Climate risks lead to greater exposures to properties and economies when events such as hurricanes and wildfires occur.
Financial losses that transpire based on climate disasters are becoming more common and this stresses the global economy, slowing and potentially leading to negative economic growth.
Poppy Allonby, a senior financial executive and the former managing director of BlackRock stated that investors are opening their eyes to the long-term risks of climate change — risks that threaten not only the planet but also their portfolios. And as more institutional investors see climate change as a threat to their beneficiaries, they are taking action to fight it.
Understanding Climate Risks:
Physical Risks are event-driven disasters associated with the direct impact of climate change such as sea floods, drought, extremely high temperatures, extreme precipitation, forest fire, strong winds, hurricane, and river floods.
Each of these risks is changing in ways that challenge socio-economic systems.
These risks also impact man-made objects, along with human morbidity and mortality in different ways. They often lead to greater damages and higher losses for owners of the property, along with their insurers
Transition Risk is an approach to promoting sustainable development by reducing the vulnerability associated with physical climate risk. It includes changes in policy and new technologies.
Why should investors care about climate change?
The abovementioned are only a starting point for assessing climate-related risks. Scientists expect many physical effects of climate change — such as polar melting — to be self-reinforcing. Various types of these risks can interact with each other in complex ways, for example when physical effects lead to migration, causing economic instability or underinvestment, all contributing to the stranding of the core asset.
Addressing climate change calls for collective action and collaboration across the investment value chain.
As an investor, when evaluating individual stocks, one can screen them positively (e.g., whether the companies should be supported) — or negatively, (e.g., whether they should be avoided). Sonia Kowal, president of Zevin Asset Management in Boston, stated that it’s important to look at the physical risks resulting from climate change. Exposed sectors include logistics (e.g., air transportation, which is very vulnerable to extreme weather), banks and insurance companies that lend to or insure risk-exposed companies (e.g., large infrastructure projects), and agriculture and food (e.g., higher commodity costs resulting from droughts and pollinator disruption caused by rising temperatures).
Players throughout the investment value chain are struggling to get to grips with these uniquely complex issues of climate risks — one made even more challenging by the unpredictability of future political and regulatory responses, and a lack of reliable data. Thus, investors are becoming increasingly nervous about the perceived lack of transparency on physical climate risks.
But it’s not necessarily all pessimism. Investors can also play a role in bringing about change, and that can include managing factors related to transitioning to a low carbon economy to mitigate and adapt to the worst effects of climate change.
Can AI help climate change?
Artificial intelligence is the simulation of human intelligence processes by machines, especially computer systems.
Artificial Intelligence is one of the most transformative technologies and one of the most promising possibilities for environmental and ecosystem well-being.
It integrated with climate-related data and patterns will allow stakeholders to take adaptation and mitigation measures on climate risks.
What is Climate Intelligence?
Climate Intelligence (CI) is a data-driven methodology that allows algorithms to make accurate predictions. CI is generated through the gathering and analysis of a massive volume of data through machine learning and artificial intelligence.
What is Climate Fintech?
Fintech is the short term for “Financial Technology”. It is used to describe new tech that seeks to improve and automate the delivery and use of financial services. Fintech is utilised to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilising specialised software and algorithms that are used on computers and, increasingly, smartphones.
In the foregoing, we have defined: Climate Intelligence and Fintech. If we integrate these innovations it will give us a platform that is easily accessible to every investor and help them prepare for climate disasters; that solution is called Climate Fintech.
Climate Fintech is a digital financial technology catalysing decarbonisation. Climate fintech tools like CLIMATIG uses climate intelligence to mitigate climate risks.
5 Ways Climate Fintech can help Investors:
- Forecast climate risks in geolocation – Climate Fintech has the ability to use climate models from the latest generation of Coupled Model Intercomparison Project (CMIP5 and CMIP6) which take into account multiple climate scenarios depending on different greenhouse gas emissions. These tools can perform stress tests that cover variables up to 2100.
- Avoid uninsurable losses – Climate Fintech can quantify physical and transition risks in the face of climate change by accurately predicting costs involving physical and transition risks to bring climate analytics into an investor’s key processes – financial portfolio building, screening, lending and underwriting.
- Find the right assets – Climate Fintech can assess properties’ vulnerability to extreme weather. This allows investors to prioritise assets that are more resilient to extreme weather events with science-backed investment portfolios.
- Generate cost of climate risk – Climate Fintech can easily measure possible damages and manage finances accordingly. It can generate accurate computations for maintenance & repair costs. This makes budgeting trouble-free when an investor can easily understand the risks that should be planned for.
- Adapt to a more green agenda – CLIMATIG generates reliable, accurate, and actionable climate intelligence in a matter of minutes — from forecasts, risk scores, all the way to data visualizations. This gives inventors an opportunity to maketake smarter decisions based on science-back predictions.
Complex climate-related concerns should be addressed with simple and science-backed solutions. Climate Fintech is a reliable, smart, and sustainable platform in mitigating climate risks and fostering green growth.
CLIMATIG’s user-friendly interface enables anyone to run numbers, create data charts, and assess risks without any professional training.
All of these effective solutions are found in one app that is within your reach with just a few clicks on your smartphone: https://www.climatig.com