IBM and The Climate Service (TCS), a climate risk analytics service for investors and businesses, are partnering to work with financial institutions and corporations to better measure and quantify risks associated with climate change. As part of the alliance, the companies are now making TCS’ Climanomics software platform available via Red Hat OpenShift on IBM Cloud.

This alliance between IBM and TCS makes TCS’s science available with enterprise-grade levels of scalability, availability, security, and interoperability, according to IBM. The companies are working together to help organizations put a price on climate risk and facilitate reporting consistent with the Task Force on Climate-Related Financial Disclosures (TCFD) framework.

Comprehensive scenario analysis plays a key role in supporting TCFD reporting, and this is where the Climanomics platform comes in, said James McMahon, CEO of The Climate Service. Climate scenario analysis can also help businesses determine how to respond in these circumstances, he said.
 
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In terms of what this means, “A scenario is an alternative state of the world, typically centered on a narrative that brings it to life and helps to specify its inner logic,” according to guidance from the Climate Financial Risk Forum, which was established to support financial firms in their efforts to assess climate risk.

“In the context of climate change, the TCFD recommends the use of climate scenario analysis to help firms explore the potential range of climate-related outcomes and analyze the impact of these alternative states of the world on the business in a structured manner.”

As for why financial institutions in particular, need to be cognizant of climate change, it is because they and their regulatory bodies, which are primarily made up of professionals from the financial services sector, understand now that they face significant financial risk from the changing climate, McMahon explained.

Financial firms have a fiduciary responsibility to investors

“As financial institutions have a fiduciary responsibility to their investors to measure and manage their risks—all risks—the industry as a whole is realizing that climate change is the largest idiosyncratic risk that has not been assessed by the markets, and thus, they need to begin to understand this risk,” he said.

However, the financial services sector is not the only sector looking at climate risk, McMahon added. TCS’ clients include multinational corporations of all kinds as well as the federal government, he said.

“In technology, climate change is fast joining cybersecurity as a central risk to the industry; for example, many large tech companies are starting to assess sea level rise, wildfire, extreme temperatures, and other physical risks to their assets such as their offices, server farms, or data repositories,” McMahon said.

The alliance will also leverage IBM Services for insight into financial risk, analytics, weather risk, and compliance, and use the Climanomics platform to provide climate risk analytics to clients across all sectors, including global financial services leaders, industrial corporations, and energy providers, IBM said.

“At a time when markets and investors are demanding climate risk transparency and quantification, IBM is committed to providing cloud-based climate risk solutions to the financial services sector and critical infrastructure industries such as industrial, consumer, energy, and utilities,” said Murray Simpson, IBM’s global lead for sustainability, climate and transition, in a statement.

“As we work with clients to integrate critical insights into their business decision-making, our goal is to inform their strategy and help them remain competitive and resilient,” he said.

“Climate change presents the markets, as well as society as a whole, with an exponential challenge. Through this collaboration we will offer solutions using the power of world-class science and technology,” McMahon said.

IBM and TCS signed their alliance agreement in October 2019, and the two companies have been collaborating for the past year, building a go-to-market strategy, IBM said.

The TCS Climanomics software platform is available on Red Hat OpenShift on IBM Cloud, IBM said. The alliance is also the start of a joint effort to find ways to help global financial and energy companies measure climate risk, the company said.

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