[MUSIC] Welcome to the Risk Institute. Today we are going to talk about the different types of climate risks when it comes to their impact on portfolio decision. And in particular, we're going to talk about the the key distinction between physical risks and transition risks when applied to climate change and global warming. Okay, let's start with the so called physical risks. Well, the physical risks or the risks that climate change and global warming will directly impact the production or consumption sites of the economy on different sectors. There are two types of physical risks. The acute risks and the more chronic risks in terms of acute risks, we think about increased frequency of some catastrophe events, like a major flood. Or something that will have a disruptive impact on the sudden, massive, and and shortly disruptive impact on the economic activity. And in contrast, chronic type of risk is a risk that will unfold over time, like an increase in temperatures, for example, that will lead to a decrease in productivity in some in some sector, and that will unfold over time. Now take a look at some key facts when it comes to acute risks. Then we see that the number of events causing strong turmoil has tripled between 1980 and 2014. There's a big increase in losses. I mean, in events that have caused massive losses and most of them, a very large majority of them were somehow related to climate change and global warming. And interestingly, if you look at these weather related events in 2016, only 30% of them were insured, which means that for 70% of the cases, the lost was massively taken by the economic actors. Now, what's important to understand is as much as the physical risks are a key concern for economic actors in the sense of direct impact of those global warming factors on the production of goods and services and the consumption of goods and services. They are also a number of related risks that we call transition risks. And within this transition risks, these risks are more related to how the world is going to be able to deal with global warming and climate change. So we are talking in particular, but legal risks, about technology risks, about market risks, and about regulation risks. I'm not going to get into the details of how all of those dimensions might impact your portfolio. But clearly the changing regulation that will lead to an increasing cost for carbon emission will have an impact on most business models. In the same way, there's legal implications in the damages related to climate change that we will have to take into account. The same way these changes in technology will lead to some winners and losers when we are going to see a rapid development of new technologies for dealing with climate change. And that also will have important impacts and implications. So, broadly speaking, we have to come to the realization that climate risk is very broad. It's not only the dire consequences of of the so called physical risk exposure of the companies in your portfolio that you have to worry about. It's also how the companies in your portfolio are exposed to the transition related risks associated with climate change. Now, if you look across sectors and industry some organizations are likely to be mostly affected by transition risks. So if you look at companies involved in fossil fuel and energy intensive manufacturers well, including airplane companies producing airplanes, or car manufacturers and oil companies, all of those will be massively impacted by transition risks, and not necessarily so much by physical risks. And then there are other companies that will be more impacted by physical risks, in particular those companies that are heavily reliant upon agriculture, or some infrastructure that might be disrupted because of global warming. [MUSIC]