Climate economics

Climate economics

The economic consequences of global warming and of the transition to a net zero economy will be huge. The issues are complex and not always well understood, yet it has never been more important for businesses, investors and policymakers to understand them. Fathom brings clarity and provides tailor-made solutions to clients from a range of different organisations and sectors.

Fathom’s climate-specific products and services are designed to help our clients manage climate-related risks, take advantage of opportunities and make well-informed decisions. Details on these products and services can be found below.

For more information or to discuss your specific needs and how we can help, get in touch with Brian Davidson, Head of Climate Economics.

An investor’s guide to net zero by 2050

Fathom Consulting and BNY Mellon Investment Management’s pioneering, in-depth report, An investor’s guide to net zero by 2050, sets out in detail for the first time the spending on fixed capital required to achieve net-zero carbon emissions by 2050.

Find out more

Our services

Net zero strategy

Many of the world’s largest organisations have committed to cutting their greenhouse gas emissions to zero by the middle of the century, yet so far lack a credible plan to achieve this. Many investors would like to pursue ESG goals, decarbonise their portfolios and make a positive climate impact. But they lack the data and need guidance on how to do this effectively. Fathom can help.

Our climate data, models and tools have been built to help clients from a range of different organisations to manage their net zero strategies, from design to implementation. We work with investors, corporates, governments and local authorities, helping them to find solutions to reducing emissions and meeting their objectives in the most efficient way possible. We enable them to save money, manage risks, identify investment opportunities and tackle global warming.

Data, models, tools

We are in the final stages of creating a suite of products which will give users the ability to do three things:

  1. Measure companies’ greenness
  2. Measure companies’ exposure to transition risks
  3. Identify Paris-aligned decarbonisation pathways for companies in all sectors

These are important for various stakeholders, especially investors. Investors need to manage climate risk, consider how climate-related issues affect asset prices, comply with climate regulation and decarbonise their portfolios in line with the Paris objective.

Our suite of products, and the models that drive them, will help them do this with confidence, clarity and in the most efficient way possible. The scores generated by our models, and the transition pathways they use, overcome well-known issues with other ESG and E scores and transition pathways. Our scoring framework is focused, clear and easy to understand.

Measure of greenness: a readily understood set of metrics on how successfully and swiftly a company is ‘greening’ its operations, and how aligned (or not) this is with the Paris climate target.

Exposure to transition risks: a set of metrics focused on a company’s exposure to transition risk – taxes, stranded assets – that are not captured in our measure of greenness or other E scores.

Decarbonisation pathways: pathways showing the route to net zero emissions for all sectors of the economy – created in a way which recognises sectoral differences in the availability and cost of low carbon technology. They are an important yardstick against which investors can measure ‘Paris alignment’ and risks over time. Created using a unique methodology which allocates the global carbon budget in the most efficient way possible and allows comparability across sectors.

Corporates and other organisations can use these products – and the data and models driving them – to set and measure climate targets, track and compare performance over time. Policymakers can use them to devise decarbonisation strategies including setting regulations, taxes and spending priorities, and measuring performance of sectors, and the economy as a whole, over time.

Different elements of this suite can be combined, to create a powerful tool which can be used to answer a range of questions. For example, we have used this to assess which sectors would be most exposed to a carbon tax and how quickly they ought to decarbonise. As highlighted in the chart, some sectors need to decarbonise relatively quickly and their earnings are highly exposed to carbon taxes. This is just one of the transition risks measured by our models.

This suite of products provides many benefits and, we believe, has the potential to become a cutting-edge toolbox that investors and other stakeholders can use to answer a wide range of climate-related questions. More information is coming soon in a white paper on this topic.

Also under development are country-level scores, which will measure the exposure to the risks and opportunities presented by the net zero transition for more than 150 countries.

Regulations and TCFD

A range of new climate-related regulations are being introduced across the world. We can help clients navigate these regulations in several different ways. From a top-down perspective, we can assess the macroeconomic effect of regulations, such as carbon taxes; or we can take a bottom-up approach, assessing their effect on individual companies, including how to comply with climate-related financial reporting rules.

The TCFD recommendations recently became a mandatory reporting requirement for the largest UK-based asset managers and listed corporates. We have subsequently worked with asset managers and local authority pension schemes to help them to understand their obligations under these new regulations, and to develop the processes and structures necessary for compliance. We also help with scenario analysis, using metrics and setting targets. We offer these services to asset managers, asset owners and corporates. Compliance is key, but we also help clients to identify investment opportunities.

Consultancy

Different organisations have different needs when it comes to incorporating climate-related considerations into their operations. Fathom can answer any specific climate-related questions that relate to economics, finance or politics. We can offer quantitative analysis, such as financial modelling, or qualitative analysis, such as policy assessments or literature reviews. Projects are typically delivered in the form of a presentation, written report or data files, within a time span that can range from many months’ to just a few days. For an example, see the case study below.

This chart shows the emissions intensity of economic activity and export dependence on the EU for the biggest exporters to the EU

Training

We offer training solutions for local authorities and other organisations. There are numerous ways that climate change and the net zero transition will significantly affect public finances, although many of these are poorly understood. Our training focuses on issues around the transition to net zero – what it means, the options for achieving it, the status of new technologies, the cost and availability of low-carbon solutions and how these are expected to evolve over time. We also consider practical factors such as political considerations, distributional issues (of costs and rewards relating to climate change), logistics and infrastructure. We also offer bespoke training on other climate related issues, including regulations and TCFD.

Global Outlook

Our consideration of the global economy, financial markets and geopolitics informs our thinking on climate issues. Likewise, we assess how climate-related issues affect those three areas. Our Global Outlook service incorporates climate-related written research and climate-related material in our quarterly presentations. Subscribers to this service also receive invitations to roundtables, and events, hosted by Fathom.

Case study

Fathom analysed the economic implications of EU and UK climate policies, green initiatives and related stimulus programmes, identifying possible risks and market opportunities.

Insights

Decarbonising in the most efficient way possible will have huge economic benefits, but there remains very little discussion about how this should be done.
The spike in UK gas prices raised important issues relating to supply of electricity and the economic dangers of a disorderly transition.
The TCFD recommendations, soon to become mandatory for UK corporates and investors, can play an important role in spurring decarbonisation efforts, with big economic consequences.

Get in touch

For more information about our climate economics services or to discuss your needs and how we can help, please fill out the form below.

Climate economics enquiry

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