TP ICAP creates weather index to trade climate risk

TP ICAP Group and Speedwell are launching the Climate Index that will use global weather data to track climate change, allowing financial risk related to the rate of climate change to be traded.

The index has been launched to provide a reliable data source from which market participants can make better informed investment and hedging decisions. This in turn will enable the market to better manage financial risks associated with climate change.

Developed and maintained by Speedwell, the Index takes a representation of the average global temperature based on data taken from 50 independent, high-quality national weather stations from around the world. Designed to meet the needs of financial risk transfer, it provides the underlying data necessary for market participants to transact, tailored structures relating to climate change using over-the-counter futures and options.

Nicholas Ernst, MD, Weather Markets, said: “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. Climate change is a significant financial risk and quoting markets in this way is an important step in not only measuring that risk, but also understanding the cost of climate change as we move towards a low-carbon economy.”

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