Financial Metrics and KPIs

🚀🌿 Exploring the FSB's new Nature-Related Financial Risk Stocktake The Financial Stability Board (FSB) just released a comprehensive stocktake on nature-related financial risks, providing valuable insights for the sustainable finance community. Here are some key points: 1. Diverse Stages of Evaluation: Financial authorities are at various stages of evaluating the relevance of biodiversity loss and other nature-related risks as financial risks. While some have recognized these as material financial risks, others are still monitoring international developments due to data gaps and the need to prioritize climate risks. 2. Data and Modelling Challenges: A major challenge identified is the difficulty in connecting underlying nature risks with financial exposures. There is a significant need for improved data and modelling to translate estimates of financial exposures into tangible measures of financial risk. 3. Regulatory and Supervisory Work: The regulatory and supervisory initiatives related to nature-related financial risks are in the early stages globally. There are diverse approaches across jurisdictions, with some authorities already implementing initiatives to promote firm-level disclosures and capacity-building efforts. 4. Analytical Frameworks: The report categorizes nature-related risks into physical and transition risks, similar to climate-related financial risks. Financial institutions are exposed to these risks through their investments and financing activities, but more work is needed to develop holistic approaches that consider the interdependencies between climate and nature-related financial risks. 5. Capacity Building and International Coordination: The report emphasizes the importance of international cooperation and capacity building to manage nature-related financial risks effectively. Examples include initiatives by the Network for Greening the Financial System (NGFS) and the Taskforce on Nature-related Financial Disclosures (TNFD). #SustainableFinance #NatureRisk #FinancialStability #FSB #Biodiversity #ESG #NatureDisclosure

Financial Value of Climate Risks and Opportunities 🌍 Companies are under increasing pressure to reflect climate risks and opportunities in financial decision making. This is essential for embedding sustainability into strategy and unlocking measurable business value. ERM highlights that financial valuation of environmental and social factors enables companies to align investment decisions with long term performance. Value is created through energy efficiency, circular models, responsible sourcing, and workforce inclusion. These actions contribute to resilience, innovation, and cost efficiency. Sustainable products are experiencing significantly higher growth rates than conventional alternatives. Efficiency measures can reduce operating costs by up to 30 percent, while green finance instruments can lower the cost of capital. These gains can be captured directly in financial models and forecasts. At the same time, climate related risks are increasing in scale and frequency. Physical risks already account for over 270 billion dollars in annual damages. Transition risks may result in stranded assets worth hundreds of billions. The broader economic cost of unmitigated climate change could reduce global GDP by up to 18 percent by mid century. ERM presents two complementary approaches. Value creation focuses on capturing upside through efficiency, innovation, and market expansion. Risk mitigation addresses downside exposure by incorporating climate risks into business planning and decision processes. Both require integration of ESG into financial structures. This means applying standard financial tools such as internal rate of return and discounted cash flow to evaluate climate related actions. It also involves including environmental risks in sensitivity testing, pricing models, and capital planning frameworks. Translating these impacts into financial terms enables clearer comparison and stronger governance. Capital markets are moving toward companies that manage climate exposure effectively. Lower financing costs, stronger investor confidence, and increased access to sustainability linked capital are all benefits of a robust ESG integration strategy. Quantifying the financial value of climate related risks and opportunities enables companies to move from qualitative ambition to strategic execution. Those that lead in this area are better prepared to compete, attract capital, and deliver long term results. Source: ERM #sustainability #sustainable #esg #business

The Importance of Ratio Analysis in General Insurance Ratio analysis plays a pivotal role in assessing the financial health, operational efficiency, and overall performance of a general insurance company. It provides key insights into critical aspects such as underwriting profitability, liquidity, solvency, and growth potential. Stakeholders, including management, regulators, investors, and reinsurers, rely on these metrics to evaluate the company's stability, efficiency, and ability to fulfill its obligations. While numerous ratios exist to measure performance across various dimensions, this presentation focuses on IRDAI disclosure requirement and a select set of key ratios related to premium, commission, claims, and solvency. These metrics have been chosen for their ability to offer a broad yet impactful overview of the company’s performance in its core operational and financial areas. By examining these critical ratios, stakeholders can gain a deeper understanding of the company’s ability to manage risks, control costs, and ensure long-term sustainability, providing a foundation for strategic decision-making and continuous improvement. The data taken for analysis is from Public Disclosure by different companies and not pertaining to any particular company. The aim is to provide an example to the readers.

Understanding Key Reinsurance Ratios: Reinsurance ratios play a vital role in evaluating the financial health of reinsurers. These ratios provide insights into risk management, claims handling, and profitability. Here are some important ones to consider: 1. Loss Ratio: Measures underwriting profitability by comparing incurred losses to earned premiums. A lower ratio indicates effective risk management. 2. Expense Ratio: Evaluates operational efficiency by comparing underwriting expenses to net premiums earned. A lower ratio signifies optimized processes. 3. Combined Ratio: Combines loss and expense ratios to assess overall underwriting performance. Below 100% indicates profitability. 4. Retention Ratio: Shows the proportion of risks retained compared to those ceded to reinsurers. A higher ratio demonstrates confidence in risk-bearing capacity. 5. Leverage Ratio: Compares debt/liabilities to capital and surplus. A lower ratio indicates a conservative and stable financial position. 6. Loss Reserve Ratio: Assesses reserves' adequacy to cover future claims. A higher ratio indicates a conservative approach to reserving. 7. Solvency Ratio: Measures the ability to meet financial obligations. A higher ratio reflects a strong financial position and resilience. Understanding these ratios helps in informed decision-making, fosters confidence among stakeholders, and supports a sustainable insurance industry. #insuranceindustry #riskmanagement #claims #finance #insurance

‘F*ck this. I quit.’ The exact words I said to my cofounder. I was SURE we’d sell for NINE FIGURES. I could already see the TechCrunch headline. Two years earlier, Ampush was a machine. We ran Facebook ads for Uber, Dollar Shave Club, and Blue Apron. Then reality hit. The offers came in. Not bad, mid-to-high eight figures. But not what I expected. I had convinced myself we were worth WAY more. My friends' SaaS companies sold for 10–20x revenue. I thought we’d get the same. We didn’t. Because marketing agencies are different. If we didn’t sell, then what? I was already BURNED OUT. Seven years in, the work didn’t excite me anymore. And what if the market kept getting worse? What if we waited too long? What if we got stuck running this business FOREVER? We found a solution: Sell a portion now and the rest later. Red Ventures bought 20% for $15M. They had the OPTION to buy the rest in two years. Two years to prove our worth. To get the full buyout. To finally cash out. Except... that buyout NEVER came. Two years later, Red Ventures changed strategy. They passed. I had spent YEARS aligning my company, and my EGO, around this deal. And just like that, it was GONE. I hit rock bottom. I looked at my co-founder and said, “F**k this. I quit.” I had built an amazing business. A highly profitable, fast-growing agency. But I had completely MISUNDERSTOOD what it was actually worth. I wish someone had told me the TRUTH about agency valuations... 1️⃣ AGENCIES ARE NOT SAAS. DON’T EVER EXPECT 10X REVENUE MULTIPLE. 2️⃣ Your agency’s valuation = a multiple x EBITDA (not revenue). If you’re not profitable, your business is worth NOTHING. 3️⃣ Typical agency multiples are 3x–7x EBITDA. The higher end is for agencies with recurring revenue, deep specialization, or proprietary tech. 4️⃣ Client concentration KILLS your multiple. If one client is more than 40% of revenue, buyers get scared. 5️⃣ Cash flow matters more than revenue. If you’re not throwing off cash, your valuation will SUFFER. 6️⃣ If your agency can’t run without you, it’s worth LESS. Build a leadership team. Otherwise, buyers will see a risky business that falls apart when you leave. 7️⃣ Most agency buyers are PE-backed roll-ups. Agencies aren’t sexy venture-backed businesses. They’re valuable to buyers looking for SCALE and CASH FLOW. I let my ego get ahead of reality. I was so sure I’d get nine figures that eight figures felt like FAILURE. If you’re running an agency today, be honest with yourself. • What’s your actual EBITDA? • What’s your realistic multiple? • Are you building something buyers WILL want? When the time comes to sell, don’t be SURPRISED like I was. If you’re looking to sell your agency and want a guide to help you value your business, comment ‘Marketing Agency Valuation’ below 👇

Scenarios for Assessing Climate-Related Risks: New Short-Term Scenario Narratives The use of climate scenario analysis as a tool has become widespread, but a major gap exists in short-term scenarios that explore near-term risks, economic volatility, and potential systemic vulnerabilities. The need for short-term scenarios for climate scenario analysis has grown rapidly in recent years as financial institutions acknowledge the necessity of integrating climate commitments into their short-term planning strategies and addressing climate risks in the near term. However, the majority of currently available climate scenarios focus on long-term perspectives to explore climate risks, with only a limited number taking the short-term into account. This report, and the accompanying short-term climate scenarios tool, aim to bridge this gap in climate scenario analysis by identifying short-term scenario narratives for financial use. It serves as a guide to help financial institutions understand the implications and drivers of a range of short-term shocks. This report is accompanied by an Excel-based visualization tool with new scenarios that explore a set of macroeconomic, transition, and physical risk shocks, allowing users to explore combinations of these three types of shocks. Developed for asset managers, insurers, bankers, and investors. This report has been produced by United Nations Environment Programme Finance Initiative (UNEP FI) Risk Centre, a new virtual hub that is integrating resources to help UNEP FI’s members tackle sustainability risks, in partnership with the National Institute for Economic and Social Research. 🛠 Download the report and tool free here: https://lnkd.in/dC2aJij8 #scenarios #climate #climatescenarios #economics #climaterisk

[Corporate greenwashing and financial performance 3/5] What are the best indicators to detect greenwashing in transition plans? Julia B., Chiara Colesanti Senni, Desiree Fixler, and Tobias Schimanski answer this question with a review of 28 transition plan disclosures in « Net Zero Transition Plans: Red Flag Indicators to Assess Inconsistencies and Greenwashing ». The study proposes a comprehensive framework to assess the integrity and consistency of net-zero transition plans, monitor progress, and identify #greenwashing risks: 👉🏼 The authors retained 62 specific indicators across four dimensions (target, governance, strategy, and tracking) sorted between external consistency (ambition and feasibility) and internal consistency (credibility) assessments. 👉🏼 Key red flags in the target dimension include the lack of absolute emission reduction targets, the absence of a net-zero target by 2050, and the reliance on offsets for interim targets. 👉🏼 In the governance dimension, critical indicators include board-level climate competence, executive accountability for target achievement, and linking executive remuneration to progress on #transition plan targets. 👉🏼 Strategy red flags encompass the lack of explicit plans to phase out fossil fuel exploration and supply, the absence of strategies for scaling up renewable energy investments, and the failure to report 1.5°C-aligned engagement activities with value chain partners. 👉🏼 The tracking dimension emphasises the importance of reporting absolute GHG emissions for all scopes, disclosing climate-aligned capital expenditures, and monitoring progress on deforestation targets. 👉🏼 As the #framework uses a straightforward yes/no assessment scheme, a dedicated NLP-based tool can automate the extraction and assessment of transition plans. The proposed framework can be used by financial institutions to assess investee companies' transition plans and by financial supervisors to identify vulnerabilities within the financial system related to climate transition risks. Practitioners may argue that the binary yes/no assessment scheme oversimplifies the complex nature of transition planning, and that the framework does not sufficiently account for sector-specific challenges or company size differences. ValueCo

Last month, I talked to 40+ finance professionals working across the climate capital stack. Here are the most pressing challenges, opportunities, and insights that emerged: ⚙️ Hard Problems - Even proven tech struggles to scale: EV chargers and energy storage are mature technologies, but their merchant risk makes traditional project finance models break down. - First-of-kind (FOAK) projects remain fundamentally hard: LPO funding is likely ending, and few alternatives exist. The good news? Several new funds are targeting this gap - worth watching closely. 💬 Communication Challenges - The climate finance ecosystem speaks multiple languages: VCs talk TAM and dreams, project finance talks DSCR, insurers talk actuarial risk. Getting deals done requires translating between all of them. - Risk/reward misalignment plagues deals: Startups and VCs chase upside, but deployment partners bear downside risk. This fundamental tension delays scaling. - Climate still fights for credibility: "Senior stakeholders don't even understand Scope 1, 2, and 3," one banker shared. "Anything labeled climate gets immediately written off as concessionary." 📚 Knowledge Gaps - Deal structures remain bespoke: While startups have SAFEs and mature sectors have established project finance precedents, new climate technologies lack standardized financing models. Knowledge sharing between successful deals is almost non-existent. - The "finance-ready" paradox: Capital exists, but most projects aren't structured to receive it. Companies often start thinking about project finance years too late. 🌡️ Climate Risk - Insurance is the canary: Companies are pulling out of high-risk regions and wildly hiking rates. - Markets haven't caught up: This risk repricing isn't reflected in broader valuations...yet. - This disconnect is both terrifying and the biggest opportunity in the space. 🔥 Hot Topics - Nature & Biodiversity: Hard to quantify but drawing serious LP interest - Resilience & Adaptation: Finding new momentum as climate impacts accelerate and we prepare for a "don't-say-climate" presidency - Data Centers: Energy use + AI boom = unavoidable focus - Geothermal: Rising star for baseload power, especially post-Fervo - Global Standards: EU's CSRD and Carbon Border Adjustment Mechanism will reshape supply chains regardless of US policy, with real ramifications for manufacturers in Asia and beyond. These conversations revealed just how hard—but also how essential—it is to align incentives, build trust, and bridge knowledge gaps across the climate finance ecosystem. As Eugene Kirpichov just wrote—we need systems thinking if we're going to tackle these wider problems. Anything missing here? What's on the top of your mind for 2025?

Just released, 57 banks in the United States could face material financial risk as defined by the SEC. That's what the First Street 11th National Risk Assessment, Portfolio Pressures found. Full download here: https://lnkd.in/eMAs_tGv Using the First Street Correlated Risk Model, we identified the potential climate risk to the loan portfolios of all banks in the United States. Below are the key take aways: 1. Importance of Geographic Diversification: Financial institutions, particularly smaller banks, face higher risks with geographically concentrated portfolios, underscoring the need for strategic diversification to mitigate climate-related financial losses. 2. Comprehensive Climate Scenario Analysis: Effective climate risk assessment requires comprehensive scenario analyses that account for the interactions between different climate perils across various regions and timeframes. 3. Regulatory Challenges: Current regulatory frameworks do not mandate climate scenario analyses for smaller banks, creating a significant gap in climate risk oversight and leaving these institutions unprepared for future climate impacts. 4. Impact on Communities and Property Values: Climate events not only cause immediate losses from physical damage but also have long-term effects on property values and the broader economy, making comprehensive risk assessment crucial for financial stability. 5. Advancement in Risk Modeling: The First Street Correlated Risk Model (FS-CRM) is the climate risk financial modeling (CFRM) tool for a complete understanding of climate risk through the integration of correlations among multiple perils, with the precision of property-specific damage estimates and more accurate projections through the integration of forward looking climate data, a significant industry advancement. all of which allows for a clearer picture of potential financial impacts. 6. Strategic Risk Mitigation: By using advanced models like the FS-CRM, stakeholders can better understand and mitigate the risks associated with climate change, enhancing resilience in both the financial sector and the communities they serve. Reach out if you would like to learn more.

🚀 HAPPY NEW YEARS ✨ do you know why traditional metrics aren't enough for Climate VC's? .... Let me explain. The VC business seems simple, at first. LPs (Limited Partners) give money to smart fund managers who put money into startups and get really high returns. The traditional metrics used by LPs to evaluate & compare fund performance make sense when viewing the VC from a financial asset class perspective. 🟢 Financial metrics 📈 Internal Rate of Return (IRR avg. 12-15% target): Measures the rate of return on investments before deducting expenses. 💸Multiple on Invested Capital (MOIC avg. 3-5x typical): Reflects the ratio of total value (realized + unrealized) to invested amount, showing overall profitability but not the timing of the cash flows. 💲Gross Total Value to Paid-in-Capital (TVPI avg 1.5-2.0x): Combines realized returns (DPI) and unrealized returns (RVPI) to provide a holistic view of a fund’s overall performance. A TVPI > 1, we want that! 🤔 But is this enough for a Climate fund? The IRR, MOIC, TVPI often do not fully reflect the real impact of Climate VC funds. While LPs are investing for financial returns they are also today looking at the environmental impact on the long term. Climate VCs are holding onto untapped value in terms of the measurable change that Climate startups are delivering towards a positive world, which is something more and more LPs are interested in. This needs to be a basis for fund performance. Today some funds do have 📊 Scope 1-3 GHG Emissions, Green energy and efficiency metrics in the ESG playbook and are termed dark green (Article 9 funds). 📌 However, we need a systemic & updated metric system to compare fund performance that includes Climate and System impact. 🟢 Climate Impact Metrics: 🌍 Carbon-Adjusted IRR: This considers rising carbon prices and provides a more accurate measure of returns. It's vital as carbon markets change. 💡 Impact & Scope 4: It evaluates avoided emissions from new technologies, Land use, biodiversity restored, air pollution reduced etc. ⚡ Decarbonization Velocity: Highlights how quickly emissions are cut across sectors. Speed is crucial for urgent climate goals. 🟢 System Change Metrics: 🔍 Technology Cost Curve Reduction: This checks if climate solutions are becoming more affordable like Solar PV which dropped from $4.75/W in 2010 to $0.27/W in 2023. 🌿 Green Supply Chain Impact: Encourages markets for sustainable suppliers. ex. 50+ suppliers of low-carbon materials 🏗️ Infrastructure Enabled: Supports new systems' development, like the charging network startups that unlocked $500M in additional EV infrastructure investment A holistic approach provides a true picture of Climate VC's potential. It also aligns with the goals of attracting the right investors on board. 📌 Leading a new era in climate solutions is essential. Could better metrics incentivize and revolutionize climate investment evaluation? 🚀 Thanks Included VC