As the Climate Changes, Businesses are Preparing for the Worst, but are Analysts Praying for It?

             If your firm was ready to invest millions in a new fixed asset, you likely wouldn’t put it somewhere known for climate disasters. Yet, could you confidently say what an area’s climate will be in a few decades? This is the question climate analytics firms try to answer for their clients. Private firms as well as government agencies like FDIC, FEMA, NOAA, and various housing and loan agencies have all met with these firms to weigh their climate-related investment risks. However, these firms have faced scrutiny for hiding their data sets as well as their analytical methods leaving them closed off to peer-review, something atypical for the scientific community.  

            One major concern presented by the article is that the data these firms use is supplied by pre-existing government research. These government studies are not explicitly intended to be used for marketable analytics nor are they intended for long-term predictions. Thus, they’re not updated with the frequency that one would expect for a service that is, in essence, selling this data. This point is my greatest concern with these data analytics firms; this data is not intended for business. This creates a prominent conflict of interest for firms. Without external review of data and no industry specific regulations, it is up to individual firms to tell clients when they can’t accurately predict certain conditions. Yet, if their contracts and future business with firms depends on how much information they can allegedly provide, they’re always going to be inclined to provide as much as possible, potentially at the cost of accuracy. Furthermore, most clients of these firms are seeking projections decades into the future, thus it becomes increasingly difficult to provide accurate projections for even large geographic regions. One firm cited in the article, Jupiter, even claims it can provide weather and climate insights down to 1 square kilometer while most scientists say a scale less than 1,000 square kilometers is “complex.” 

Bearing these problems in mind, I believe there needs to be industry-wide standards for these analytics firms. This regulation could come from the government given that some firms are using their data however bureaucracy is almost always slower than the markets. Thus, I think the first step to improving this industry should be due diligence from the firms. Investors are currently at the mercy of the firms they trust. They need to recoup the responsibility of knowing exactly what they should be asking for and what they can reasonably expect based on scientific standards, not the claims of firms. I also agree that firms need to publicize the nature and sourcing of their data as I believe this restriction would create rapid firm-level quality control and also create more transparency for clients. Finally, firms need review of their claims regarding how accurate their projections are. I don’t believe that Jupiter can provide valuable information at the level of granularity they are touting. However, I don’t think there should be any strict metric for granularity as it drives competition between firms.

Colman, Zack. “'Garbage' Models and Black Boxes? The Science of Climate Disaster Planning.” POLITICO, POLITICO, 16 Mar. 2021, www.politico.com/news/2021/03/16/climate-change-murky-models-476316.