Risk game: What a warmer planet means to the bottom line
How do we move beyond vague climate fears?
Risky Business’ Kate Gordon is assembling hard data on what’s at stake for business.
Risk game: What a warmer planet means to the bottom line
Kate Gordon, San Francisco’s Financial District, is managing Risky Business, an ambitious project that aims to quantify the financial risks that climate change poses to the American economy.
The report, which is slated to be released this June, is headed by Tom Steyer, former New York Mayor Michael Bloomberg, and former Treasury Secretary Henry Paulson, and features input from an eclectic Risk Committee of former cabinet members and other political heavy-hitters.
Q. The first thing I’m curious about is, what kind of climate change data is out there? What do you have, and what would you like to see more of?
A. The climate risk data just isn’t out there. The reinsurance industry is the big exception. They were doing a lot of work around climate risk because they had to – they were insuring the insurers.
But most of the reinsurers – who have been talking about this since the ’80s – are based in Europe.
The reason we decided to do this project was to have a very U.S.-focused, business-focused, and investor-focused approach to climate risk, which wasn’t really available outside of some private institutions.
The five sectors we’re looking at are:
- agriculture,
- public health,
- energy systems,
- coastal infrastructure, and then
- labor productivity,,,
Of those, the ones that have been most studied from a risk perspective are agriculture and coastal infrastructure, and that’s largely because of private industry.
We have Greg Page on our Risk Committee, who just stepped down as the CEO of Cargill, and is now the executive chair of the board. Cargill positions itself as a risk management company in the agricultural space.
At Next Generation we’re not doing the research; we contract it out.
We’re working very closely with a company called RMS, which is the big risk analyst for the insurance and reinsurance and hedge fund industries.
One of their specialties is coastal risk. Coastal infrastructure is a big issue for insurers – the sea-level rise and the extreme weather events and the capital infrastructure falling apart.
That’s something that private companies are looking into.
Energy systems are becoming a bigger deal. The Department of Energy put out a big study on risks to energy systems from climate change. But honestly, again, that’s been from the perspective of coastal infrastructure: flooding, hurricanes.
The area that we’re looking at that is the least studied is labor productivity.
Q. And what will climate change do to labor productivity?
A. Extreme heat. And precipitation. There are data on that, from extreme heat events in recent years — what happens to the construction industry, for instance.
Q. And then in terms of energy systems – aside from the effects of wind and heat on pre-existing systems, what else would be affected by climate change?
A. With energy, we’re looking less at infrastructure and more at energy supply and demand. If you have extreme heat, what happens to energy demand? People use their air conditioners more. We’re looking at energy load and our lack of energy diversity.
We are not telling people how to react. We’re not dictating solutions. We are doing the work of a risk committee to highlight the catastrophic risks of climate change.
For Mike Bloomberg and for Tom Steyer and for Hank Paulson, this project speaks really to their backgrounds in taking the data and working with the data. They are all data-driven people.
Q. And they’re all finance guys.
A. They’re all finance guys. This project speaks to their desire to see a broadening of climate as an issue for a much larger set of people.
There’s a lot of intersection between this work and the other work that those guys are doing. We’re in conversation with Paulson about China, which is where he’s really focused.
Risky Business is specifically not coordinated with anybody else’s efforts.
... everything we’re doing for this phase of the project is open source, so all the data and all the modeling will be open source. We like to think this will be a platform for a lot of people, not just for us.
We have four different temperature scenarios. We’re running all of the National Climate Assessment Models, which is 39 models, on each of those.
Most of the climate modeling is already online – it’s part of the IPCC process or the National Climate Assessment Process. There are 16 terabytes of data going into this project.
... we are focused on extreme events. This is a catastrophic risk analysis. So we’re going up to pretty high temperatures.
Q. So if this is open source, is it stuff that was open source before? Since you’re not generating all of your own data?
A...about 80 percent of this is existing research and 20 percent is new. The labor productivity stuff is new.
What is less common is, we’re not just saying “Here are the risks.” We’re quantifying it, sector by sector. That’s basically overlaying an economic analysis on top of a scientific analysis. That’s new.
The nuclear industry’s done a ton, because a lot of nuclear plants are on the water. So the nuclear industry is the perfect example of an industry that deals with very low probability, high-risk events and massive amounts of regulation.
And now they’re having to deal with the overlay of climate risk, because what used to be a 100-year flood zone is becoming a 50-year flood zone.
And they’re having to deal with that. They’re in a lot of flood zones. There’s a lot – especially after Fukushima – about dealing with climate risk overlaying overall nuclear regulations.
Q. What if I’m a refinery on the East Coast
A. That’s what the Department of Energy report is about. What they actually find is that the fossil fuel transportation system has huge risks – the grid infrastructure and the actual transportation infrastructure are both at risk, as well as the refineries that are along the coast.
People understand the relationship between climate change and coastal infrastructure pretty well. Sea-level rise is one of those things that everyone’s agreed on in the scientific community.
Q. Is there room for thinking about climate change in a hopeful manner?
A. We’re saying is: “Look. We know from experience — from the health sector, from national security, from the insurance sector – that when we understand the risks, the business community responds.”
...what we’re trying to do here, is bring this to a place where people think they really can act. Particularly in the business community, in this case.
BMW has located their manufacturing plant in Washington state because they want cheap access to green power. They think of it as less volatile than fossil fuel power. That was a business decision. It didn’t have anything to do with carbon being priced.
People are out there the whole time doing smart risk analysis of things that are way lower probability than climate change. Our entire defense department does risk assessments based on the potential for another Arab Spring. Or for mass terrorist attacks.
Some of it is never made public. Shell, for instance, does war games and scenarios all the time based on climate change. We’re never going to see that. It’s all proprietary and internal. But we hear about it.
We did this project outside Washington, and outside the environmental community and the traditional NGO community, because we were basically saying: these are people from business backgrounds and public sector backgrounds who deal with risk.
They have dealt with it in public conversations and private conversations for decades. And we need to bring that level of analysis to this problem.
We need to bring a similarly business-driven conversation about what those risks might be.
Only when you are on the same page about those risks can you talk about a solution.
That’s the long answer. But what I’m really trying to say is: There is hope.
We need to have a conversation first about why this is a problem to people. Why should we even be thinking about this?
I continue to think – that clean energy is a huge economic development driver. If we do commit to transitioning the economy to low-carbon sources, it’s a massive boon for our economy.
And for local economies, in particular.
Economic Development 101 is that you start where people are. If you’re trying to do a plan for a city, you start with what the city’s assets are. If you look at Oakland, you start with the port, the universities. You start with access to San Francisco and Richmond.
You don’t come in flying with a one-size-fits-all plan.
The same is true for any economic opportunity.
You start with what the region is actually dealing with, and what the sector is dealing with.
So everything I’ve done with Apollo, or the Center for American Progress, to here, has been from that theory.
You don’t come to someone and tell them that climate change is the biggest issue they’ll ever have to deal with.
You start with where they already are, and you talk about why this matters from that perspective.
That’s what I did as an organizer, and that’s what I do now.
Risky Business is basically saying,
“Let’s do the analysis and find out what the risk is to your industry.”
Let’s not start with “WHY aren’t you people thinking about climate change?”
Heather Smith (on Twitter, @strangerworks) is interested in the various ways that humans try to save the environment: past, present, and future.
The report, which is slated to be released this June, is headed by Tom Steyer, former New York Mayor Michael Bloomberg, and former Treasury Secretary Henry Paulson, and features input from an eclectic Risk Committee of former cabinet members and other political heavy-hitters.
Q. The first thing I’m curious about is, what kind of climate change data is out there? What do you have, and what would you like to see more of?
A. The climate risk data just isn’t out there. The reinsurance industry is the big exception. They were doing a lot of work around climate risk because they had to – they were insuring the insurers.
But most of the reinsurers – who have been talking about this since the ’80s – are based in Europe.
The reason we decided to do this project was to have a very U.S.-focused, business-focused, and investor-focused approach to climate risk, which wasn’t really available outside of some private institutions.
The five sectors we’re looking at are:
- agriculture,
- public health,
- energy systems,
- coastal infrastructure, and then
- labor productivity,,,
Of those, the ones that have been most studied from a risk perspective are agriculture and coastal infrastructure, and that’s largely because of private industry.
We have Greg Page on our Risk Committee, who just stepped down as the CEO of Cargill, and is now the executive chair of the board. Cargill positions itself as a risk management company in the agricultural space.
At Next Generation we’re not doing the research; we contract it out.
We’re working very closely with a company called RMS, which is the big risk analyst for the insurance and reinsurance and hedge fund industries.
One of their specialties is coastal risk. Coastal infrastructure is a big issue for insurers – the sea-level rise and the extreme weather events and the capital infrastructure falling apart.
That’s something that private companies are looking into.
Energy systems are becoming a bigger deal. The Department of Energy put out a big study on risks to energy systems from climate change. But honestly, again, that’s been from the perspective of coastal infrastructure: flooding, hurricanes.
The area that we’re looking at that is the least studied is labor productivity.
Q. And what will climate change do to labor productivity?
A. Extreme heat. And precipitation. There are data on that, from extreme heat events in recent years — what happens to the construction industry, for instance.
Q. And then in terms of energy systems – aside from the effects of wind and heat on pre-existing systems, what else would be affected by climate change?
A. With energy, we’re looking less at infrastructure and more at energy supply and demand. If you have extreme heat, what happens to energy demand? People use their air conditioners more. We’re looking at energy load and our lack of energy diversity.
We are not telling people how to react. We’re not dictating solutions. We are doing the work of a risk committee to highlight the catastrophic risks of climate change.
For Mike Bloomberg and for Tom Steyer and for Hank Paulson, this project speaks really to their backgrounds in taking the data and working with the data. They are all data-driven people.
Q. And they’re all finance guys.
A. They’re all finance guys. This project speaks to their desire to see a broadening of climate as an issue for a much larger set of people.
There’s a lot of intersection between this work and the other work that those guys are doing. We’re in conversation with Paulson about China, which is where he’s really focused.
Risky Business is specifically not coordinated with anybody else’s efforts.
... everything we’re doing for this phase of the project is open source, so all the data and all the modeling will be open source. We like to think this will be a platform for a lot of people, not just for us.
We have four different temperature scenarios. We’re running all of the National Climate Assessment Models, which is 39 models, on each of those.
Most of the climate modeling is already online – it’s part of the IPCC process or the National Climate Assessment Process. There are 16 terabytes of data going into this project.
... we are focused on extreme events. This is a catastrophic risk analysis. So we’re going up to pretty high temperatures.
Q. So if this is open source, is it stuff that was open source before? Since you’re not generating all of your own data?
A...about 80 percent of this is existing research and 20 percent is new. The labor productivity stuff is new.
What is less common is, we’re not just saying “Here are the risks.” We’re quantifying it, sector by sector. That’s basically overlaying an economic analysis on top of a scientific analysis. That’s new.
The nuclear industry’s done a ton, because a lot of nuclear plants are on the water. So the nuclear industry is the perfect example of an industry that deals with very low probability, high-risk events and massive amounts of regulation.
And now they’re having to deal with the overlay of climate risk, because what used to be a 100-year flood zone is becoming a 50-year flood zone.
And they’re having to deal with that. They’re in a lot of flood zones. There’s a lot – especially after Fukushima – about dealing with climate risk overlaying overall nuclear regulations.
Q. What if I’m a refinery on the East Coast
A. That’s what the Department of Energy report is about. What they actually find is that the fossil fuel transportation system has huge risks – the grid infrastructure and the actual transportation infrastructure are both at risk, as well as the refineries that are along the coast.
People understand the relationship between climate change and coastal infrastructure pretty well. Sea-level rise is one of those things that everyone’s agreed on in the scientific community.
Q. Is there room for thinking about climate change in a hopeful manner?
A. We’re saying is: “Look. We know from experience — from the health sector, from national security, from the insurance sector – that when we understand the risks, the business community responds.”
...what we’re trying to do here, is bring this to a place where people think they really can act. Particularly in the business community, in this case.
BMW has located their manufacturing plant in Washington state because they want cheap access to green power. They think of it as less volatile than fossil fuel power. That was a business decision. It didn’t have anything to do with carbon being priced.
People are out there the whole time doing smart risk analysis of things that are way lower probability than climate change. Our entire defense department does risk assessments based on the potential for another Arab Spring. Or for mass terrorist attacks.
Some of it is never made public. Shell, for instance, does war games and scenarios all the time based on climate change. We’re never going to see that. It’s all proprietary and internal. But we hear about it.
We did this project outside Washington, and outside the environmental community and the traditional NGO community, because we were basically saying: these are people from business backgrounds and public sector backgrounds who deal with risk.
They have dealt with it in public conversations and private conversations for decades. And we need to bring that level of analysis to this problem.
We need to bring a similarly business-driven conversation about what those risks might be.
Only when you are on the same page about those risks can you talk about a solution.
That’s the long answer. But what I’m really trying to say is: There is hope.
We need to have a conversation first about why this is a problem to people. Why should we even be thinking about this?
I continue to think – that clean energy is a huge economic development driver. If we do commit to transitioning the economy to low-carbon sources, it’s a massive boon for our economy.
And for local economies, in particular.
Economic Development 101 is that you start where people are. If you’re trying to do a plan for a city, you start with what the city’s assets are. If you look at Oakland, you start with the port, the universities. You start with access to San Francisco and Richmond.
You don’t come in flying with a one-size-fits-all plan.
The same is true for any economic opportunity.
You start with what the region is actually dealing with, and what the sector is dealing with.
So everything I’ve done with Apollo, or the Center for American Progress, to here, has been from that theory.
You don’t come to someone and tell them that climate change is the biggest issue they’ll ever have to deal with.
You start with where they already are, and you talk about why this matters from that perspective.
That’s what I did as an organizer, and that’s what I do now.
Risky Business is basically saying,
“Let’s do the analysis and find out what the risk is to your industry.”
Let’s not start with “WHY aren’t you people thinking about climate change?”
