As Midwesterners were digging their way out of a mid-April blizzard for the second year in a row just a couple of weeks ago, surely only a small handful were thinking, “How is this snow impacting my portfolio?” But whether it’s top of mind or not, most of us are well aware that weather patterns have a significant impact on sales and supply chain logistics. And no matter how you feel about man’s impact on climate change, the financial impact of increasingly severe weather measures in the trillions.
Just the other week, strategists at the world’s largest asset manager, BlackRock, released a new report stating that climate-related risks that already threaten portfolios today are set to grow in the future, particularly as they relate to the United States’ $3.8 trillion municipal bond market.
According to BlackRock strategists, within a decade, more than 15% of the S&P National Municipal Bond Index will come from “regions in the US suffering likely average annualized losses from climate change of up to 0.5% to 1% of GDP.” This includes financial impacts from weather events like flooding and hurricane-force winds and indirect impacts like negative effects on crops and labor output.
BlackRock’s assertion is a double down on their findings from a 2016 whitepaper, in which they concluded, “We believe all investors should incorporate climate change awareness into their investment process.”
Along those lines, many companies have been tapping big data to help mitigate some of the risks of severe weather and uncover new possible opportunities. Businesses like weathertrends360 and Weather Source are completely dedicated to providing weather-based business intelligence that helps companies strategically adjust for environmental variables.
Specifically pertaining to the M&A and investment space, weathertrends360 has created a product tailored to the financial industry called the Business Equity Report, offering a weather favorability report on 63 Equities and a 9-month favorability outlook. The company boasts 84% accuracy in short-term and year-ahead forecasts, and has been tapped by over a hundred Fortune 1000 companies to provide the weather intelligence for their decision-making process.
IBM and Tableau also teamed together recently to bring together big data and AI for IBM subsidiary The Weather Company. According to The Weather Company’s Beth Padera, “Weather data can be one of the largest and most volatile data sets out there. So we’re working together, combining our weather data and machine learning expertise.”
As severe weather conditions have become more common, planning an effective response through Business Intelligence tools will be a key component to managing risk going forward. Historically, the data has been too big and too unreliable. For the first time, we’re operating in an era where big data tools and cloud computing are making it possible to leverage the vast sums of data required to effectively evaluate weather-related risks.
For our clients, Catalyst’s Data Lake provides an opportunity to utilize information like this alongside their own business data. According to EBM Software’s Mike Lietzau, “With the use of our new Data Lake product, we’ve helped our clients integrate other data sources, like weather and demographic data, with their Catalyst data to better understand each variable’s effect on the business and provide a fuller picture of customer profitability.”
How would you operate differently if you had advanced knowledge of the weather and could predict its precise impact on your business? Perhaps you would make a shipment a couple of days earlier to dodge a logistics nightmare. Maybe you would ship additional units of your product to accommodate extreme weather conditions.
Take that into the M&A space, and it’s easy to see how this knowledge can be a means to make a new or potential acquisition more profitable. Using big data, you can make profitability-enhancing recommendations to adjust production, logistics, marketing or any other aspect of the organization with surgical precision. Depending on the situation, the tweaks you make could have a dramatic impact on the acquisition’s valuation.
Catalyst’s Data Lake lets you tap any type of data you feed into it – including big data – to create custom analysis using our query tool. The ability to see weather data or other big data alongside your projections could potentially uncover a plethora of key risks and opportunities down the road.
“There’s no shortage of data,” says Lietzau. “Using Catalyst’s Data Lake, our clients can turn all these disparate pieces of data into real actionable insights for managing risk. Over time, we expect the utilization of these functions will become a key part of the planning process for more and more of our clients.”
How would having this knowledge impact your business? Has your company utilized weather analysis as part of your business intelligence strategy? We’d love to know what you think. Sound off on social media now and join the conversation.