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. The authors 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. They discuss optimum utilization of big data and data analytics along with artificial intelligence to assess the materiality of these potential risks in portfolios. Further, they highlight emerging and established approaches through two cases studies to highlight how the overall investment management community can benchmark its exposure, risk, and vulnerabilities, coupled with future impacts and building resiliency, across portfolio management and investments. Key Findings ▪ Climate change financial risks are varied and global; they include tropical cyclones, winter storms, wildfires, extreme temperatures, floods, sea-level rise, storm surges, and droughts. Climate-related financial disclosures are critical in many sectors. ▪ Climate-related risks bring physical, transitional, and liability risks that impact our society directly and have the potential to affect the economy we live in. As the number of weather-related insurance claims rise, re/insurance companies are required to make more payments, increasing everyone’s premiums, including unaffected consumers. ▪ From the perspective of portfolio managers, the authors show how a data-driven climate analytics assessment can assist to mitigate and adapt to growing risks while still creating alpha in investment returns.