3 Key Aspects of Acclimating Financial Data for Climate Change Risk
Climate change risk poses a growing concern for ag portfolios. According to a report from the Environmental Defense Fund, “many agricultural banks are highly exposed to impacts that reduce farmers’ ability to service their debts, including climate-exacerbated extreme weather events. This is due in part to their concentration in agricultural loans, their geographic concentration, and correlated risks.”
Data Acclimation is the process of geospatially contextualizing company data with integrated climate data for the purpose of understanding the impact of climate risks on loans and customers’ business.
The service gives analysts the insights they need to make smarter investment and lending decisions.
Data acclimation helps manage climate change risk in three key ways:
- More efficient and effective data management
- Revealing insights hidden by other approaches
- Facilitating communication and partnership
Financial institutions need a data acclimation platform to prepare for climate risk analytics. Climate analytics are growing in quality, quantity, and prevalence, and will overwhelm a business that is not ready to receive and incorporate them into their decision making.
Third-party climate risk analytics capabilities are growing at a historic rate and will solidify themselves as a norm. This is new terrain, however, and businesses are not equipped with the means to incorporate third-party climate risk findings into the data management process of their portfolio data.
1. More efficient and effective data management to account for climate change risk
When banks integrate their portfolio records with geospatial datasets their portfolios become more accessible. Climate change risks such as drought, wildfires, and water stress manifest differently on regional and local levels. Similarly, well placement and water district boundaries – both critical to understanding a parcel’s present and future water supply – become useful to analyze when located in relation to portfolio properties. Those with properly acclimated data can isolate risk information relevant to a given set of parcels.
In the case of ag lenders, linking climate risk data to borrower data geospatially allows financial professionals to consider relevant risk data types against their own portfolio data.
Additionally, an effective data-acclimation platform allows financial institutions to view their data on an open, customizable map. This format is intuitive for exploration and easy due diligence. The ability to visually survey how selected indicators interact over a target area is a valuable competitive advantage. Delivering information quickly and comprehensively allows businesses to move faster and with greater agility than those with more antiquated systems.
An acclimated data platform empowers more efficient analysis because the vast majority of the collection and processing has already been performed. Instead of prepping cumbersome, incompatible datasets, analysts can focus exclusively on gaining insight. As noted by IBM,
“By using a curated database of optimized information, data scientists can have more time to concentrate on how to use analytic insights and convert them into organizational progress and business impact.”
With this power, however, comes responsibility. As explained by Deloitte, “While organizations look to generate new value from geospatial data, they must remain mindful of privacy concerns … any geospatial data attributable to a specific individual should be handled according to the same standards as other personal data”
Maintaining proprietary knowledge and client confidentiality are non-negotiables for financial institutions. Successful data acclimation gives creditors and borrowers alike the security and identity protection they need.
2. Revealing insights hidden by other approaches
Data acclimation matters to financial institutions because it empowers better decision-making. Those better decisions are the direct result of better data management.
Responsible for a vast and diverse collection of properties, the Bureau of Land Management employs geospatial intelligence to respond to the hyper-local needs and risks across the US.
“GIS provides the ability to overlay natural resource datasets with data about natural and human-induced stressors, yielding robust and complex analyses of resource uses and effects across multiple scales and management jurisdictions.”
The same principles apply to financial institutions. Contextualizing bank data with water and climate risk data helps banks mitigate the impact of water and climate stress events on their portfolios. Situating a parcel within its local environmental and regulatory indicators empowers financial professionals to make smarter investment and lending decisions.
Integrated geospatial approaches enable financial institutions to unlock insights otherwise obscured by examining each data-set separately. Data systems that allow ag finance to identify hidden risks within their portfolios likewise serve to monitor those risks and reveal opportunities for mitigation.
Ultimately better data management leads to better asset management. In finance, knowledge is supremely valuable. Data acclimation multiplies knowledge.
3. Facilitating communication and partnership
Data acclimation not only gives financial institutions more information to analyze, it likewise gives them more information to share. Making data more accessible can enhance borrower relationships, internal communication, and investor relations.
Links between borrower data and the conditions of their parcels give ag finance opportunities to strengthen ties with growers. By alerting borrowers to potential risks and partnering to implement mitigation strategies to reduce those risks, financial professionals can build borrower trust and play a more active role in reducing the climate change risk of their portfolios.
Furthermore, data acclimation can improve communication within financial institutions themselves. A comprehensive risk geospatial platform empowers organizations to de-silo expertise and streamlines due diligence and portfolio management processes. Shared information leads to more effective communication and efficient operation.
If properly leveraged, institutions can implement strategies more coherently and act more decisively than their counterparts.
Beyond growing regulatory requirements, a 2020 report from BlackRock emphasizes that “investors recognize the importance of sustainable investing to risk-adjusted returns and are backing up this conviction with their asset allocation plans.”
Acclimating financial data empowers easier, more thorough ESG reporting due to better integration of climate analytics and bank data. Integrating financial and environmental data reduces reporting overhead while giving investors the data needed to earn their trust and invest with confidence.
The Bottom Line
Data acclimation is critical for financial institutions to manage their climate change risk. Effectively implemented to securely increase data accessibility, build risk insight, and enhance communication, a geospatial data platform can revolutionize how ag lenders do business.
By aggregating data using geospatial data management tools, ag finance professionals can save time and money, and bring their decision-making process into the 21st century
AQUAOSO’s products are purpose-built to help ag finance professionals understand and monitor their water risk, thereby improving their asset valuation process.
The GIS Connect platform allows users to integrate third-party data sets with their own data in a secure GIS data management platform. View loan, investment, supplier, and appraisal data in a single geospatial view. Integrate bank data with best-of-breed land and climate data through secure APIs. Manage board and regulatory requirements with automated geospatial data management, information collection workflows, and reporting.
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