Climate Risk Valuation

Greetings Readers, Physical climate risks are quite varied in their characteristics. Some risks are highly frequent, changing second to second (e.g. wind speed traveling through wind turbines) or day to day (e.g. snow falling upon a city or town). Others are chronic, evolving slowly over years or decades (temperatures rising streadily across a region or country). And still others are extreme, occurring infrequently and with immediate high impact (e.g. hurricanes, wildfires, severe thunderstorms).  The financial exposures to climate risk are also varied. Climate risks can impact the value of an institution's assets (stuff it owns) and liabilities (stuff it owes). Climate risks can also cause an institution's revenue (money it earns) and costs (money it spends) to deviate from expectations. The intersection of climate risks and financial exposures creates an opportunity to value climate risk and--if the value exceeds an institution's risk tolerance--transfer them. Below we pr...

Greetings Readers, In this post, we will define and distinguish between the scientific definitions of "weather" and "climate". In practice, these terms are often used interchangeably which can lead to confusion depending upon the audience. For a scientific definition of weather and climate, we can source the National Oceanic and Atmospheric Administration (NOAA), which is the U.S. government agency that studies atmospheric, ocean, and other earth sciences. NOAA says : " Weather is what you experience when you step outside on any given day. In other words, it is the state of the atmosphere at a particular location over the short-term. Climate is the average of the weather patterns in a location over a longer period of time, usually 30 years or more." On this blog, to keep things simple, we ignore the time element and use the term "climate" to describe atmospheric phenomena and events generally. Although the climate scientist in me cringes when d...

Greetings Readers, When valuing climate risk, there is one key ingredient needed: people! Without people--and their diverse set of skills, experience, backgrounds, and passions--we and our institutions would not know where or how to begin understanding the financial impact of weather and climate. In order to establish a framework for the skills needed to value climate risk, let's first discuss the types of questions those skills help us answer. For example, a climate-exposed company like a theme park can experience decreased attendance and revenue during very rainy or hot days. Key decision makers like Chief Financial, Revenue, and Operating officers are likely to ask questions such as : 1. How frequently do climate events occur? Example: How frequent are low revenue days when rain is greater than 1/2 inch or temperature is greater than 90 ° F (32 ° C)? 2. How is the frequency and severity of climate events changing over time? Example: Are wet or hot low revenue days occurring more...

Greetings Readers, My name is Prime. Congratulations! You have found the world's first blog on climate risk valuation. Welcome to the information hub focused on a topic that I am deeply passionate about: calculating the dollar value of weather and climate events. For 20 years, I have been studying the investment opportunities, risks, and ideas that reside at the nexus of climate, risk, and insurance. In the year 2022, this seems like a logical combination of disciplines. Today we see, hear, and feel the financial impacts of climate change. In the news we see the ramifications of day-to-day weather (e.g. small businesses that are inaccessible due to snowy sidewalks) and catastrophic weather (e.g. supply chains fractured by events like hurricanes). At academic institutions we hear expert researchers describe the many ways in which variable weather patterns are impacting global economies and communities. And in our day-to-day lives our wallets detect hotter / colder (e.g. volatile hea...