How to make climate risk good business | John Macomber | TEDxBoston
The speaker asserts that adaptation to escalating climate risks like wildfires and flooding is a massive investment opportunity. This can be achieved by leveraging new tools—sensors, advanced analytics, and projection capabilities—to calculate "Risk times Readiness" at the parcel level. Ultimately, aligning private capital with these metrics can guide development towards more resilient and equitable outcomes. ## Speakers & Context - **John Mumber:** Finance professor at Harvard Business School. - Spent career in real estate and construction. - Studied private finance and delivery of public infrastructure (Power, Water, roads, Bridges, rail). - Faculty chair of Harvard's Africa Research Center, focusing on growth, climate, and urbanization in Africa. ## Theses & Positions - Climate change necessitates adaptation investments, which are unavoidable given predicted escalation of sea-level rise, extreme heat, wildfires, and drought. - Attracting private capital to adaptation is possible by recognizing compelling co-benefits within the global financial system. - Investment strategy should employ dual approaches: **defense** (selecting which perils are most cost-effective to protect assets from) and **offense** (creating new value and investments in the face of shared perils). - The core breakthrough is developing tools that calculate **"Risk times Readiness"** for specific properties or areas. - The flow of capital will naturally favor assets with lower perceived risk and higher perceived readiness, thus influencing how people live and build. ## Concepts & Definitions - **Risk times Readiness:** A metric that assesses the vulnerability of an asset/area (Risk) versus its current ability to withstand threats (Readiness). - **Information Asymmetry:** The current situation where insurance companies and mortgage lenders know more about a property's physical risk than the owner does. - **Overhead vs. Upfront:** Prioritizing investing upfront in adaptation measures rather than paying for the higher costs of post-disaster recovery. - **Offense (in investment):** Identifying and creating new market value and investment opportunities in response to shared perils. - **Defense (in investment):** Selecting which perils are most critical to protect assets from, based on the best benefit-to-cost ratio. ## Mechanisms & Processes - **Capital Flow Mechanism:** Investors and lenders will naturally move capital toward properties assessed as less exposed and more ready, while potentially divesting from higher-risk assets. - **Data Aggregation:** Combining data from diverse sources (e.g., wearable air quality monitors, public filings) to create a granular, real-time understanding of environmental threats that surpasses municipal data. - **Modeling Uncertainty:** Using probabilistic models—not just singular predictions—to weigh the likelihood and impact of outlier events (e.g., predicting a probability curve rather than a definite temperature). ## Timeline & Sequence - **Past Event:** Grid freeze paralyzed Texas (two years ago). - **Past Events:** Wildfires in the US and Canada (last summer); flooding in China; extreme heat in India and Sudan. - **Current Technology:** Availability of multiple public risk models down to the parcel level, making this capability novel within the last five to six years. - **Future Modeling:** Use of probabilistic models to assess outcomes over time rather than single-point predictions. ## Named Entities - **Harvard Business School:** Institution where the speaker is a finance professor. - **Africa Research Center:** Center at HBS focusing on African urban challenges. - **Philippines:** Example location for demonstrating risk modeling for a simple home. - **World Bank (IFC group):** Group working on providing cost-benefit analysis for structural strengthening. - **MIT:** Institution referenced regarding statistical modeling of probability curves. - **Northwestern:** Academic institution referenced as an example of where data scraping could occur. ## Numbers & Data - Timeframe for new tools: Not available five or six years ago. - **Rate of Change:** Global society will face increased sea-level rise, extreme heat, wildfires, and drought. - **Structural Resilience Focus:** Incorporating not just direct dangers, but also indirect damage to human well-being and public health. ## Examples & Cases - **Texas Grid Freeze:** A paralysis event occurring two years prior. - **Philippine Home Example:** Demonstrating the lack of knowledge regarding specific perils (flood, fire, seismic) and best hardening methods before risk models. - **Modern Air Quality Monitoring:** Shifting from requiring an industrial hygienist to collecting continuous data via dozens of wearables (Fitbit, Apple watch) and air quality monitors. - **Condo Buyer Analysis:** Ability to filter properties not just by transit or school quality, but by objective analysis of fire or flood threat. ## Tools, Tech & Products - **New Sensors:** Wearable devices (Fitbit, Apple watch), air quality monitors. - **Powerful Analytics:** Machine learning, Predictive Analytics, Generative AI (applied to data scraping). - **Risk Models:** Multiple public risk models projecting perils (flood, fire, seismic) down to the parcel level. - **Open Data Cloud:** Platform receiving real-time, granular data from various sources. - **Mortgage/Insurance Models:** Lenders and insurers utilizing the new risk data to adjust lending and coverage decisions. ## References Cited - **Buck Min Fuller:** Quoted regarding the principle: *"work with force not against them."* ## Counterarguments & Caveats - **Equity Concern:** The current system is immensely unfair, as those with access to good information and capital will benefit, while the poor/misinformed will be worse off. - **Capital Resistance:** Mortgage companies and insurance companies will continue to cherry-pick and only cover the least exposed assets. ## Methodology - **Approach:** Combining rigorous financial analysis (cash flow, infrastructure finance) with advanced scientific measurement (sensors, climate modeling). - **Analysis Framework:** Applying a dual framework of "defense" (damage mitigation) and "offense" (value creation). - **Data Collection:** Utilizing real-time, citizen-generated data streams (wearables, open data) for unprecedented granularity. ## Conclusions & Recommendations - Investing in adaptation is a significant financial opportunity by improving both risk profiles and readiness levels. - Decisions must be made situation-by-situation (e.g., Turkey is not Oregon; Sudan is not Miami). - The overarching call is to harness the forces of capital, measurement of risk, and readiness to achieve collective good outcomes. ## Implications & Consequences - **Financial Re-alignment:** Capital markets are poised to accelerate a move toward resilient infrastructure, leaving stranded assets in high-risk zones. - **Citizen Empowerment:** The shift of data ownership from institutions (government, banks) to the individual citizen grants unprecedented negotiating power. - **Economic Necessity:** Proactive investment in adaptation is *less expensive* to society than reactive cleanup from climate disasters. ## Verbatim Moments - *"we're not doomed there are ways to invest in adaptation."* - *"businesses governments Global societies will have to make hard choices about which assets and which people to protect or to move or to abandon."* - *"it looks like all these things will happen anyway."* - *"new sensors new powerful analytics and new capabilities to project the likelihood or unlikelihood of extreme weather events by place and by Peril many years out."* - *"there is plenty of private money in the Global Financial system and there are compelling co-benefits to investing and adaptation."* - *"there is defense and there is offense."* - *"here's the cost benefit analysis for strengthening your house based on the risk that you see and we can improve this and be able to invest."* - *"it's super expensive ensive to society to make up for destroyed homes and for climate related pulmonary and cardiovascular apparels that sicken millions of people."* - *"the data is in the hands of citizens citizens are talking to each other about the plumes of wildfire smoke or the condition of their condominium totally flips the negotiating power from the from the the uh the landlords and the banks to the individual citizens."* - *"work with force not against them."*