The Smart Climate Money’s Growing. Climate Financial Data Are Underpinning It.

The Smart Climate Money’s Growing. Climate Financial Data Are Underpinning It.

Here’s the high-level direction of travel in financial markets’ work on sustainability:

- Away from relatively opaque ESG ratings that underpin self-styled ESG products
- Away from vast, unsubstantiated sustainability, or green, claims, and
- Away from a failure to price in physical risks (floods, storms, fires, etc.).

 And here’s where the financial sector is moving:

- Towards granular analysis of investees’ climate transition plans and performance
- Towards specific documentation of the relative environmental performance of its own investments and products, and
- Towards analysis that models quantitative physical and transition risks on its portfolios or holdings.

The wind that’s blowing things along is a straightforward function of the increased investment in the space, and the scrutiny that naturally follows. A recent estimate tied $50 trillion in incremental investment by 2050 to transition the global economy to net zero emissions. Regulators wary of this funding going awry are clamping down on the financial sector through taxonomies, climate disclosure rules and fines.

As these regulated and voluntary disclosures flood the zone with unstructured climate data, the market for providers to aggregate and analyse that data for financial market participants is growing fast. Firms such as Bloomberg, Moody’s, MSCI, Riskthinking.ai and S&P Global have been on a tear of acquisitions and product launches to demonstrate their capabilities to buyers.

It’s into this market of rapid growth and change that we at Verdantix sought to map out examples of breakthrough innovation, which informed our recent Smart Innovators report for net zero financial data and analytics, and webinar. 

In this research, we found these climate financial data providers innovating in terms of:

• Improving their availability of climate performance data, combining AI-based estimation methodologies and high-frequency data collection, including through analysis of satellite imagery.

• Extending their industry- or sector-specific analysis, especially as this relates to the energy industry.

• Understanding and quantifying how different warming scenarios carry transition and physical risk that can be translated into financial risks idiosyncratic to each firm.

• Conducting portfolio analysis that incorporates attribution analysis, and allows asset managers to optimize for risk and return.

Retail and commercial banks, institutional investors, asset managers, and other financial market participants are just entering the steep part of an upward curve of climate sophistication and digitization – and climate financial data providers are there, underpinning that climb. This is a thrilling space to watch, for all those wishing to track the mechanisms behind the global climate transition.