Extreme weather is driving investments into climate risk digital solutions says Verdantix
McKinsey, Conning, BlackRock, Moody’s and S&P Global and others have acquired or launched climate resilience solutions in the past two years
A global surge in investments into climate risk digital solutions is being fueled by growing loses from extreme weather according to a report by research and advisory firm Verdantix. According to the firm, the climate risk digital solutions market will skyrocket to US $4bn by 2027, compared to just $880mn in 2021.
The firm stated that spending on software and consultant packages offering business performance climate risk analysis is the fastest-growing sector, and is predicted to hit over $1bn.
Verdantix pointed out that high market growth expectations are attracting increasing interest from major firms; McKinsey, Conning, BlackRock, Moody’s and S&P Global were highlighted as some of the major organisations to have acquired or launched climate resilience solutions in the past two years.
The increasing severity of extreme weather events is one of the major drivers for the growth of the market – global losses in 2021 are estimated at $280bn, the firm revealed. It said that climate risk digital solutions enable companies to plan for and protect against losses.
In late January 2023, Drees & Sommer’s Stephan Degenhart said that “COP28 has the potential to have a significant impact on the built environment in the region” and, AESG’s Katarina Uherova Hasbani pointed out that sustainable practices can also build resilience, lower operational costs, and create value through new product and solution lines.
They also help firms to demonstrate to insurers that they know their risk, which is valuable considering the rising cost of property insurance premiums which are predicted to rise 22% by 2040, it added.
Alice Saunders, Net Zero and Climate Risk Analyst at Verdantix explained, “We are seeing huge growth in the climate risk digital solutions sector, and it is a major target for investment. This is one of the first reports looking at the market, which due to a combination of regulatory and non-regulatory drivers, will see spending rise to record levels and sustained growth. Much of this will be fuelled by corporate firms seeking to reduce financial losses from extreme weather losses and turning to consultancy firms to support them in managing their climate risks.”
The report ‘Market Size and Forecast: Climate Risk Digital Solutions 2021-2027 (Global)’ highlights that increasing regulation is also a major influence on climate risk digital solutions. Task Force on Climate-Related Financial Disclosures (TCFD) aligned regulations are being implemented globally with European Union regulations taking effect in 2024, and US rules expected to follow suit.
The financial services sector will see the fastest growth in spending on climate risk digital solutions partly due to regulatory pressure but also because of the commercial risk to their businesses, the firm said.
Late in January 2023, Sheikh Mohamed bin Zayed Al Nahyan announced 2023 as the ‘Year of Sustainability’.
It said that it expected Europe and North America to account for around 75% of the market by 2027 but said that the fastest growing region globally will be Asia-Pacific with a compound annual growth rate of 34% partly because of early adoption of TCFD rules.
