MARCO PROJECT
Market research for a Climate Services Observatory
Go to marco website
EU-MACS Coordinator: Prof. Adriaan Perrels, forename.surname@fmi.fi
The global climate is changing and local variability in climate can be surprising. This entails both risks and opportunities for the many different actors in the financial sector. So far, the rising attention for climate in the financial sector tends to overlook physical risks. The progress in climate science and modeling, the vast and growing amount of open data, and the opportunities to combine and analyse a large variety of data provide ever-expanding possibilities to better assess impacts of climate change and climate variability on projects, assets, trade, and production.
A climate service is the transformation of climate-related data – often together with other relevant information – into customized information products, offered as such or embedded in consultancy and/or education.
For the financial sector, it gets now ever more attractive to exploit the new information to sharpen risk management and identify potential for new financial products. For example, the insurance sector is doing that already, although for that sector still, a vast potential is unused. So far, the most advanced users of climate services are international development banks. These guidelines are specially written for all other sub-sectors for whom climate services are still a new information product.
a. Seasonal products – projections about deviations in temperature and precipitation in a region for a number of months ahead (as basis for assessing risks of droughts, surplus water, growing seasons, hydro reservoir filling rates, tourist behavior, etc.) .. also indications for hurricane intensity, and monsoon outlooks, under this category, – from these basic meteorological products also impact models can be produced
impacts can be expressed in physical terms (e.g. number of houses exposed to flooding risk, expected yield per ha) or in economic terms (expected damage cost, expected change in visitor level, etc.) often with map visualization – one step further goes e.g. catastrophe modeling aimed to capture certain hazard behavior and related risk pricing
evidence on prediction performance accumulates in a few years, so for verified products the potential benefits of use can be assessed
b. Adaptation oriented products – based on projections of climatological conditions for some to many decades ahead at different spatial and temporal scales (local, regional ,..; annual, monthly, ..) .. on top of these projections model based assessments of impacts and adaptations plans can be used; in contrast to seasonal models adaptation oriented products will often work with scenarios, showing spread in results and in alternative ways to cope with risks
instead of single impacts usually a plethora of initial and follow-up impacts are assessed and (also) expressed in economic terms;
impact propagation models for asset prices are still very uncommon – with the exception of hazard impact evaluations for real estate value
How the matrix works:
The climate service product matrix groups CS into four main types: Maps and Apps (M&A), Sharing Practices (SP), Expert Analysis (EA), and Climate-Inclusive Consulting (CIC). In practice, not all CS fit neatly into one category. Instead, there are two continuums where along which a CS can be positioned: (1) generic to specific, and (2) focused (on climate) to integrated.
M&A: The purpose is to arrange quick and cheap access to relevant projections and basic climate data, which can make individual and collective decision processes more robust and objective. Central in the provision of ‘maps & apps’ are meteorological and research institutes, and usually provision is open and free of charge.
SP: Actors share knowledge and information, and can thereby be both producers and users of climate services. Even though there is usually also service provision, especially the individual and social learning process is important. The motivation for sharing will be in common interests, e.g. regional or sectoral cooperation, whereas the contributors can be diverse, including both private and public sector actors. Contributed information will be also from outside the climate realm, e.g. concerning engineering or public health. Actors will tend to carry each their own cost, but weighted cost sharing or charging is possible. SP may often have building blocks taken from or based on M&A.
EA: Customized services, often based on models, tools or methodologies, and provided as a commercial product or as charged public service, even though also uncharged provision occurs (e.g. when based on public duty). Products focus on climate services proper and often concern a particular issue or effect (indicators, damage, etc.) EA will often use M&A and/or SP as input to the own service product. As for SP involved information can extend well beyond the climate realm, while impacts can (should) be expressed in variables from the user’s decision domain (e.g. expected % change of value of affected assets)
CIC: On the one hand this type of service can entail non-routine advice, in which EA and/or SP products may have been used, but the advice character is the dominant feature. Moreover, this type of service can be (part of) a portfolio of much wider scoped advice, concerning e.g. engineering, strategic planning, new financial product design, etc. Especially this latter type of integrated or absorbed climate service is expected to abound, getting somehow used by many consultancy firms.
1. Commercial banks
Actors at initial stages of their climate change risk & opportunities strategy may want to have a look at Maps & Apps and especially also Sharing Practices.
Links to examples mentioned in these categories are:
M&A: UNEP Global Risk Data platform
SP: UNEP FI Banking sector group
Others may want to learn more from possibilities and performance of existing services as Expert Analysis or Climate Inclusive Consulting.
Links to examples mentioned in these categories are:
EA: Bloomberg BMAP
CIC: CatNet® of Swiss RE
2. Financial sector supporting services (rating, risk modeling, intelligence, …)
Actors at initial stages of their climate change risk & opportunities strategy may want to have a look at Maps & Apps and especially also Sharing Practices.
Links to examples mentioned in these categories are:
M&A: IPCC AR5
SP: TCFD Knowledge Hub; Institutional Investors Group on Climate Change
Others may want to learn more from possibilities and performance of existing services as Expert Analysis or Climate Inclusive Consulting.
Links to examples mentioned in these categories are:
EA: UNEP FI Pilot project on implementing the TCFD Recommendations for investors
CIC: Mercer – Investing in a Time of Climate Change
3. Development Banks
Actors at initial stages of their climate change risk & opportunities strategy may want to have a look at Maps & Apps and especially also Sharing Practices.
Links to examples mentioned in these categories are:
M&A: Climate Change Knowledge Portal
SP: Climate Action in Financial Institutions
Others may want to learn more from possibilities and performance of existing services as Expert Analysis or Climate Inclusive Consulting.
Links to examples mentioned in these categories are:
EA: Climate vulnerability indicator development
CIC: European Space Agency programmes utilizing satellite data for development banks and institutions
4. Insurance
Actors at initial stages of their climate change risk & opportunities strategy may want to have a look at Maps & Apps and especially also Sharing Practices.
Links to examples mentioned in these categories are:
M&A: KNMI Climate Explorer; OASIS LMF; OASIS Hub
SP: Insurance Development Forum
Others may want to learn more from possibilities and performance of existing services as Climate Inclusive Consulting.
Links to examples mentioned in this category are:
CIC: Catastrophe modeling and climate change (report); Research on Re-purposing Climate Model Output for insurance’s purposes
Maps & Apps
Sharing Practices
Expert Analysis
