How to make climate risk good business | John Macomber | TEDxBoston
URL: https://www.youtube.com/watch?v=o30_PGsDglA Video ID: o30_PGsDglA ============================================================ we're not doomed there are ways to invest in adaptation two years ago a grid freeze paralyzed Texas and sicken tens of thousands of people in the states last summer wildfires in the US and Canada destroyed huge tracks of forests made many more thousands of people ill around the world calamities like these or river flooding in China or extreme heat in India or toout in Sudan make it clear that humanity is in for more sear rise more extreme heat more Wildfire more drought of course we need more solar more wind more efficiency more credits more offsets more batteries but that's not enough it looks like all these things will happen anyway so businesses governments Global societies will have to make hard choices about which assets and which people to protect or to move or to abandon is Hope lost of course hope is not lost not at all we have new tools that were never available before to help us with these choices just three categories of these tools which I'll talk about include 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 who will pay well there might be not enough money or not enough political consensus within government to help us all invest ahead against these threats but there is plenty of private money in the Global Financial system and there are compelling co- benefits to investing and adaptation now how do we attract that Capital to the cause I'm John mumber I spent most of my career in real estate and construction I like dirt concrete and cash flow now I'm a finance professor at Harvard Business School I studied the private finance and delivery of public infrastructure like Power Water roads Bridges and rail I'm also the faculty chair of our Africa Research Center looking at the growth of cities the challenges of climate and urbanization on that continent so what's the big idea first consider that there is defense and there is offense not in the case of the New England Patriots anymore but homeowners businesses and even cities need to select which perils matter right now which interventions have best benefit per cost to protect them from say flooding that's defense one can also play offense you the same tools you can ask where are there inventions and Investments and innovations that create new value in the face of these shared perils that create new value second let's look at new tools one of them are forward-looking projections that look at risk times Readiness over time none of this existed five or six years ago what does this mean so imagine a simple home in the Philippines where there might be perils including F flood fire SE risk and seismic in the past the homeowner might not know which risk she was most exposed to and might also not know how to best Harden the house against that particular risk now there are multiple public risk match projections looking at all these perils down to the parcel level today your insurance company actually knows more about the ground your house sits on than you do this is an information asymmetry that you as Citizens ought to be thinking about it's also not possible to gauge Readiness how ready is your structure looking at risk times Readiness the Philippine homeowner can determine where best to invest to improve that equation her Readiness can be improved what the the IFC group of the World Bank is working on here is a simple way to say 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 so what about The Upfront money you think indeed if citizens start to make economic decisions about their property based on these thoughtful risk times Readiness measures can the mortgage companies be far behind probably not lenders will lend more money to less exposed more ready homes and campuses they'll pull back from those which are more exposed we're already seeing property insurance companies cherry-picking what assets they will cover which ones they'll walk away from Capital markets would play offense when choosing where to invest you can play offense too but isn't this immensely unfair well yeah it's really unfair what I've described so far People Like Us in the room with access to good information access to Capital will be just fine thank you very much people with little access to Capital or being misinformed or even being lied to about the risk of flooding or Wildfire or drought will be even worse off than before not only is this immoral it's also Bad Business well why is it bad business it's bad business because coldly 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 it's more effective to invest upfront in adaptation meas measures where the risk and Readiness are incorporating not just the direct dangers to the structures but also the indirect damage to human well-being and to Public Health that's how to select where to invest from an investor point of you investors don't like uncertainty you can get paralyzed by uncertainty we don't really know what weather might occur we don't know in a specific year it might be a hot summer it might be a cold summer but actually we have a very good sense of the probabilities of occurrences of outlier events whether in the stock market or in the weather the best models also share the probabilities of events as they change over time or the likelihood that a big event happens or more likely a big event doesn't happen like we don't want to invest in resilience for an event that won't happen so decisions about offense and defense and risk and Readiness can be made with the benefits and costs weighted against the probab abilities and likely impacts it's MIT so I don't have to explain to you what it means that this curve moves to the right and flatter it means more variability more volatility and less reversion around the mean this is for heat in Portland Oregon what else is new another toits new is high quality sensors in the hands of individuals measuring from seis myty to personal a wearable to intoo a quality measurements outdoor air quality tracking 10 years ago you needed an industrial hygienist to look at air quality they would come in in a suit and a coat and all this stuff and bring the beaker of air off to the lab and the report would come back one point in time one Daya Point owned by nobody owned by the building manager this is totally different now there are dozens of wearables like Fitbit or Apple watch or hoop and scores of air quality monitors all sending real-time information to the open data Cloud so the individuals can access and act on data that's more granular more current and more open than what even the local government government can provide 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 this is New Finally of course there are new analytics we' talked about this quite a bit they were never available at scale until a few years ago many speakers have discussed machine learning Predictive Analytics generative AI almost anyone can par this data if people are complaining about the status of their office building or their condominium or their apartment on glass door this can be scraped by academics these academics at Northwestern not at MIT but it could be done here as well you can create a shared pool of evaluations like glass door open table for where to look where to live where to hang out so back to USA and Europe a condo buyer can now be equipped to filter properties not just by access to uh Transit and quality of local schools the usual stuff but also with objective analysis about the real threat or lack of threat of damage from fire or flood or even destruction in a weather event or thinking about the health of the building in terms of the air quality outside and inside obviously mortgage companies have this information too if you have it as uh as a as a homeowner so more money will flow to where there is less perceived risk and more perceived Readiness so as Buck Min Fuller was thought to have said work with force not against them that's what I try and think about is how we work with these forces of capital of measurement of risk of Readiness to get to good outcomes for all of us so what's the big idea the idea is really in four pieces one is investing in adaptation is a huge opportunity when you consider risk and Readiness you can impact both risk and Readiness with what you physically do the second you think situation by situation you know Turkey is not Oregon it's not Sudan it's not Miami use other models with likelihoods these probabilities are useful we don't know what's going to happen but we can have at least an informed idea just like we do about interest rates or stock market and use these new sensor these new sensing tools with analytical techniques that has the data in the hands of the people so I'm kind of dating Myself by quoting an old movie but follow the money is still really good advice particularly if you think about the motivation of mortgage companies and insurance companies who influence how you live and think about the kind of entrepreneurial opportunities to harness that data right now we're all going out individually without this information without this knowledge we can all work together to optimize what we do going forward to think how to invest to create a better future for all of us that's my hope for all of us today and thank you for listening to me [Music]