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Thursday, June 20, 2024

As the climate heats up, meteorology emerges as the new hot degree on Wall Street



When Kim Bentzen graduated with a meteorology degree in the 1990s, the only career path he saw was Denmark’s national weather service, and going into finance wasn’t on his radar at all. 

After five years at the state weather service and two stints working in sales at other companies, he applied for a job at Danske Commodities, an energy trading firm. As the first meteorologist on staff, his bosses were still a little fuzzy on how exactly they would use his skills on the trading floor—they left that part up to him.

“I was there with a job description that just said, find out wherever you fit in to what we need. So it was pretty much up to me—where I could find a niche for myself or where I could find some kind of value I could provide,” Bentzen told Fortune.

The world of finance is always changing, and Wall Street traders’ educational backgrounds are changing with it. Last month, BlackRock’s COO told a Fortune panelist that the firm was emphasizing candidates with backgrounds in the liberal arts in its recruiting, not just traditional finance and business graduates. But one unexpected discipline is in high demand as firms adopt increasingly sophisticated trading strategies in the commodities and energy world: Meteorology.

Long pigeonholed into weather jobs at TV stations or government forecasting agencies, trained meteorologists are increasingly finding opportunities in finance. As climate change makes extreme weather events more common and the rise of renewable energy creates new power markets, accurately forecasting the weather has become a more important edge.

“Industry is absorbing meteorologists for a lot more applications—such as the energy industry, transportation…You can think of many more applications,” Jenni Evans, professor of meteorology and atmospheric science at Penn State and former president of the American Meteorological Society, told Fortune.

In fact, the next few months could put their meteorological skills to the test. Traders are scrambling to brace for a record-breaking heat wave across the Northern Hemisphere this summer, which is expected to send prices for commodities, including energy and crops, flying from historical norms, Bloomberg reported.

An uptick in demand for meteorology expertise in finance has accompanied sea changes across the field more generally over the past few decades. In the early 1990s, many forecasters were still drawing weather maps by hand, a far cry from the sophisticated, computerized techniques that have since become commonplace. 

Today, Bentzen is part of a team of meteorology experts that works alongside Danske’s trading floor, providing insight on how weather trends will affect energy markets. Financial meteorologists like Bentzen and his team look at both short-term and long-term forecasts: For example, estimating how weather conditions will affect wind turbines’ generation capacity over the next few hours or days, alongside how larger phenomena like La Niña could impact crop yields or solar output. It’s created a new possible career path for newly minted graduates.

“In Denmark, the people working in the National Weather Institute are more and more open to other places to work. It is something that is growing,” Bentzen said.

He noted that over the past five years, he’s seen a shift in how Danish meteorology grads are thinking about where they want to work, and finance “is a possibility, if they would like to pursue that.”

That’s a welcome development for climate scientists who have been hurt by decreased demand from traditional employers such as news stations, which have slimmed down their forecasting staffs as computers have picked up the slack. 

Interest in weather forecasting from the finance sector has swelled alongside huge growth in the market for catastrophe bonds, a niche, insurance-linked $120 billion asset class that outperformed the average hedge fund by by 35% last year. Likewise for weather derivatives, a $25 billion market offering businesses protection from events such as severe storms or droughts. In both of those markets, accurately predicting the weather is the ultimate edge, giving investors the ability to detect inaccurately priced assets.

Perhaps more than any other firm, Ken Griffin’s $60 billion Citadel has leveraged forecasting expertise into a lucrative trading strategy. The Financial Times reported that Citadel’s 20-person-strong forecasting team, hired out of academia and national weather forecasting departments, helped generate multiple billions of dollars’ worth of revenue for the firm’s commodities arm. Citadel declined to comment on this article.

As weather modeling techniques get more accurate and firms continue to compete for alpha in markets like commodities and catastrophe bonds, meteorologists can expect demand for their skills to continue to increase.

“[The financial] market has been expanding as a career possibility, predominantly for master’s and PhD graduates,” Evans said. “That industry has been finding more and more ways to use them.”

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