The Evolving Landscape of Big Data Analytics and ESG Materiality Mapping

Raging hurricanes, devastating floods, sea-level rise, heatwaves, and other extreme weather conditions are now attributed to climate change. In a new article published in the Journal of Impact and ESG Investing, Sucharita Gopal, Joshua Pitts, Kalyani Inampudi, Yingqiang Xu and Graham Cook propose that climate change poses a significant investment risk in terms of economic losses and societal disruptions such as migration, infectious diseases and increasing vulnerability of exposure to more frequently reoccurring weather events.

In a special issue of the journal on climate risk, the research team discusses optimum utilization of big data, and data analytics coupled with artificial intelligence to assess the materiality of these potential risks in investment portfolios. Additionally, the emerging and established approaches through two case studies highlight how the overall investment management community can benchmark exposure, risk and vulnerabilities coupled with future impacts and building resiliency across portfolio management and investments.

Main findings:

• Climate change financial risks are varied and global; they include tropical cyclones, winter storms, wildfires, extreme temperatures such as heat, cold, floods, sea-level rise, storm surge and drought.
• Climate-related risks bring physical, transitional and liability risks that impact society directly and have the greater potential to affect economies. As the number of weather-related insurance claims rise, insurance companies are required to make more payments and increase premiums, including for unaffected consumers.
• From the perspective of portfolio managers, the research shows how a data-driven climate analytics assessment can assist to mitigate and adapt to growing risks, while still generating investment returns.