Mar 8, 2024 - Energy & Environment

The SEC and the rise of the climate risk industry

Illustration of the earth in the shape of a traffic cone

Illustration: Sarah Grillo/Axios

The Securities and Exchange Commission's adoption of climate risk disclosure rules comes as an ecosystem of risk analysis has begun to coalesce across the business and climate sectors.

Why it matters: Companies, nonprofits and agencies providing climate risk data are allowing firms to assess environmental-related issues that impact the bottom line.

Driving the news: On Wednesday, the SEC unveiled long-awaited guidelines covering the direct carbon emissions of many companies, as well as how vulnerability to extreme weather and climate events might affect their investors.

The big picture: These regulations will spur corporations to examine how climate change could affect their operations, and account for their direct emissions.

  • When they do that, these firms will find, for the first time, a highly specialized network of entities able to provide climate risk insights that can help them quantify the impact of climate change on their operations.
  • In the past 5 years, climate intelligence players have come on the scene to offer specially tailored products to businesses, insurance companies, the government, and the public.
  • These companies include Jupiter Intelligence, First Street Foundation, Moody's, S&P, Climate Central, CoreLogic and others.

Between the lines: The growing availability of climate vulnerability insights — on everything from storm surge flooding to extreme heat days — could improve the accuracy of the information disclosed to the SEC, said Stephen Bennett, co-founder of Demex. His firm models and structures reinsurance covering severe weather losses.

  • For some companies, it could also lower reporting costs, he noted.

Inside the room: First Street, for example, has released consumer-facing modeling related to the chances of extreme heat, wildfires, flooding, and other climate-related impacts.

  • According to Jeremy Porter, First Street's head of climate implications, the growth of climate disclosure regulations in the U.S. and Europe has developed in tandem with the availability of climate data.
  • Another influence is the increasingly obvious impacts from the more frequent, severe and expensive extreme weather events, Porter said.

How it works: Already, a CEO of a company that operates a chain of stores, for example, can go online and see the flood vulnerability of each location. It can also see exposure to extreme heat, strong winds, hurricane landfalls and other doom-filled metrics.

  • For a price, specially tailored reports can be prepared for corporate leaders to further zoom in on various aspects of a company's operations.

Zoom in: First Street has focused on taking large volumes of federal data and making it digestible and accessible, so home buyers can better understand the flood risk of a particular property they are considering, for example.

  • He noted the "convergence" of the availability of data and more standardized climate risk reporting.
  • The SEC regulations may have driven the strategy of some of these firms, particularly big management consulting companies that bought up niche climate intelligence shops, Bennett said.
  • "It's been amazing to see the number of new jobs that have been created with specifically this outcome in mind," Bennett, who is a leader within the private sector meteorology community, told Axios via email.
  • "I think this field is a whole new avenue for early-career professionals who are studying climate science and sustainability-related topics."

The intrigue: Porter says that based on his experience, many companies would not go through the process of assessing climate risks unless regulations require them to do so.

  • "Without a doubt that if it gets built into regulatory policy and it's not shot down through legal processes, that there will be more demand for physical risk data right now," he told Axios.

What they're saying: Andrew Pershing, VP for science at Climate Central, a climate research and communications nonprofit, said the U.S. is particularly well-suited to providing the private sector with climate insights.

  • He cited NOAA and NASA data-gathering and computer modeling that serves as the backbone of the weather and climate forecasting industries in the U.S. as being absent in many other countries.
  • "So I think I think it's just super exciting from like a kind of a national perspective," he told Axios, noting that U.S. companies "have some real advantages."

Go deeper:

Why big financial firms are scooping up climate modeling companies

Prominent investors jump into the climate risk space

Climate risk firm Jupiter Intel announces financing and expansion

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