Why big financial firms are scooping up climate modeling companies

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Large rating agencies such as Moody’s and S&P Global, along with other financial firms, are hiring companies specializing in modeling physical climate risks.

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Running news: The latest consolidation in the “climate intelligence” field came with this week Buying S&P’s The Climate Service, a climate risk consulting firm. The Climate Service analyzes physical climate risks, including extreme temperatures, coastal flooding and water stress, as well as so-called infection risks, which include changing regulatory and market conditions.

Thought Bubble: Consolidation in the climate intelligence sector threatens asymmetry in access to information. If you’re a wealthy investor or a large real estate firm, it might pay to find out which companies or sectors will be safest from climate hazards, and make sound investment decisions.

  • However, typical homeowners, such as those in the Denver suburbs, who suffered a horrific, climate-fueled December wildfire on December 30, cost more or less to obtain detailed information about their increased risk exposure. You can be left with those options.
  • That is, until consolidation expands to affordable, consumer-facing climate risk prediction services, which have yet to materialize, experts told Nerdshala.
  • The services and strategies of these companies differ somewhat, but overall they all perform climate risk analysis, which is critically important as climate disasters increase, affecting more Americans, many of whom do not realize it. was that they were in dangerous areas.
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big picture: Two companies in particular are vacating firms that specialize in climate risk modeling, Moody’s and S&P Global Inc.

  • They are doing this to invest in their environmental, social and governance (ESG) businesses.
  • By incorporating climate risk analysis into their ratings of companies, sovereign funds and others, Moody’s and S&P are meeting growing market demand for ESG funds.
  • They are also seeking to flag any systemic risks to the financial system related to climate change.

state of play: In August last year, Moody’s paid $2 billion to buy London-based RMS, one of the leading risk modeling firms.

  • Moody’s rolls out Variety of Climate Products For institutional investors, banks, private equity firms and person willing to invest In companies that are ready for a more carbon-constrained world.
  • It bought a majority stake in climate intelligence firm 427 in July 2019, and a majority stake in ESG Insights Company, VE, in April 2019.
  • S&P also has a large ESG exercise and has invested in companies that have expanded its offerings, including measurable And tealbook, and took a significant stake in novatas,
  • “These investments and acquisitions are part of our ESG strategy – to be at the cutting edge of the climate and ESG space to meet the evolving needs of our customers,” Christopher Bennett, S&P’s global head of ESG strategy, said in a statement. ,
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Reference: It is not only rating agencies that are recognizing the need to add climate risk expertise to further deregulation and increasingly severe extreme weather and climate events.

  • Last month, International Exchange, Inc., a data provider for making investment decisions. bought ResQ and Level 11 Analytics, which maps climate data on the municipal bond, mortgage-backed securities and real estate markets, according to One. Statement,

threat level: There could be a significant drop in the concentration of climate modeling expertise among a small swathe of companies, according to Matthew Abbey, founder and executive director of . First Street Foundation,

  • First Street is a nonprofit that provides property-specific climate change-related flood risk information directly to consumers, and is also pursuing climate-adjusted wildfire risk modeling.
  • “This data needs to be out there. We don’t want that much knowledge asymmetry to exist, but that’s exactly what we’re looking for,” Abby told Nerdshala.
  • “Everyone who has all the money is now getting all the advanced data analytics so they can make the smartest decisions ahead of everyone else,” Abby said.

Intrigue: Buying your way into climate risk modeling is complicated, as each system has its own scenarios and assumptions. Splicing models run the risk of a simultaneous “Frankenstein” approach, says Abbey, which can make predictions less reliable.

Second aspect: Rich Sorkin, CEO of Jupiter Intelligence, one of the remaining independent climate intelligence firms, questions whether many ordinary people have the necessary knowledge and time to access and adequately interpret climate risk information.

  • Jupiter currently serves the banking, power, insurance and national security sectors.
  • His firm is trying to address some of the disparities around climate data availability by providing under-served communities at home and abroad with access to Jupiter’s services at little or no cost.
  • “If we help an underserved community in Louisiana, it’s not going to break into the rest of the business,” he said, adding that it’s a motivating factor for Jupiter employees to know they can benefit those people. those who are on the front lines of the climate. crisis.

What are we watching: As the private sector consolidates, there is an opportunity for the government to step in and provide more accurate climate risk tools for Americans. However, this is a tall order, given that there are 13 agencies involved in climate research and communication.

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