Zeus: Wall Street bets against climate change are the ultimate risk arbitrage

Success of catastrophe bonds draws new investors to niche area.

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U.S. Navy Damage Control Fireman Louis Durante was on leave in New York when Hurricane Sandy struck in November, 2012. Here, he waits along Rockaway Beach in Queens, N.Y. in November, 2012, to help a team from an amphibious transport dock ship. U.S. Navy photo/Terah L. Mollise.

(David Callaway is founder and Editor-in-Chief of Callaway Climate Insights. He is the former president of the World Editors Forum, Editor-in-Chief of USA Today and MarketWatch, and CEO of TheStreet Inc. His climate columns have appeared in USA Today, The Independent, and New Thinking magazine).

NEW YORK (Callaway Climate Insights) — In a world heating up to dangerous levels with no place safe from extreme weather events like hurricanes and wildfires, it might seem a risky endeavor to bet against climate change.

Yet that was the most successful bet on Wall Street last year, and it’s causing a surge in the previously niche market for catastrophe bonds. As more data becomes available on potential destructive storms, and insurance companies look to hedge against the policies they’ve sold in places such as Florida and California, a growing group of math geeks working at hedge funds are finding ways to take the other side of the bet.