Extreme weather driving boom in climate risk solutions

Demand for climate risk digital solutions is expected to quadruple in five years as extreme weather intensifies and regulatory pressure on businesses grows. The strongest growth is projected in climate-vulnerable Asia Pacific.

qld braving storm
Men brave a storm in Queensland, Australia. Scientists say rising global temperature could make intense rainfall and flash flooding in Australia's cities a more frequent ocurrence. Image: paintings / Shutterstock.com

Worsening extreme weather is driving a boom in climate risk solutions, which help businesses predict financial losses to climate-related damage.

The climate risk digital solutions market is expected to grow from US$880 million in 2021 to US$4 billion by 2027, according to data from Verdantix, a market research firm. 

Europe and North America will account for 75 per cent of the climate solutions market, but the strongest market growth is projected to come from the climate-vulnerable Asia Pacific region, with a compound annual growth rate of 35 per cent. 

Weather-related hazards in Asia caused US$35.6 billion in damage in 2021, and affected nearly 50 million people. Globally, economic losses to extreme weather hit $280 billion in 2021.

Climate risk digital solutions help companies plan for losses to weather extremes and demonstrate to insurers that they understand climate risk. According to reinsurance firm Swiss Re, economic losses from climate-related disasters are growing by 5 to 7 per cent a year. Asia has lost US$30 billion a year to flood damage over the last decade, and is the least-insured region.

Increasing pressure on businesses to disclosure climate risk is also driving demand in solutions such as business performance climate risk analysis software, the fastest-growing sector, which is expected to be worth US$1 billion by 2027.

The financial services sector is projected to see the fastest growth in spending on climate risk digital solutions, due to regulatory pressure and the rising commercial risk to businesses from climate calamity, Verdantix data shows.

Brisk growth prospects for climate risk solutions has attracted interest from major consulting firms which have acquired or launched climate resilience solutions in recent years.

McKinsey acquired sustainability consultancy Vivid Economics and climate analytics firm Planetrics in 2021, while S&P Global acquired climate risk firm The Climate Service and sustainabilty research firm Shades of Green last year.

Asset management firms Conning and BlackRock, and credit ratings agency Moody’s, have also made major climate risk acquisitions in the last two years.

“We are seeing huge growth in the climate risk digital solutions sector, and it is a major target for investment,” commented Alice Saunders, net zero and climate risk analyst at Verdantix. 

“This is due to a combination of regulatory and non-regulatory drivers, will see spending rise to record levels and sustained growth. Much of this will be fuelled by corporate firms seeking to reduce financial losses from extreme weather losses and turning to consultancy firms to support them in managing their climate risks.”

Climate change and corporate interest in sustainability is also driving a boom in sustainability consultancy acquisitions. The number of sustainability consultancies acquired by larger business services firms more than tripled in 2021, according to Verdantix data.

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