LONDON, Feb. 8 (Reuters) – Improper use of climate models could pose a growing risk to financial markets, giving investors a false sense of certainty about how the physical impacts of climate change will occur, according to the authors of an article published Monday .
With heat waves, wildfires, massive storms and rising sea levels forecast to intensify as the planet warms, companies are under increasing pressure to reveal how disruption could affect their businesses.
But the authors of a peer-reviewed article here in Nature Climate Change warned that the effort to integrate global warming into financial decision-making has skipped the models used to simulate the climate for “at least a decade.”
“In the same way that a Formula 1 Grand Prix car is not what you would use to enter the supermarket, climate models have never been developed to provide improved information for financial risk,” said Andy Pitman, a man of Climate Science at the University of New South Wales and co-author of the paper.
Improper use of climate models could lead to unintended consequences, such as “greenwashing” some investments by minimizing risks or hitting companies’ ability to raise debt by exaggerating others, the authors said.
The problem is that existing climate models have been developed to predict temperature changes over several decades, on a global or continental scale, while investors generally need location-specific analyzes over much shorter periods.
Climate models are also not designed to simulate extreme weather events, such as storms, which can cause sudden financial losses.
To bridge the gap, the authors called for the development of new forms of climate projection to support the financial sector, supported by qualified “climate translators” to help regulators, investors and companies make better use of science.
“Businesses like to use models because the numbers give them a sense of security,” said Tanya Fiedler, a lecturer at the University of Sydney and lead author of the paper. “It doesn’t necessarily mean the numbers are reliable.” (Reporting by Matthew Green; Editing by Hugh Lawson)