Supplier Physical Risk
Assessment
Methodology
S&P Global Sustainable1March 2024

Supplier Physical Risk Assessment

Contents
Introduction and Context ....................................................................................................................... 3
Typical Use Case ........................................................................................................................ 3
Methodology Overview ........................................................................................................................... 4
Location Data Sources and Hierarchy ........................................................................................ 4
Supplier Physical Risk Schematic ............................................................................................. 6
Outputs and Metrics .................................................................................................................. 7
Monitoring and Review ........................................................................................................................... 8
Related Documentation ......................................................................................................................... 8
Significant Updates................................................................................................................................ 8
S&P Global Sustainable1 Disclaimer ...................................................................................................... 9

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2Supplier Physical Risk Assessment

Introduction and Context
In 2017 the Task Force on Climate-related Financial Disclosures (TCFD) set a precedent for companies byproviding a series of recommendations on climate-related financial disclosure; making a formal connection
between climate-related risks and opportunities and how these could impact company financial statements.
As part of these recommendations, companies were encouraged to disclose their physical risks (Acute andChronic). While the TCFD recommendations provided examples of financial impacts caused by physical risks indisclosure recommendation.
Consequently, much of the physical risk disclosure from companies to date has focused on their direct
operations, with less than a quarter of all physical risks reported to CDP(CDP Climate Change Questionnaire 2022).
However, with the disbandment of the TCFD at the end of 2023 and the creation of derivative reporting
frameworks more explicit disclosure requirements on climate related risks in the value chain have emerged, withthe ISSB, CSRD and XRB frameworks requiring disclosure of this nature.
The Supplier Physical Risk Assessment aims to support non-financial corporate efforts to disclose information inline with these reporting frameworks, and does so by modeling the exposure and impact of physical risk hazards
onsupplier assets. To do this, it uses the methodologies used to assess the physical risk ofown operations.1
IMPORTANT: This methodology
downstream to the client, but instead focuses on the exposure and financial impacts

Typical Use Case
Regulated and Voluntary Reporting▪

Support companies in their efforts to disclose information in line with relevant reporting frameworks (ISSB,CSRD ESRS E1, XRB).

Risk Screening▪
This can in turn help inform the prioritization of risk monitoring and risk management activities andprocesses.

1Please see the Physical Risk Scores and Financial Impact Dataset methodology for the full list of physical risk hazards
covered: https://portal.s1.spglobal.com/survey/documents/SPG_S1_Physical_Risk_Methodology.pdf

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3Supplier Physical Risk Assessment

Methodology Overview
The Supplier Physical Risk Assessment methodology is a gap-filling, data-consolidation and workflow
methodology. Figure 1 sets out the schematic of the standard physical risk methodology 2. In the Non-Financial
Corporate (NFC) use case, asset location information is available for their direct operations However, whenassessing companies Tier 1 suppliers, detailed information on the exact location of the assets from which theyare procuring products is not always available.
To address the challenges of collecting this data, S&P Global Sustainable1 (S1) uses other location data inputs,
when asset-level information is not available or overly burdensome for companies to collect.
Figure 1

supplier physical risk

Climate Models

Map Climate Change Hazards

1. Asset Level Data
2. Country Averages
3. Company Profiles

Understand Risk Exposure

Impact Functions

Quantify Financial Impact

Actionable Insight

Supplier Physical Risk Financial
ImpactSupplier Physical Risk Exposure
ScoresLocation data sources

Location Data Sources and Hierarchy
Table 1 below
suppliers. This list also constitutes a data hierarchy of what location data sources are preferred.
Table 1: Location data sources and hierarchy#Location dataDescription

1

Approach 1
Asset Level Data▪

Most accurate approach that leverages asset level location data (Latitude /Longitude).

2

Approach 2
Country Average▪

Derives the physical risk impact for each hazard based on the country andS&P Global Physical Risk Scores and Financial Impact Data Methodology
https://portal.s1.spglobal.com/survey/documents/SPG_S1_Physical_Risk_Methodology.pdf
2

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4Supplier Physical Risk Assessment

3

Approach 3
Supplier Profile▪

Uses a country average where each pixel (25 x 25km grid) in a country isweighted by GDP to derive climate hazard outputs for each item in thepurchase ledger.

▪

Uses precalculated data of companies in the purchase ledger where there
is available coverage in the Physical Risk Scores and Financial Impact
Dataset.
Outputs are not specific to country from which the purchase has been madebut instead represents the enterprise level risk of the supplier for all
countries of operation.

▪

4

Approach 4Country Average▪

Identical to Approach 2. The main difference is that the data source for thesupplier country comes from the CIQ Country HQ rather than thepurchase ledger.

With the application of a Physical Risk A
the location from which products are procured. This is because companies may not be fully exposed to thefrom which they are procuring products.
Example:operations are impacted by atropical cyclone, this is unlikely to impact the ability of its sites in China to continue operating and producing
products for customers. It would therefore be undesirable to attribute the enterprise-level risk of a supplier toa customer in a Supplier Physical Risk Assessment where a company is procuring products from only one
supplier location.
This is the why the country average approach (Approach 2) is preferred over the precalculated supplier profiles(Approach 3).

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5Supplier Physical Risk Assessment

Supplier Physical Risk Schematic
Figure 2 sets out a schematic of the methodology and the various data inputs and datasets used to produce thefinal outputs and how these vary by the approach taken.
Figure 2: Supplier physical risk schematic

Approach 1
Company Data

Approach 2
Country
Average

Approach 3
Supplier Level
Data

Supplier Lat/Long, Asset
Type and expenditure
data available from thecompany

Purchase
Category

TCS Asset
TypeCountry(Source: Client)

Supplier Name

Climano
mics

Type
C_v2
DatasetScoresFinancial Impacts(Relative Risk)

SupplierExpenditure[Optional]

Supplier PhysicalRisk Report Outputs

Core+UniverseKey
Data Inputs

Approach 4Country
Average

Purchase
Category

TCS Asset
TypeCompany HQ(Source: CAPIQ)

Datasets / Engines
Type
C_v2
DatasetOutputs

Table 2: Input data descriptions

Datasets

Description

Climanomics

S&P Global Sustainable 1 Climanomics® platform enables users to quantify the future financial
Impacts of climate change by integrating terabytes of climate and socioeconomic data on climaterelated hazards and translating risk into financial terms to provide decision-relevant insights.
The Type C dataset contains GDP weighted average physical risk exposure scores and financial
impacts (relative risk) for 238 countries and 306 asset type combinations. This dataset is used toattribute country level risk profiles to supplier assets where more specific location data is notavailable.
The Sustainable1 Physical Risk Scores and Financial Impact Dataset quantifies exposure to nine
hazard types across four climate change scenarios and eight decades and includes both physicalrisk exposure scores and financial impacts. The dataset includes a database of asset locations
linked to corporate owners and ultimate parent entities that is maintained by S&P Global, covering
146,000+ companies and encompassing 3.1 million+ assets.

Type C Dataset

Core+ Universe(Physical Risk
Scores andFinancial Impact
Dataset)

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6Supplier Physical Risk Assessment

Outputs and Metrics
The analysis is built on two key metrics: exposure scores and relative risk. These are calculated at the Supplier |Country level for exposure scores and Supplier | Country | Purchase Category level for the relative risk metrics.
Table 3: Supplier Physical Risk Metrics

Metrics

Description

Exposure Score

Exposure to each hazard within the geographic boundaries of each issuer
relative to global conditions and expressed as a 1 (least exposed) to 100(most exposed) score.
This is a function of hazard and vulnerability. Reported as a percentage ofasset value (Calculated as MAAL/asset value). It provides a perspective on
exposure and vulnerability across assets, independent of their value.

Relative Risk (%)

The details of the various levels at which these metrics have been aggregated can be found in Table 4.
Table 4: Supplier Physical Risk Detailed Metrics

Metrics Aggregation

Exposure Scores

Relative Risk

Enterprise Level✓✓

Hazard Level✓✓

Decade✓✓Purchase Categories

✓Supplier Level✓✓

Country Level✓✓

Supplier | Country | Purchase Category✓% Supplier spend by hazard andphysical risk classification✓✓

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7Supplier Physical Risk Assessment

Monitoring and Review
All new methodologies and any material changes to existing methodologies are reviewed and approved by an independent
methodology governance committee.

Related Documentation
S1 Methodology Dependencies

Document Name

Methodology Link

Climanomics

Climanomics Methodology Document 2023

See herePhysical Risk Scores and Financial
Impact Dataset

Methodology Document

See hereSignificant Updates•

14/03/2024: Naming convention for Approach 3 updated.

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8Supplier Physical Risk Assessment

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