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Illustration: Annelise Capossela/Axios

World - Why big financial firms are scooping up climate modeling companies

Big ratings agencies such as Moody's and S&P Global, along with other financial firms, are vacuuming up companies specializing in modeling physical climate risks.

Driving the news: The latest consolidation in the "climate intelligence" space arrived this week with S&P's purchase of The Climate Service, a climate risk consulting firm. The Climate Service analyzes physical climate risks, including extreme temperatures, coastal flooding and water stress, along with so-called transition risks, including changing regulatory and market conditions.

Thought bubble: The consolidation in the climate intelligence space threatens to lead to an asymmetry of access to information. If you're a wealthy investor or large real estate firm, you can pay to find out which companies or regions will be safest from climate hazards, and make sound investment decisions.

  • However, ordinary homeowners, such as those in the Denver suburbs who faced down a horrific, climate-fueled December wildfire on Dec. 30, may be left with fewer no or low-cost options to find out detailed information about their mounting risk exposure.
  • That is unless the consolidation also drives an expansion of affordable, consumer-facing climate risk prediction services, which has not yet materialized, experts told Axios.
  • These companies' services and strategies differ somewhat, but overall they all do climate risk analytics, which is critically important as climate disasters mount, affecting more Americans, many of whom did not realize they were in dangerous areas.

The big picture: Two companies in particular have been vacuuming up firms that specialize in climate risk modeling, Moody's and S&P Global Inc.

  • They are doing so to feed into their environmental, social and governance (ESG) investing lines of business.
  • By incorporating climate risk analysis into their ratings of companies, sovereign funds and more, Moody's and S&P are meeting growing market demand for ESG funds.
  • They are also seeking to flag any systemic risks to the financial system related to climate change.

State of Play: In August of last year, Moody's paid $2 billion to purchase one of the leading risk modeling firms, London-based RMS.

  • Moody's has rolled out a variety of climate products for institutional investors, banks, private equity firms and individuals looking to invest in companies that are prepared for a more carbon-constrained world.
  • It purchased a majority stake in the climate intelligence firm 427 in July 2019, and a majority stake in an ESG insights company, V.E., in April 2019.

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