Financial Risk Analysis for Climate and the Environment (FRACE)
Lead Participant:
NQUIRINGMINDS LIMITED
Abstract
Financial Risk Analysis for Climate and the Environment (FRACE) embeds environmental and climate risk analysis into the financial decision making for property investors.
Investment in property, whether direct or indirect investment, represents one of the cornerstones of the financial industry. When investing in property, climate and environmental risks play and ever increasing role. For example:
* Cost to landlord of building fabric retrofit to achieve environmental standards
* Cost to landlord of energy retrofit to achieve environmental standards
* Comparative cost to developer for different build and energy strategies
* Long term cost to tenant, which is an aggregate of maintenance costs, energy costs and taxes.
It is a complex market and complex decision space. The cost and risk pressures can be manifest through direct taxation, indirect taxation, legislation and new compliance measures, through to the softer measures of market sentiment, which in turn is felt through rental and resale revenues. The return in investment for current and future property investment is therefore highly dependent on government policy, market performance, technology innovation and eventually end user sentiment.
FRACE addresses this challenge by using advanced accounting techniques to model these risks as discounts on future projected value of assets. This method turns softly qualified environmental risk into hard measurable impacts to a companies balance sheet and future project revenues and costs.
There are three four aspects to the FRACE model
* Engineering, building performance and financial models are create to outline the impact of different environmental risks on a companies balance sheet and future financial projections.
* Advanced machine learning techniques are used to calibrate the these models using both historical and future data. This allows the model to continually learned and adapt to new factors
* Scenario planning models, create a probability space of future situations. Investments in new property and the type of that property are just one type of scenario to mode
* Mitigation modelling: creates actionable strategies that can be compared and measured against each other (e.g. retrofit scenarios) to understand the impact over various time lines
FRACE combines several existing technologies, owned by the consortium, into an innovative new product:
* FinGenie: AI powered audit tool, used by NI Audit office for deep accounts analysis
* Economic analyser: scenario planner for real estate (used by Belfast, BCP and Ealing)
* Energy and building stock modeller: developed by UoS and used by many councils.
FRACE directly addresses the challenge of modelling climate and environmental impact against financial risk
Investment in property, whether direct or indirect investment, represents one of the cornerstones of the financial industry. When investing in property, climate and environmental risks play and ever increasing role. For example:
* Cost to landlord of building fabric retrofit to achieve environmental standards
* Cost to landlord of energy retrofit to achieve environmental standards
* Comparative cost to developer for different build and energy strategies
* Long term cost to tenant, which is an aggregate of maintenance costs, energy costs and taxes.
It is a complex market and complex decision space. The cost and risk pressures can be manifest through direct taxation, indirect taxation, legislation and new compliance measures, through to the softer measures of market sentiment, which in turn is felt through rental and resale revenues. The return in investment for current and future property investment is therefore highly dependent on government policy, market performance, technology innovation and eventually end user sentiment.
FRACE addresses this challenge by using advanced accounting techniques to model these risks as discounts on future projected value of assets. This method turns softly qualified environmental risk into hard measurable impacts to a companies balance sheet and future project revenues and costs.
There are three four aspects to the FRACE model
* Engineering, building performance and financial models are create to outline the impact of different environmental risks on a companies balance sheet and future financial projections.
* Advanced machine learning techniques are used to calibrate the these models using both historical and future data. This allows the model to continually learned and adapt to new factors
* Scenario planning models, create a probability space of future situations. Investments in new property and the type of that property are just one type of scenario to mode
* Mitigation modelling: creates actionable strategies that can be compared and measured against each other (e.g. retrofit scenarios) to understand the impact over various time lines
FRACE combines several existing technologies, owned by the consortium, into an innovative new product:
* FinGenie: AI powered audit tool, used by NI Audit office for deep accounts analysis
* Economic analyser: scenario planner for real estate (used by Belfast, BCP and Ealing)
* Energy and building stock modeller: developed by UoS and used by many councils.
FRACE directly addresses the challenge of modelling climate and environmental impact against financial risk
Lead Participant | Project Cost | Grant Offer |
|---|---|---|
| NQUIRINGMINDS LIMITED | £49,940 | £ 49,940 |
Participant |
||
| INNOVATE UK |
People |
ORCID iD |
| Nicholas Allott (Project Manager) |