The effects of climate change have become more apparent each year, and the data that tracks climate change has been even more telling in terms of the total impact caused to the environment. However, data on how climate change affects other sectors has been curiously absent. Carbon Delta, which had the chance to discuss its business at Finovate Fall in New York City, is the top – if not the only – player in terms of measuring the economic impact caused by climate change.
More specifically, their new product Climate Value-at-Risk (VaR) combines the financial, environmental and computer science expertise of the founders of Carbon Delta to represent the potential loss in asset value as a result of climate change.
“Climate change is a top 10 global financial risk,” says Oliver Marchand, cofounder at Carbon Delta.
Carbon Delta may be young, but they’ve already gained attention by being named the best climate startup in Europe. As far as business goes, the goal with Carbon Delta is pretty clear: to be the top source for climate change forecasting.
Economic Risks of Climate Change
The product that Carbon Delta produces is fairly complex. Marchand has a Ph.D. in computer science, but he also fell in love with risk-analysis in the financial world, giving him a unique perspective on writing financial code. Marchand also spent nearly a decade in weather forecasting for various weather services across Germany and Switzerland.
David Lunsford, another cofounder, brought his Wall Street expertise to Europe so he could pursue his passion, environmentalism.
The result of their combined expertise was Carbon Delta, a business that created a program to forecast the economic risk of climate change. An important takeaway here is that they are evaluating risk, which is typically based in the future rather than the past like carbon footprint which is usually focused on.
“People are spending time focusing on the impact climate change has on the climate,” says Marchand. “But we take it one step further by measuring the economic impact of climate change.”
One example would be Hurricane Harvey. The recent natural disaster is projected to be the most expensive in US history, largely due to the flooding in Houston.
While most climate change forecasts can predict the hurricane, size and strength, Carbon Delta takes that data and applies it to the local community. The result is a comprehensive model that shows the financial impact that the community could have because of a hurricane like Harvey, Marchand explains.
Incidences and Consequences
Currently, Carbon Delta serves businesses that want to address their ecological impact and the climate’s effect on their business. While the appeal for businesses is apparent (especially for those who have a background in finance), Carbon Delta’s appeal is largely lost on the layman. Why is forecasting climate change so important?
Marchand and Lunsford point out that climate change can affect everyone financially even if you aren’t immediately aware of the impact. For example, skyscrapers, hotels and other expensive real estate investment sites directly on the coastline and are ill-prepared for significant sea level rise, placing real estate investments in jeopardy.
Even small business owners can be affected. For example, if a mega-snowstorm hits the east coast it can have a huge impact on shipping, crop yields and total work productivity. A notable example of this would be the drought in China in 2010 which resulted in cotton prices increasing by nearly 300 percent. The economic effect of this drought was evident by looking at the 30 percent decline in profits reported by H&M in Q1 2011 and the 17 percent fall in Gap Inc.’s share price. Extreme climate events have a negative economic impact, and Carbon Delta can measure it and assesses the risk your company or investment portfolio faces.
With a business that can accurately predict the economic impact of climate change, one would imagine that other companies are scrambling to create their own forecasting models. But Marchand says that isn’t the case. Its collection of skills added with its ability to reap trustworthy data gives them an edge over any competitor if one were to enter the fray.
As Carbon Delta continues to grow, you might end up seeing its forecasts in financial news as it aims to become the Bloomberg of climate risk data to uncover a systemic risk embedded within the financial system.. Its model is so comprehensive that it can calculate millions of data sets, covering tons of variables to measure different forms of economic impact that could happen.
Climate change is affecting the environment, but the economic impact caused is only going to become more significant. Estimated financial losses from climate change range from $2.5 to $72 trillion by 2060. When the effects of climate change become more widely monitored and hedged, you can be assured that risk assessors will have used Carbon Delta’s model to estimate risk levels.
As Marchand says, “we love building models and we’ll never stop innovating our model.”