR ratings. These metrics serve as proxies for companies’ exposure to adverse risks from policy changes and new technologies. Both metrics consider assets’ carbon costs based on their S1+2 carbon emissions (or S1+2 carbon intensity) and country-specific carbon tax.
R
Reclassification: The process of taking input cell values and replacing them with new output cell values. The EDHEC Climate Institute uses this process to transform the initial hazard maps, which provide information on the hazard value (e.g., flood depth for each raster band on the map), into hazard maps with damage factors to receive the level of damage in percent for each region and asset class.
Representative Concentration Pathways (RCPs): At the request of the IPCC, the scientific community developed the RCPs, one of the first scenarios to explore the impacts of (future) greenhouse gas concentrations in the atmosphere on the climate. These climate scenarios primarily focus on the expected radiative forcing values (i.e., the imbalance between the amount of energy that enters the Earth’s atmosphere from the sun and the amount of energy reflected into space) until 2100. However, the RCPs are nonspecific regarding the underlying socioeconomic conditions.
Reputation: see market preferences
Return period: The return period is a statistical estimate of how often a specific hazard event of a given magnitude is likely to occur. This probability is expressed as an estimate of the average time interval between occurrences, typically expressed in years. For example, if a 100-year flood has a return period of 100 years, there is a 1 percent chance of such a flood occurring in any given year. To obtain return periods, the EDHEC Climate Institute uses Extreme Value Analysis (EVA), which models the behaviour of extreme events to estimate the likelihood of occurrence.
RWA (Risk-Weighted Assets): A regulatory capital metric representing a bank's assets weighted by their risk level, used to determine minimum capital requirements under the Basel framework. Climate-stressed GDP growth assumptions — such as those provided by the Scientific Climate Ratings Sovereign Climate Risk Rating — can affect sovereign risk weights and therefore RWA calculations within banks' internal models, particularly for sovereign bond portfolios in jurisdictions with material physical climate exposure.
S
Scenario probabilities: see climate scenario probabilities
Scientific Climate Scenarios: An advanced climate scenario framework developed by the EDHEC Climate Institute to support forward-looking climate risk analysis, valuation, and investment decision-making. Building on existing NGFS climate scenarios, the framework enhances their usability for financial institutions and investors through three major innovations: granularisation, extension, and probabilisation of climate scenarios.
Scope 1, 2, and 3 emissions: see carbon emissions
S3-to-S1+2 ratio: This ratio is part of the approach to building S3 carbon emission models. To estimate S3 emissions, the EDHEC Climate Institute uses its S1+2 emission estimates in combination with sector-specific S3-to-S1+2 ratios, based on the assumption that emissions generally scale with activity levels. For more details on this approach, refer to the technical documentation.
Shared Socioeconomic Pathways (SSPs): Global climate scenarios used in climate modelling and impact assessment to explore how different trajectories of societal development affect greenhouse gas emissions and climate risks. SSPs describe alternative futures based on mitigation and adaptation challenges, and are often combined with Representative Concentration Pathways (RCPs).
Shapefile: A widely used geospatial file format for storing and sharing vector-based geospatial data in Geographic Information Systems (GIS). Shapefiles contain information about geometric shapes (such as points, lines, or polygons) along with associated attribute data (e.g., names, population, land use).
Sovereign Climate Risk Rating: A rating developed by Scientific Climate Ratings that reflects sovereign countries' exposure to present and future climate conditions, assigned to each of the sovereign countries universe. The rating is derived from econometrically estimated, probability-weighted expected macroeconomic losses, enabling investors to price sovereign climate risk rather than merely rank it. Headline ratings are published under the Expected Scenario for the 2035 and 2050 time horizons; scenario-specific ratings are additionally available across all seven NGFS pathways plus 2 ECI in-house derived extreme climate pathways.
SREP (Supervisory Review and Evaluation Process): The annual supervisory assessment conducted by the ECB and national competent authorities to evaluate the risk profile of individual banks under the Single Supervisory Mechanism (SSM). From the 2026 SREP cycle onward, climate risk integration under Pillar 2 is mandatory.
Storm: A type of hazard event referring to strong winds resulting from a low-pressure atmospheric system. Storms are among the most significant natural hazards, resulting in substantial global damage and major economic losses. Different types of storms include tropical cyclones and extratropical storms. Tropical cyclones are driven by warm ocean waters and generate extreme winds, storm surges, and heavy rainfall. In contrast, extratropical storms are more prevalent in mid-latitudes and can cause severe disruptions due to high winds, flooding, and snow. We include the exposure to and risks from storms in our CER and CRR ratings. For more details on this approach, refer to the technical documentation.
T
Task Force on Climate-Related Financial Disclosure (TCFD): An international initiative developed in 2015 by the Financial Stability Board to develop a framework for climate-related financial disclosures and improve transparency on climate-related financial risks. The TCFD recommends voluntary, but widely adopted, disclosures on governance, strategy, risk management, and metrics related to climate impacts on business. The TCFD fulfilled its remit and disbanded in 2023. The IFRS Foundation is now monitoring the progress of companies’ climate-related disclosures.
The Infrastructure Company Classification Standard (TICCS): A classification standard of infrastructure companies that provides investors with a frame of reference to approach the infrastructure asset class. It offers an alternative to investment categories inherited from the private equity and real estate universe, which are less informative when classifying infrastructure. For more details on this infrastructure standard, refer to Scientific Infra & Private Assets.
Thermal stress: Refers to the adverse impacts on living organisms and systems resulting from excessive temperature conditions, such as extreme cold or heat stress.
Extreme heat stress: A type of hazard event defined by heat wave periods that bring consistently abnormal high temperatures. Heat stress risk and its impact can be understood in three categories: direct physical damage (e.g., deformation of road surfaces), disruptions affecting supply chains, transportation networks, or energy systems, and operational issues. We focus our heat stress assessment on operational issues, where heat impacts workers' chronic health and productivity. For more details on this approach, refer to the technical documentation.
Tangible asset value: The sum of the total replacement value of a company's physical assets, including buildings, equipment, and infrastructure, while excluding intangible components such as financial assets, goodwill, patents, and market reputation.
Transfer Function: In the Scientific Climate Ratings econometric framework, the term refers to the global GRP per capita response function estimated in the first stage of the Sovereign Climate Risk Ratings methodology. This estimated relationship between local climate fluctuations and regional economic growth is derived from a representative panel of 1,661 regions across 88 countries spanning diverse agro-climatic zones, income levels, and sectoral compositions. This 'stable manifold' is treated as transferable to regions not included in the estimation sample, enabling the extrapolation of damage estimates to more than 3,400 provinces globally.
Transition risks: Transition risks refer to the financial risks arising from the shift towards a low-carbon economy. These include changes in policies and regulations that impact carbon costs, technological advancements, and consumer preferences and market dynamics that can impact assets’ and companies’ values and reputations. In the context of the CER and CRR, we measure transition risk as a combination of policy and technology risks and market preferences risks.
Transition scenarios: see climate scenarios
TRIM (Targeted Review of Internal Models): A supervisory programme conducted by the ECB to assess whether banks' internal models used for regulatory capital calculation comply with applicable requirements. Climate risk, including physical risk impacts on sovereign and corporate exposures, is increasingly integrated into TRIM assessments.
V
Vulnerability (to physical risks): The propensity or predisposition of an asset to be adversely affected by a hazard event. Different from an asset’s exposure to physical risks.
W
Wet Bulb Globe Temperature (WBGT): The WBGT is a composite temperature metric that combines air temperature, humidity level, wind speed, and solar radiation to assess direct thermal stress for each day from 1990 to 2060. An increased WBGT corresponds directly to decreased productivity, and hence, it is a useful measure for workplace safety.
Wildfire: Also known as forest fires or bushfires, these uncontrolled and fast-spreading fires are a type of hazard event that occurs in vegetation, such as forests, grasslands, or shrublands. Wildfires are influenced by the “fire triangle”: fuel (i.e., dry vegetation), weather (heat, wind, low humidity), and ignition source. Wildfires are increasingly seen as both a hazard and a climate-related risk, with frequency and severity rising in many regions due to hotter, drier conditions and changing land-use patterns. We include the exposure to and risks from wildfires in our CER and CRR ratings. For more details on this approach, refer to the technical documentation.
Z
Zonal statistics: An operation that calculates statistics on cell values of a raster within the zones defined by another dataset. This methodological step is crucial for accurately calculating the physical damage to assets within their boundaries.