An open source project will be launched in Q4, which will be a breakthrough solution to tackle the climate-aligned investing and data challenges investors face, its backers have claimed.
The tool, known as OS-Climate platform, was presented at Climate Week NYC on 25 September.
Hosted by the soon-to-be-launched LF Climate Finance Foundation (LFCF), it will integrate data and analytical models.
Allianz, Amazon, Microsoft and S&P Global have already committed to be founding members of the LFCF. The planning team includes representatives from the World Wide Fund for Nature (WWF), Ceres and the Sustainability Accounting Standards Board (SASB).
In the first one or two years, the platform will focus on asset owners and provide climate data and analytics to address climate risk and opportunities aligned to different global warming scenarios in portfolios.
The platform will integrate predictive analytical tools on economic and physical climate risk scenarios, financial models and investment products to allow, initially asset owners, to manage climate-related risk and finance solutions across geography, sector and asset classes.
Key components of some commercial tools will be included in the platform under open source licences, an executive at OS-Climate told Expert Investor.
Open source tool
Investors have struggled to access quality and comparable climate-related data.
Udo Riese, global head of risk and monitoring at Allianz Investment Management (AIM) SE, and one of the presenters on the webinar, explained that among the challenges are the difficulty to access data, gather forward-looking information and overcome large gaps – also due to inconsistent data and methodologies of the providers.
“We see open source data as one option to reduce the problem,” he said, emphasising transparency and data reliability.
Riese added that finding one access point for integrated data is important for investors.
“We see many evolving standards from regulators, from framework providers, and an open data platform could help to align these standards and roll them out much more quickly,” Riese explained, pointing also to longer-term opportunities for investors to align targets, such as the warming scenario.
Michael Tiemann, an open source software pioneer and speaker on the webinar, explained that the community-based, open source approach is well-suited to create transparent, trustworthy and verifiable data.
He said that the tool offers flexibility and can be adapted to the needs of the users and works as a constantly improving “living body” which can be used in a proprietary way.
The OS-Climate executive continued: “All of the data and code contributed to LFCF will be publicly available at no cost under an open source initiative-approved licence or comparable permissive open source licence.
“For proprietary data, users will need a licence from a third-party provider.”
Functions of the tool
The tool will have a two-level analytical approach; scenario-based top-down analytics for portfolios, asset classes, sectors, countries, and bottom-up analytics for companies and their listed equities.
Lisa Eichler, co-head climate & ESG Solutions at Ortec Finance, explained that the top-down analytics will include different scenarios, such as the Inevitable Policy Response by the Principles for Responsible Investment and climate scenarios by the Network for Greening the Financial System (NGFS).
“For the disorderly transition, for example, equity returns in the US are quite significantly influenced by the financial sentiment shock,” she explained, whereas another scenario would be driven by the pricing in of extreme weather risks.
Jim Zemlin, executive director of the Linux Foundation, said: “The cost and complexity of analytics for climate-related investments require highly organised collaboration and resource sharing across hundreds of users and contributors.
“The LFCF will enable neutral governance, shared development costs and technical leadership from many of the world’s leading financial institutions, multilateral organisations, academia, governments and NGOs.”
Matthew Welch, president and chief operation officer of the Sustainability Accounting Standards Board (SASB) Foundation, commented: “LFCF’s OS-Climate platform enables analysis of how companies would perform on standardised, financially material metrics under various climate conditions and scenarios.”
Claus Stickler, co-managing director at AIM SE, said: “Allianz is committed to steering our investment portfolios to net-zero carbon emissions by 2050. High quality and reliable information about all the companies in which we are invested is the raw material for all decisions.
“Open source analytics and open climate data is a very promising way to support the financial industry in working with the investee companies to transition to carbon neutrality.”