Despite imperfections, investors should not wait for regulation to offer more comprehensive solutions, says David von Eiff, Director of Global Industry Standards at the CFA Institute.

Climate change impacts, through direct and indirect channels, present us with tremendous economic risks and opportunities. While their complexity makes estimation difficult, cost estimates are generally staggering. A 2022 analysis by Deloitte projected that an increase in global warming to 3C could lead to global economic losses of US$178 trillion over the next 50 years. However, the study estimates that US$43 trillion of economic gains could be realised through a successful transition to a low-carbon economy in the same time frame.

Governments worldwide have begun adopting policies and regulations to fund the transition to net zero economies and address climate-related risks. Further, companies have begun evaluating physical and transition liabilities and opportunities. Banks and insurers are altering their businesses to address better climate change-related liability risk in their lending and underwriting decisions. Asset owners are seeking to understand how climate change may affect the value of their assets, and asset managers are increasingly analysing their investments’ climate risks and opportunities.

This increasing focus on climate-related risks and opportunities has highlighted the significance of having accessible, reliable, climate-related data to measure and analyse, which is key to understanding and effectively utilising climate data as a component of investment strategies.

Applications of climate-related data

Climate-related data are integral to investment processes, serving purposes such as risk assessment, asset valuation, and shareholder engagement. It is collected, analysed, and used not only by asset managers or lenders but also by the ecosystem that provides services to them:

Credit rating agencies, which incorporate climate risk exposure into creditratings; Index providers, which provide climate-themed indexes and often calculate climate-related metrics for conventionalindexes; Valuation service providers, which may incorporate climate considerations when valuing privateassets; ESG rating providers, which often incorporate climate-related data and opinions in their ESG ratings andscores; Sell-side research providers, some of which are integrating climate-related information into theiranalyses; and Climate-related data and research providers, which produce a wide range of company and sector-specific climate-related information, as well as a comprehensive range of market research, market intelligence, and thought leadership on climate-related

In 2022, PwC found that the data used as inputs for climate analysis as well as the level of incorporation differed significantly between service providers. This variability, coupled with limited transparency, makes comparisons difficult.

Challenges in