American Meteorological Society Releases New Study to Assist with Financial Decision Making
The American Meteorological Society (AMS) recently released a Policy Program Study, entitled Climate Information Needs for Financial Decision Making (the “Study”). The Study assessed climate change’s impact on financial decisions and the climate change information needs of financial decision makers, then suggested new mechanisms to support collaboration between scientists and the communities that use their data.
The Study noted that long-term investments, particularly in public infrastructure, must account for a wide range of risks extending 50 to 100 years into the future. The Study suggests that climate change could disrupt such investments through direct results, such as physical damage and also could lead to a range of indirect impacts including the limited availability of critical resources, reduced demand for a given product, or relocations of a firm’s workforce and customer base in response to severe weather events. It posits that scientific information that enhances a firm’s capability to predict the spatial and temporal impacts of climate change-induced events could allow financial decision makers to manage these risks. The Study concluded that the business community needs information on the physical impacts of climate change, such as projections of precipitation or extreme events like floods so that decision makers can better understand the potential impacts on their investments.
The Study’s major recommendations concerned the organization and communication of existing knowledge, rather than building more accurate climate change models. AMS noted that a great deal of information relevant to financial decision-making already exists and could be used if characterized more clearly and compellingly. The panel proposed three predefined levels of certainty for communicating future climate impacts: (i) possible (events with less than a 50% chance of occurring); (ii) probable (events with more than a 50% chance of occurring); and (iii) effectively certain (events with more than a 95% chance of occurring). The goal is for these categories to assist in the preparation of cost-benefit analyses that financial decision makers face when managing the risks of climate change. AMS hopes that this would empower user communities to assess for themselves the implications of climate change on financial decision making.
The Study concludes that impacts of flooding and other extreme weather events brought on by the effects of climate change present a significant threat to both public and private infrastructure. Noting that climate change risks will vary by industry and geography, it suggests that additional information sharing can help account for these variations. Preparedness is essential to managing such effects and the risks facing existing and potential projects. Cooperation among business, government and the scientific community designed to share information can help manage these risks.
Posted by Ross Woessner
and Margaret E. Peloso
at 12/10/2013 9:30 AM