Rising losses from extreme weather are driving a global surge in investment in climate risk digital solutions, according top new research.
A new report from leading independent research and advisory firm Verdantix estimates the climate risk digital solutions market will skyrocket to $4 billion by 2027 compared to just $880 million in 2021 with spending on software and consultant packages offering business performance climate risk analysis the fastest-growing sector and predicted to hit over $1 billion.
The high market growth expectations are attracting increasing interest from major firms – McKinsey, Conning, BlackRock, Moody’s and S&P Global are among major players to have acquired or launched climate resilience solutions in the past two years.
The increasing severity of extreme weather events is one of the major drivers for the growth of the market – global losses in 2021 are estimated at $280 billion. Climate risk digital solutions enable companies to plan for and protect against losses. They also help firms to demonstrate to insurers that they know their risk which is valuable considering the rising cost of property insurance premiums which are predicted to rise 22% by 2040.
The report Market Size And Forecast: Climate Risk Digital Solutions 2021-2027 (Global) stresses that increasing regulation is also a major influence on climate risk digital solutions. Task Force on Climate-Related Financial Disclosures (TCFD)- aligned regulations are being implemented globally with European Union regulation taking effect in 2024 and US rules expected to follow.
The financial services sector will see the fastest growth in spending on climate risk digital solutions partly due to regulatory pressure but also because of the commercial risk to their businesses.
Europe and North America will account for around 75% of the market by 2027 but the fastest growing region globally will be Asia-Pacific with a compound annual growth rate of 34% partly because of early adoption of TCFD rules.