Translating Climate Science Into Investment Decisions

Key Takeaways

• Climate science operates at a global, macro scale while corporate finance focuses on company-level analysis. This creates challenges when translating climate data and research into investment signals.
• Investors must interpret fragmented and uneven climate-related data to determine what is financially material for assessing company financial risks and opportunities.
• Effective climate analysis requires linking broad, climate-system dynamics with detailed, context-specific company information across sectors.
• Investor time horizons materially shape how climate transition risks and opportunities manifest in portfolios, with long-term mandates more exposed to macro-economic and structural shifts.
• Meeting investor needs requires forward-looking, financially relevant climate intelligence that bridges systemic climate forces with company-level decision-making.

Institutional investors face a fundamental challenge in assessing how individual companies will navigate large scale, structural shifts that affect the global economy. Climate mitigation stands out as one of the most far-reaching of these forces, driving profound technological, regulatory, societal and physical changes across markets.

As a provider of proxy research and stewardship services to investors, questions regarding companies’ climate-related exposures, impacts, and strategies surface regularly in conversations with clients. Navigating the tension between the macro-economic forces of climate change and the realities of making investment decisions at the individual-security level is challenging. Add to that investor exposures, spanning from highly concentrated to broadly diversified, and different time horizons, and there are no easy answers.

This article explores that fundamental tension, from its origins in the roots of climate science and finance, to its implications for investors and analysts.

Climate Science and Finance Have Different Institutional Histories

Climate science emerged out of meteorology and earth science,¹ both macro-scale disciplines. And its application to policy² and economics³ have also been at macro-level. By contrast, finance was invented in the stock exchanges, where the focus was on discrete trades and ownership.⁴

These institutional differences set the backdrop to explain why it is challenging to translate climate science into actionable investment signals. Climate science deals with global-scale forecasts, such as the Shared Socioeconomic Pathways (SSPs),⁵ which are difficult to scale down to specific countries or industries,⁶ let alone individual companies. The prototypical financial model, on the other hand, is a company-level discounted cashflow. These disparate lenses illustrate how bridging the gap from climate science to finance is hard.

The reverse bridge, from finance back to climate science, is also difficult. Disclosure frameworks such as the Sustainability Accounting Standards Board (SASB)⁷ put the onus on companies to provide information on climate-related risks and the opportunities they face. But there is no consensus yet about how to standardize company-specific opinions in a way that allows for portfolio-wide insights.

Understanding Climate Change Through an Investor’s Lens

Reporting traditions in finance and climate science have evolved in parallel: financial disclosures, governed by securities regulators; and climate disclosures, historically separate though increasingly integrated into core financial reporting. These are converging,⁸ though, the data landscape remains fragmented. Across public filings, thematic disclosures, non-climate operational data, and market research, a vast set of signals exists. Some are standardized and comparable, while others are deeply specific to individual companies. In this maze of relevant data, these sources define both the opportunity and the difficulty of building actionable insights. Financial materiality therefore becomes essential to distill what truly matters for investment decision-making.

To derive such insights requires connecting the macro with the micro; that is to say, the breadth of climate modeling with the depth of company-specific analysis. Breadth requires apples-to-apples comparability: cross-sector fundamentals applied consistently, such as energy use and electrification, alongside standard corporate functions like governance and sales channels. Depth requires attention to the context of business settings, including the recognition of differing business activities as financial risks and opportunities, and sectoral variation in how transition pressures manifest.

The Implications of Investor Time Horizons

Based on currently available data, optimizing investments within the structural changes resulting from climate change looks different across investment strategies. For example, one of the factors that shapes what climate mitigation means for investment decisions is the investor’s time horizon.

Portfolios with shorter time horizons are attuned to operational disruptions that stem from cash flow issues,⁹ while longer-term mandates – some with inter-generational liabilities  – face a different problem. On longer horizons, macro-economic pressures become more consequential, as economies further decarbonize and electrify and second-order commodity price pressures shape business contexts. That is, the fundamentals of company positioning vis-à-vis climate change grow more visible over time, relative to shorter-term market drivers.

The Next Generation of Climate Intelligence

There are countless ways to integrate climate mitigation into investment decisions, reflecting investors’ differing objectives and time horizons. The challenge lies in bridging broad, systemic climate forces with the specific circumstances of individual investments, which creates a need for financially relevant, forward-looking intelligence that supports investment decision-making.

Amplified by a complex data and information landscape, this presents opportunities – both to investors who can identify market inefficiencies that align with their approach, and to research providers who can develop methodologies and tools that accommodate different investor mandates while maintaining analytical rigor.

Notes and References

1. University Corporation for Atmospheric Research. "History of Climate Science Research." Accessed November 20, 2025. https://scied.ucar.edu/learning-zone/how-climate-works/history-climate-science-research.
2. Chasek, Pamela. "The Paris negotiations: Background and context." Negotiating the Paris Agreement: The Insider Stories (2021):20-45.
3. Carney, Mark. “Why Climate Policy is Macro Policy”. 2022. Accessed November 20, 2025. https://milkeninstitute.org/content-hub/power-ideas-essays/why-climate-policy-macro-policy.
4. Carlos, Ann M., and Larry Neal. "Amsterdam and London as financial centers in the eighteenth century." Financial History Review 18, no. 1 (2011): 21-46.
5. O’Neill, Brian C., Elmar Kriegler, Keywan Riahi, Kristie L. Ebi, Stephane Hallegatte, Timothy R. Carter, Ritu Mathur, and Detlef P. Van Vuuren. "A new scenario framework for climate change research: the concept of shared socioeconomic pathways." Climatic change 122, no.3 (2014): 387-400.
6. For example, Lehtonen, Heikki S., JyrkiAakkula, Stefan Fronzek, Janne Helin, Mikael Hildén, Suvi Huttunen, MinnaKaljonen et al. "Shared socioeconomic pathways for climate change research in Finland: co-developing extended SSP narratives for agriculture." Regional Environmental Change 21, no. 1(2021): 7.
7. IFRS Foundation. Appendix B — Industry-Based Disclosure Requirements. Exposure Draft ED/2022/S2 Climate-related Disclosures, (2023). Accessed November 11, 2025: https://www.ifrs.org/projects/completed-projects/2023/climate-related-disclosures/appendix-b-industry-based-disclosure-requirements/.
8. European Commission. Corporate Sustainability Reporting. Accessed November 11, 2025. https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en.
9. Jeuken, Ad, and Tim Reeder. "Short-term decision making and long-term strategies: how to adapt to uncertain climate change." Water Governance 1, no. 2011(2011): 29-35.