Carbon Risk Management

First Climate has developed a comprehensive project risk analysis tool which is continually monitored and refined. The tool is designed to identify and assess the various risks associated with any emission reduction project seeking certification under the Kyoto Protocol. First Climate analyzes these project risks based on their possible impact on (a) the emission reductions volume expected to be generated by the project and (b) on the reputation of the buyer.

Risk assessments are compiled for all projects under consideration for each of the risk elements listed above, indicating both the level of potential damage and the likelihood of damage occurring. All ERPA (Emission Reduction Purchase Agreement) negotiations are accompanied by a rigorous due diligence process and all projects are monitored at quarterly intervals. First Climate’s longstanding experience in the market and large base of local knowledge come into their own during the project risk assessments. First Climate furthermore benefits from its expert Risk and Methodology Team that continuously monitors any policy changes at UN and EU level and keeps track of any developments that may affect our partners, projects or investors.

The carbon market is volatile and prices can differ greatly across different types of assets. Investors in the carbon market therefore need to take precautionary measures to preempt the effects of price movements and volatility. First Climate applies the complete range of risk management instruments and risk control tools to reduce carbon market risk in its portfolios and mandates. Proprietary risk management guidelines are applied to the various risk factors in the carbon market. First Climate supplies accurate, punctual and comprehensive key portfolio data reports to its investors covering risk management and controlling.

State-of-the-art value-at-risk models are applied to analyze and rate these risks.

The carbon market experiences high trading volumes in derivatives. Market participants who know how to use derivatives to their advantage can significantly reduce their exposure to price risk and improve their business planning. First Climate has a combined risk management experience of half a century. By using its access to all types of derivatives, it enables its investors to limit market risks in their portfolios. Risk control mechanisms independently ensure that risk management and portfolio guidelines are adhered to.

With more than 12 years of experience in structured products and given our own trading volumes, First Climate has the capacity and experience for trading in excess of 1 million credits a day. It provides constant monitoring and evaluation of the carbon markets as well as accurate pricing and revaluation of credits and derivatives. Complex products are stripped and new structures identified and built.