Climate double whammy: assessing the physical and transition climate risks of overseas power projects

Abstract This study examines both the physical and transition climate risks of 578 bilaterally-financed overseas power projects across 105 countries, funded by the world’s three largest economies–the United States, China, and Japan. We geolocate each power project and obtain forecasted physical climate risk exposures at these locations using data from Moody’s ESG Solutions. We measure transition climate risks using the project specific committed CO₂ emissions and find a positive correlation between physical and transition climate risks across these projects—which are driven primarily by fossil fuel investments. Coal power plants exhibit the highest level of both physical and transition climate risks. Although hydropower projects tend to have lower carbon emissions, they face the highest flood risk among all fuel types. We find no evidence that the positive relationship between physical and transition climate risks varies by financier country or financing type. These results highlight the need for integrated climate risk assessments in international energy finance and underscore the potential for climate-related liabilities to compound across multiple risk channels.