With the firing of the longtime head of the Bureau of Labor Statistics late last month and President Trump’s choice this week of a partisan economist to replace her, I’ve been thinking about the role of reliable, widely accepted data in financial decision-making. Every month, the BLS delivers jobs, inflation, and productivity numbers that investors, CEOs, and central bankers treat as gospel—or at least they have historically. The trustworthiness and regular cadence of those reports give markets a shared language for reacting in real time.
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In climate circles, it’s taken almost as gospel that some climate risk remains unpriced by financial markets. The costs of extreme weather, supply chain disruptions, and falling labor productivity are all visible on the horizon, with ample academic research to back them up. And yet there’s no equivalent to the BLS for climate—no universally accepted, authoritative metric that allows markets to price that risk with the same speed or confidence.
This is a significant problem that makes it harder to wake up markets and the firms that operate in them to the urgency of acting on climate change. And it’s one that’s not going to get easier as the U.S. federal government persistently questions the science of climate change, hiding or obscuring the climate data that does exist.
A patchwork of numbers
To understand the data gap, it’s worth noting that, of course, the federal government has historically produced a wide range of important climate data. The National Oceanic and Atmospheric Administration (NOAA) tracks atmospheric greenhouse gases, sea levels, and ocean heat—though the agency faces budget cuts and has been forced to drop some climate efforts. The congressionally mandated National Climate Assessment historically has synthesized the latest science on how climate change is affecting the United States, from regional heat waves to crop yields. Its work has been halted this year.
Private initiatives, too, have tried to fill the data gap. The Task Force on Climate-related Financial Disclosures created a voluntary framework for reporting climate risks, for example, and a growing industry of climate-risk modeling firms translates scientific projections into risk assessments at an asset level.
The availability of this data is a good thing, but in my conversations corporate sustainability folks often complain about the varying standards and the lack of uniformity. Much of this analysis looks at long time horizons and exists behind paywalls. Big, sophisticated firms have the capability to evaluate and act on this information, but access is far from universal. And even at the bigger firms top decision makers often aren’t literate in the language of climate risk. In short, the patchwork nature of this data necessarily means gaps in the market.
Expecting or even hoping for a solution to these problems at this moment is admittedly a bit of a fantasy. At some point as the costs of climate change mount, these questions will need to be addressed. Until then, risk will continue to be mispriced.
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