4 Climate Risk Analytics Trends To Look For In 2022

Silvia Vieira
5 min readJan 27, 2022

The U.S. was hit by 20 separate billion-dollar extreme weather events in 2021, causing catastrophic losses of over $145 billion. At the current rate, inaction on climate change could cost the U.S. economy a whopping $14.5 trillion by 2070. While there’s a lot we can and should still do to mitigate the worst of climate change, the effects of human activity on the Earth’s climate to date are irreversible within our lifetime. Which means, unfortunately, we’ll continue to experience increasingly frequent extreme weather events.

So how do we adapt to a world of worsening climate volatility that threatens our livelihoods and future prosperity? It’s possible, and it isn’t all doom and gloom. But we must first understand the magnitude of the problems we face with precision and prescience.

A nascent corner of climate tech, dubbed Climate Risk Analytics, has flown largely under the radar despite proving incredible promise. This discipline combines climate science, artificial intelligence, and software engineering to define and forecast:
1. Transition risks i.e. disruptions to current means of production, business models, and asset value as the world transitions to a low-carbon economy and
2. Physical risks i.e. how climate catastrophes such as wildfires and hurricanes will impact business operations and financial performance.

Image by CICERO, Center for International Climate Research

Businesses, governments, and NGOs leverage Climate Risk Analytics to preempt risks, become resilient, and capture emerging opportunities by putting climate at the center of their decision-making processes.

With an eye on technology, policy, and market trends, here are 4 trends to looks for in the Climate Risk Analytics space this year:

1. More corporations voluntarily reporting Climate Risks

Companies are facing increased scrutiny on ESG and corporate governance from employees, consumers, and investors alike. For example, 91% of business leaders believe their company has a responsibility to act on ESG issues and investment management firm BlackRock is standing firm on its supportive ESG stance.

And while some laggards may continue to use greenwashing as a crutch, leading companies will evolve from simple ESG statements to full-blown, AI-informed ESG reports with clear metrics and progress. Several companies are already embracing recommendations put forward by Michael Bloomberg’s Task Force on Climate-Related Financial Disclosures (TCFD) to deliver on a promise of greater ESG transparency and governance that is based on agreed standards of measurement.

In 2021, we also saw huge companies like PwC and Deloitte publish their inaugural TCFD reports. Even more telling, large risk providers started to incorporate climate risk intelligence into their ratings. Moody’s, for example, bought climate & natural disaster modeling company RMS for $2 billion. The realization that climate risk is financial risk is pushing financial institutions to embed Climate Risk Analytics into core decision-making.

2. Increased regulation to mandate Climate Risk disclosures

Not all models are created equal. Climate risk models emerged unevenly in recent years, with some being significantly more scientifically sound than others. Different states and countries also developed entirely different methodologies to define climate risk. But accountability is critical in preventing greenwashing and fraud.

The Securities and Exchange Commission (SEC) is expected to introduce new, sweeping regulations on mandatory climate change disclosures in 2022. This ruling would require companies to address climate-related risks, impacts, and opportunities and unlock a huge demand for Climate Risk Analytics, likely by adopting TCFD recommendations. For example, how much carbon does your company emit annually? How many extreme weather events could potentially impact your businesses’ operation next year? How much could they cost you?

3. Earth Observation data expansion will unlock new intelligence

Earth Observation (EO) data catalog a wide range of physical, chemical and biological information about our planet and can be collected by both ground-sensing and remote-sensing techniques. There are over 4,500 satellites currently orbiting the Earth collecting trillions of data points through remote-sensing. Roughly 55% of satellites in orbit have been launched since 2019, and we expect EO data generation to continue to grow this year through companies like Planet Labs, Orbital Insights, and Skybox.

Many of the regions bearing the heaviest consequences of climate catastrophes currently have the least amount of data. Multinational companies and asset holders with large international portfolios will lead the charge in expanding Climate Risk Analytics, starting with bolstering data collection in pockets of the world we need better data on.

Improving data collection will not only improve the quality of Climate Risk Analytics, but also help the world better understand the interconnected effects of climate change. How does a drier summer change the level of wildfire risk for different geographies? How might wildfires in California change the level of CO2 thousands of miles away? A massive and growing repository of EO data help us forecast catastrophic climate events precisely and accurately.

4. More investment in Climate Risk Analytics

We saw a 210% year-over-year increase in venture capital money funneled into climate tech solutions in the first half of 2021, and yet a meager 1% of that funding went to companies focused on climate adaptation. There is a clear funding gap in climate adaptation and analytics despite the severe impacts to all sectors of the global economy.

Climate Risk Analytics companies like Terrafuse AI forecast climate risks with such precision that the cost of inaction on risky assets and portfolios will become too great to ignore. In 2021, we already saw investors start to bet on Climate Risk Analytics with Cervest’s $30M series A and Persefoni’s $101M series B, among others.

The Climate Risk Analytics market is valued at an astounding $40 billion today. Analysts at Bank of America predict the climate adaptation market will double to $2 trillion a year over the next 5 years. With more emphasis placed on adaptation, we expect large companies will continue racing to invest in and buy up smaller climate modeling firms to consolidate and harness the emerging insights.

Climate scientists, engineers, and business professionals have been building the Climate Risk Analytics sector steadily for decades. As capital, regulations, technological innovation, and customer awareness converge, 2022 is poised to be a breakout year for Climate Risk Analytics.

Silvia Vieira is Director of Strategy & Operations at Terrafuse AI where she solves complex organizational design problems to create a thriving environment. Silvia played a key role in commercializing clean energy technology products and programs at companies such as Stem, Sunrun, and Tyba Energy.

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