Capital markets at risk from climate change

Boston skyline

In September, Woodwell Climate Research Center (formerly Woods Hole Research Center) and Wellington Management announced a ground-breaking alliance to integrate climate science and asset management.

Boston-based Wellington Management is one of the world’s largest independent investment management firms, with more than 2,200 institutional clients and more than one trillion dollars of client assets under management – as of summer 2018. The collaboration developed over the course of a year, with conversations initiated by Spencer Glendon – formerly Wellington’s director of investment research – who joined Woodwell Climate this fall as a senior fellow (see his essay on next page).

“Climate change is the defining challenge of our time. It will impact all areas of society, including financial markets,” said Woodwell President Philip Duffy. “Collaboration is an important way for us to amplify our impact and we are excited about the opportunity to work with Wellington to influence how an important industry thinks about climate change.”

This new initiative will focus on creating quantitative models to help analyze and better understand how and where climate change may impact global capital markets. Wellington and Woodwell Climate will collaborate on a broad range of projects, including developing investor tools and innovative analytical methods seeking to improve climate risk assessment and investment outcomes. Wellington will use modeling on climate change impacts—such as sea level rise, drought, heat, and precipitation—to directly inform investment decisions.

The work is already underway, and is being led by Woodwell Project Scientist Zachary Zobel, an atmospheric scientist whose previous work focused on understanding how climate extremes are changing in the United States. Woodwell Climate will use the research that comes out of the project to publish academic papers.

The initiative is off to a great start, and we’re working well together,” Zobel said. “But we’ve also been able to maintain a careful, steady, and collaborative scientific approach.”

“We look forward to working with Woodwell Climate to thoroughly understand and accurately interpret the latest climate science research and the potential implications of climate change for capital markets,” said Wendy Cromwell, Wellington’s director of sustainable investment. “We believe an in-depth appreciation of the risks and opportunities presented by climate change will enhance our ability to help our clients achieve their investment objectives.”

California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the United States, will work with Wellington and Woodwell Climate to apply these investment insights. CalPERS had more than $351 billion in assets as of June, 2018.

“As a long-term investor, we’re continually looking to sharpen our ability to analyze climate risk in our investment portfolio and in underwriting prospective investments,” said Beth Richtman, CalPERS managing investment director for sustainable investments.

In November, Duffy discussed the initiative in depth with Wellington Managing Director Chris Goolgasian during one of the company’s client meetings.

“We are a scientific research organization, we do research into causes and effects of climate change … but our real goal is to go beyond generating the knowledge and to bring scientific knowledge into decision making,” Duffy said. “So we are really excited to have the opportunity to work with Wellington and what we hope to do is to use our scientific understanding of climate change in a collaboration to help inform their thinking about this whole category of risk.”

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