WASHINGTON — Maximizing returns on financial investments depends on accurately understanding and effectively accounting for weather and climate risks, according to a new study by the American Meteorological Society (AMS) Policy Program.
The study, based on a workshop held in partnership with the University Corporation for Atmospheric Research, also found that weather events create and exacerbate risks to financial investments.
“Near-term financial decisions have long-term implications for the United States’ social and economic well-being that depend, in part, on climate variability and change,” said Paul Higgins, director of the AMS Policy Program. “In an increasingly competitive global environment, nations that invest most effectively with respect to weather and climate risks will have an important competitive advantage.”
“It’s smart business to incorporate the latest weather and climate knowledge into financial decisions,” said Thomas Bogdan, president of the University Corporation for Atmospheric Research (UCAR). “This is an important example of the business and research communities working together to strengthen financial investments and the larger U.S. economy.”
The report found that weather and climate events can cause:
The study is based on a recent AMS Policy Program workshop, Climate Information Needs for Financial Decision Making, held in Washington, DC, earlier this year and conducted in partnership with UCAR. Financial analysts, investors, academicians, and key leaders from the business, financial, and climate research communities convened to examine the role of climate science in financial analysis.
The purpose of the study was to assist with societal decision-making by examining the implications of climate variability and change on near-term financial investments.
To overcome communication barriers that stem from technical terms often used in scientific assessments, the AMS report proposes three predefined levels of certainty for communicating with user communities about future climate impacts: possible, probable, and effectively certain. For example, the study reports that it is effectively certain that a change in climate will alter weather patterns. It is probable that climate warming will cause increases in the intensity of some extreme events. It is possible that climate change will cause major and widespread disruptions to key planetary life-support services.
The report concludes that financial investments face a range of risks due to existing weather patterns and climate variability and climate change. Even small changes in weather can affect operations in critical economic sectors. At the same time, climate variability and change can either exacerbate existing risks or cause new sources of risk to emerge.
“It is critical that federal investments to advance climate science for use by both public and private stakeholders must place significant priority on incorporating uncertainty quantification methodologies into modeling frameworks,” said Gary Geernaert, director of the U.S. Department of Energy’s Climate and Environmental Sciences Division. “In this way, projections would contain sufficient information for risk analysts to provide more informed recommendations to financial decision-makers. The workshop was an excellent step in the right direction.”
The AMS Policy Program intends to conduct a series of follow-on activities to continue the collaboration between the financial decision-making and scientific communities established by the study and to help put the report’s recommendations into practice.
The AMS promotes the advancement of the atmospheric and related sciences, technologies, applications, and services. Founded in 1919, AMS has a membership of more than 14,000 professionals, students, and weather enthusiasts. AMS publishes 11 atmospheric and related oceanic and hydrologic journals, sponsors more than 12 conferences annually, and offers numerous programs and services. The AMS Policy Program works to help the nation, and the world, avoid risks and realize opportunities associated with the earth system.
The University Corporation for Atmospheric Research manages the National Center for Atmospheric Research under sponsorship by the National Science Foundation. Any opinions, findings and conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the National Science Foundation.