Sustainable finance is on the rise, but what climate model works?

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The pandemic has shown just how fragile our world is with a plethora of consultancies offering assessments of climate risks

Sydney — Sustainable finance is having a reasonably good pandemic. Environmental themed funds have had fewer outflows, and companies with better environmental, social, and governance ratings have tended to fare more lucratively than their peers.

There’s now an array of companies offering portfolio-wide assessments of physical climate risks, ranging from specialist start-ups to mid-sized sustainability consultancies to shops within the big global advisory firms. The idea has become so popular, it’s now tough to find a consultancy in the financial services sector that isn’t offering some kind of physical-risk analysis. Some investment managers, such as BlackRock, are even developing their own capabilities inhouse as a service for clients.

The data from climate models is hard to access, let alone interpret and apply in a context such as finance The next step is to actually overlay the data about expected climate change. This is where it gets into really niche expertise. The IIGCC also recommends taking care to understand the limitations of the work being done. One such limitation is “down-scaling,” or the practice of breaking down the large, gridded squares of climate models into smaller, seemingly more precise chunks. Scientists who work with climate models warn that apparent granularity can be worse than illusory and give an even less accurate view of what’s at stake.

 

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