Bloomberg Launches MARS Climate for Climate Risk Management

Bloomberg has launched MARS Climate, a new module in its Multi-Asset Risk Management (MARS) suite, to assist portfolio and risk managers in analyzing the financial effects of climate change on investment portfolios. The launch is an important milestone in managing both physical and transition risks, as financial institutions are increasingly under pressure to measure and manage climate-related risks in their portfolios.

The need for robust climate risk management has never been more pressing. A recent study by Swiss Re revealed that the economic damages from natural catastrophes have doubled over the past two decades, reaching an alarming $280 billion globally in 2023. In response to these challenges, regulators worldwide are imposing stricter rules and guidelines, urging financial institutions to assess and report on climate-related risks. Against this backdrop, MARS Climate presents a timely solution to address these needs.

MARS Climate is built to provide both sell-side and buy-side companies with the capabilities to examine their portfolios under a variety of climate scenarios. By using BloombergNEF's Transition Risk Assessment Company Tool (TRACT), the module aids users in analyzing potential revenue threats and opportunities on different climate pathways. By adopting the Network for Greening the Financial System (NGFS) frameworks, MARS Climate assists companies in adherence to emerging global regulations centered on climate-related financial disclosures.

One of the best things about MARS Climate is that it can conduct complete scenario analysis. This feature allows portfolio managers to analyze their portfolio holdings against multiple climate scenarios that range from low to high emission pathways. Detailed financial impact reports are provided, classifying the risks into three broad categories of physical acute, physical chronic, and transition risks. These categories help portfolio managers understand the range of potential climate impacts, from extreme weather events to long-term shifts in regulatory policies.

Physical acute risks are those associated with extreme weather events, such as hurricanes or floods, which can cause immediate damage to assets or disrupt operations. Physical chronic risks involve longer-term changes, like increases in sea levels or temperatures, which can potentially devalue assets over the long term. Transition risks, however, are associated with the wider economic transformation toward a low-carbon economy. Transition risks include regulatory policies, technological changes, and consumer behaviors that might impact sectors and industries that are highly dependent on fossil fuels.

Another of the major advantages of MARS Climate is that it is highly transparent. The module provides highly detailed climate-driven financial effects at the security level, enabling the user to drill down into the detail of precisely how a single investment might be impacted by climate risk. Such detail is invaluable for investors required to make sophisticated decisions about their portfolios while satisfying both financial returns and environmental issues.

The combination of MARS Climate with Bloomberg's wider range of sustainable finance solutions enables users to seamlessly integrate climate risk analysis into their current workflows. Available on the Bloomberg Terminal, MARS Climate enables portfolio managers and risk professionals to easily include climate risk analysis in their current workflows, along with conventional financial risk analysis. This consolidation not only simplifies the climate risk management process but also provides users with the ability to have a holistic perspective of their portfolios' performance along various dimensions.

The rising significance of climate risk management is highlighted by the escalating regulatory pressure to enhance transparency in climate-related financial disclosures. Regulatory authorities and governments are calling for the disclosure by financial institutions of the climate risks to which they are exposed and steps they are taking to contain those risks. These laws are already operative in several jurisdictions, including the European Union and the United Kingdom, and other jurisdictions are likely to follow in their footsteps. MARS Climate assists financial institutions in meeting these regulatory needs by offering the capabilities to measure, report, and manage climate risks efficiently.

MARS Climate is not only about compliance, though. It also assists financial institutions in spotting new opportunities during the shift toward a greener economy. As more sectors make the turn toward sustainable operations, there are new investment opportunities available in areas like renewable energy, electric vehicles, and sustainable agriculture. Using MARS Climate to assess climate-related risk and opportunities, portfolio managers can make their firms well-placed to exploit these trends, potentially building returns in the process while helping create a better future.

As Dharrini Bala Gadiyaram, Global Head of Risk Product at Bloomberg, puts it, "Portfolio and risk managers increasingly look to perform climate risk analysis alongside other financial risk assessments to manage risk and regulatory reporting." By launching MARS Climate, Bloomberg is assisting companies in not only demystifying climate risk management but also making educated decisions that cater to both their financial objectives as well as sustainability ambitions.

The release of MARS Climate reflects increasing awareness of climate change as an essential element of financial decision-making. With the world increasingly being confronted with the effects of climate change, financial institutions are called upon to change with the times by incorporating climate risks into investment decisions. MARS Climate gives the means and information to make informed and proactive choices that can reduce risk and capture opportunity in the evolving green economy.

In summary, MARS Climate is a valuable step forward in the management of climate risk. Through the provision of scenario analysis, in-depth financial impact reporting, and full integration with Bloomberg's suite of products, it allows financial institutions to evaluate, manage, and report climate-related risks more effectively. With regulatory pressures mounting and the world's economies moving toward sustainability, MARS Climate puts companies in a position to not only be regulatory compliant but also spot fresh investment opportunities as the world transitions into a cleaner, more sustainable future.