Why your financial and risk planning must include climate data

By | 5 minute read | July 23, 2020

The past decade had the largest natural disaster impact footprint of any decade on record and during the same timeframe, economic losses from natural disasters reached $2.98 trillion globally, Aon reported. Natural disasters are expensive to recover from and reduce earnings. In one study of S&P firms, business leaders reported 6% of annual earnings were affected by climate-related events.

The Harvard Business Review declared climate change a global emergency and wrote “it’s damaging the broader economy and company bottom lines todaynot in some distant future. ”Businesses must factor climate change into their decision making, but often wrestle with how to turn vast amounts of climate data into actionable insights. That’s where The Climate Service (TCS) comes in.

A founder’s mission to help businesses understand climate change’s financial impact

TCS is a software as a service company designed to answer an increasingly critical question: how does climate change affect businesses, financial institutions and communities economically?

As climate change worsens, leaders are beginning to understand that it hurts their organizations financially and are looking for quantifiable ways to measure that. A study from the United Nations and Accenture found that 99% of large enterprise CEOs recognize sustainability is important to future business success. Yet for many leaders, understanding how to capture that impact —and account for it in their strategic, financial and risk planning or to communicate effectively with key stakeholders — remains a challenge.

TCS founder James McMahon led technology initiatives at Coca Cola, where he developed an understanding of how technology benefits corporations and how data integrates with strategic planning. He went on to work at the National Oceanic and Atmospheric Association’s National Center for Environmental Information and when he saw the vast amounts of climate data available, he knew that businesses needed access. He knew that decision makers would need climate data in a form that helped them assess both risk and financial impact, and thus his work on TCS began.

“Factors include everything from physical impacts like wildfires and coastal flooding and storms to non-physical impacts like potential policy, carbon pricing, litigation risk, and more. Our platform analyzes all these factors because investors realize that understanding and quantifying climate risk and opportunity affords competitive advantage. And it is now a necessity — these impacts are financially material,” said McMahon, CEO of TCS.

TCS Climanomics® platform empowers leaders to integrate climate data into key management decisions. Combining global climate data and econometric functions, the platform produces risk metrics that help business leaders and investors understand their climate risk exposure in concrete terms. Planning for climate risk can afford significant strategic advantage and is key for long-term resilience.

Climate change and fostering resilience: A new lens for recent events

In the wake of the coronavirus disease 2019 (COVID-19) pandemic and its associated economic impact, business resiliency is a key theme that has the attention of the C-suite at companies from investment firms to consumer goods manufacturers. Leaders are evaluating their ability to weather storms and adjust course rapidly in the face of unexpected disasters.

TCS recently outlined a powerful example of how resiliency and sustainability planning is helping an organization weather the impact of the virus and lessons learned about preparing today for climate change. A large, multinational retailer noted a shift in demand for products in Asia in December 2019. The company acted immediately and relied on advanced artificial intelligence to assess the situation, map contingency scenarios, and run operational models for key departments. Ultimately, they braced for change by focusing on initiatives ranging from securing the supply chain to pivoting to digital operations.

TCS wrote, “This is a clear-cut example of resiliency planning. And as we experience the devastating fallout from COVID-19, communities, companies, and markets should use this as an opportunity to become more resilient to future shocks. While the sweat and investment that goes into insuring against shocks sometimes doesn’t reap immediate returns, the benefits, when called upon, are manifold; they can be the difference between a company’s survival or its bankruptcy.”

Today’s business leaders are coming to understand that quantifying climate change risk — and learning how to mitigate financial losses — is an essential part of their strategic planning. Major initiatives are under way to solidify these factors at the industry level. The Task Force on Climate-Related Financial Disclosures was formed by the G20’s Financial Stability Board to help companies better represent climate risk to investors. And investors themselves are speaking up about the importance of climate risk on company valuations. Larry Fink, CEO of BlackRock, the world’s biggest asset investor, issued his annual letter in January 2020 emphasizing the critical importance of climate risk disclosure. Climate change is reshaping the world of finance and requiring that organizations develop strategies to account for climate risk in daily operations.

Developing the TCS Climanomics® platform: Tools for predicting climate risk impact

TCS created the Climanomics® platform to leverage petabytes of scientific and government climate data and translate this data into financial terms for business use. The platform performs detailed economic analyses to help users understand the potential impact of different climate scenarios — at the single asset level or across an aggregated company portfolio. With escalating demand for its product, TCS chose the IBM Garage to help scale its platform and achieve enterprise-grade levels of scalability, availability, security, and interoperability.

Through the IBM Garage, TCS gained access to the full breadth of IBM expertise and products, including Enterprise Design Thinking™, IBM Cloud and the Red Hat OpenShift Container Platform. Leveraging proven agile, user-focused practices, a dedicated end-to-end team of designers and developers began by working with TCS, over a period of ten weeks, to build a business opportunity statement to align on the key goals: improve overall user experience on the Climanomics platform, modernize existing architecture and data management, and ultimately enable TCS to serve the escalating demand in the market.

One particular challenge is climate change modeling requires vast amounts of data. “The complexity of the problem is typified by the gargantuan amounts of data that we’re talking about. Petabytes of data and sometimes thousands of equations are required to combine the climate model data with socioeconomic data and coupled econometric functions. When the world needs technology at scale, applied to a really hard problem, they call IBM. And that’s exactly what we did,” said McMahon.

Today, the TCS Climanomics® platform provides point-and-click analysis for enterprises. Whether assessing specific risks from wildfires in one geography or working to quantify total vulnerability to economic impact across a company, the software is making it easier for companies to gather actionable insights in real-time.

In business today, it often feels that the only constant is change. The financial, strategic, and operational risks of climate change are increasing. TCS has provided a platform that allows businesses to break down those risks into quantifiable insights which will play in a key role in maximizing resilience and developing effective, agile strategies to navigate whatever lies ahead.