Deutsche Bank is using climate change data to predict investment risk
The Trump administration might still be arguing that climate change isn’t real (and if it is, it certainly isn’t caused by humans), but Deutsche Bank wants to be prepared for the financial hit that might result. The bank’s asset management group is incorporating climate change data to determine the biggest risks to investment portfolios.
Deutsche Asset Management and the climate advisory organization Four Twenty Seven released a white paper at COP23, an international climate change conference, called Measuring Physical Climate Risk in Equity Portfolios. The summary says, “Our methodology tackles physical risk head on by identifying the locations of corporate production and retail sites around the world and their vulnerability to climate change hazards, such as sea level rise, droughts, floods and tropical storms, which pose an immediate threat to investment portfolios.”
The asset management group is using this data to make their investors’ portfolios more resilient against the treats of climate change. One of the main challenges here is figuring out exactly where the companies are that people are investing in and determining how vulnerable these institutions are to natural disasters that are occurring due to climate change. What’s more, investors need to be aware of exactly how a specific business would be vulnerable to a specific type of climate change — for example, a water intensive industry would be heavily affected by drought or high heat. It’s certainly not an easy or simple endeavor.
Deutsche Bank aims to use this information as a tool for both analysts and portfolio managers, as well as use the data to create climate change risk scores for different investments. “It is the starting point to investing in resilience, supporting companies with stronger climate risk management approaches, and ensuring our broader economic system is protected from the worst impacts of climate change,” the report says.
Source: Four Twenty Seven / Deutsche Bank (1), Four Twenty Seven / Deutsche Bank (2)