When Kim Bentzen earned his meteorology degree in the 1990s, the only career path he saw was with the Danish National Meteorological Service, and going into finance was not on his radar at all.
After five years working for the government weather service and two periods in sales at other companies, he applied for a job at Danske Commodities, an energy trading firm. His bosses, being the first meteorologist on the staff, were still not entirely clear 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 simply said: Find out where you fit in for what we need. So it was very much up to me where I could find my niche or where I could find some value that I could offer,” Bentzen said. Luck.
The world of finance is constantly changing, and so is the education level of Wall Street traders. Last month, BlackRock’s chief operating officer told Luck The panelist noted that when hiring, the firm pays special attention to candidates with a background in the humanities, and not just graduates of traditional finance and business faculties. But one unexpected discipline is in high demand as firms adopt increasingly complex trading strategies in the worlds of commodities and energy: meteorology.
Trained meteorologists with long careers at weather stations or government forecasting agencies are increasingly finding opportunities in finance. As climate change makes extreme weather events more common and the rise of renewable energy creates new electricity markets, accurate weather forecasting becomes a more important benefit.
“Industry is recruiting meteorologists for a lot more applications, like energy, transportation… You can think of a lot more applications,” said Jenny Evans, a professor of meteorology and atmospheric science at Penn State and former president of the American Meteorological Society. Luck.
In fact, the next few months may test their meteorological skills. Traders are scrambling to prepare for record heat in the Northern Hemisphere this summer, which is expected to push commodity prices including energy and crops away from historical norms. Bloomberg reported.
The surge in demand for meteorology professionals in finance has accompanied dramatic changes in the field as a whole over the past few decades. In the early 1990s, many forecasters still drew weather maps by hand, a far cry from the complex computerized methods that have since become commonplace.
Today, Bentzen is part of a team of meteorological experts who work alongside Danske’s trading floor to provide insight into how weather trends will impact 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 turbine generation capacity over the next few hours or days, as well as how larger events such as like La Niña, may affect crop yields or solar energy. This has created a new possible career path for new graduates.
“In Denmark, people working at the National Weather Institute are more and more open to working elsewhere. That’s what’s growing,” Bentzen said.
He noted that over the past five years he has seen a change in the way Danish meteorology graduates think about where they want to work, and funding “is possible if they want to do it.”
It’s a welcome development for climate scientists, who have suffered from declining demand from traditional employers such as news stations that have cut their forecasting staffs as computers pick up the slack.
Interest in weather forecasting from the financial sector has increased along with the enormous growth of the $120 billion market for catastrophe bonds, a niche insurance-related asset class that outperformed the average hedge fund by 35% last year. It’s similar with weather derivatives: a $25 billion market offering businesses protection against events such as severe storms or droughts. In both of these markets, accurate weather forecasting is the greatest advantage, giving investors the ability to discover inaccurately priced assets.
Perhaps more than any other firm, Ken Griffin’s $60 billion Citadel has turned forecasting expertise into a profitable trading strategy. Financial Times reported that Citadel’s team of 20 forecasters, drawn from academia and national weather forecasting departments, helped generate several billion dollars in revenue for the firm’s commodities division. Citadel declined to comment for this article.
As weather modeling techniques become more accurate and firms continue to compete for alpha in markets such as commodities and catastrophe bonds, meteorologists can expect demand for their skills to continue to rise.
“[The financial] The market is expanding as a career opportunity, predominantly for masters and PhD graduates,” Evans said. “The industry is finding more and more ways to use them.”