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Are Climate Models Reliable Investment Inputs?

February 2020 
By Christopher J. Goolgasian

By understanding the links between human behavior and the laws of science, we can help companies mitigate the physical risks of climate change.

From our sub-adviser, Wellington Management
Director of Climate Research, Wellington Management


For the past year, we have been working with climate scientists at the Woods Hole Research Center (WHRC) to study, model, and map the effects of climate change on capital markets. As we begin to convey our initial findings, many of our clients and colleagues have asked us about the accuracy of climate models. How reliable are they? Are they repeatable across regions, time frames, or phenomena? Are they informative? These are fair questions. After all, in the investment industry, a financial model with a consistent hit rate over 50 percent is remarkable. If we are going to use climate models to inform our investment decisions, we need to be confident that those models contain accurate information.

Important Risks: Investing involves risk, including the possible loss of principal. • Risks of focusing on investments that involve sustainability and environmentally responsible investment criteria may influence investment performance relative to a fund’s benchmark or competing funds and expose a fund to increased risks related to downturns or other adverse developments in that market segment.

WP520  216295