October 27, 2021

By Simon Jessop

LONDON (Reuters) – TP ICAP, the world’s largest inter-dealer broker, said on Wednesday it had launched a weather data-backed index that would allow financial risks tied to the pace of climate change to be traded for the first time.

Insurers and bankers already track specific, local weather events such as rainfall near coffee plantations, or hurricane risks in the Gulf of Mexico, but TP ICAP said it believed the index would be the first to track climate change globally.

While scientists have long kept an eye on the data, the creation of an index allows the market to form a view on the rate of temperature change and build financial products to hedge the risks.

Launched in conjunction with environmental data company Speedwell, the ICAP-Speedwell Climate Index would be based on data collected from 50 independent weather stations globally, it said.

Using a dataset that is already 20 years old and which will be updated daily, TP ICAP said it expected a futures curve to be created that would allow counterparties to create financial structures with varied payoffs over specific periods of time.

“Many companies have significant and sometimes unquantified exposure to weather and climate risk,” said Nicholas Ernst, managing director, weather markets, at TP ICAP.

“The introduction of the index has the ability to dramatically change how people calculate the financial impact of global climate change, providing comprehensive data to quantify the impact of future temperature changes for the first time,” Ernst said in a statement.

The launch of the index comes ahead of the next round of global climate talks in Glasgow starting Oct. 31, where governments are being urged to accelerate efforts to reduce planet-warming greenhouse gas emissions.

(Reporting by Simon Jessop; Editing by David Holmes)

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