How to reduce weather risk (and make a little green)
People understand that weather can affect certain markets — especially energy prices and other commodities — but its impact on portfolios more broadly might surprise. Just last week, a new study was released that estimated $485 billion of annual weather-related economic impact in the United States alone. Another calculated the effect at nearly 10 times that amount . (Either way, that’s going to buy you A LOT of umbrellas.)
We’re in a new phase of our globalized world, where droughts in Russia can influence mortgage rates in Kansas, a hurricane threat in the Gulf can launch gas prices higher, and food riots in Tunisia can force dictators from power.
By the same token, when businesses make use of science-based, actionable information, it can mean greater profits. Retail outlets can time the release of the new season’s fashions according to forecasts for sun and snow. Transportation companies use wind forecasts to guide ships at sea towards their optimal routes, saving time and energy. And of course, ski resorts can make or break their year by perfectly matching opening day with the season’s first fresh powder.
Investors can benefit, too, and use adaptation strategies to make a little green from becoming more weather and climate conscious. As an IRI and Columbia alum, that is what I hope to provide in a new column launching this week on MarketWatch, called ‘Forecasting Profits’.
Read my entire latest column here and follow me on Twitter (@wxrisk) for updates in between posts.