In September, our CEO, Sara Menker, was a keynote speaker at Credit Suisse’s 5th Global Women’s Financial Forum. Walking through the implications for companies from the Intergovernmental Panel on Climate Change’s (IPCC) recent assessment, she discussed several topics on managing risk in less predictable circumstances:
Gro's Use of the IPCC's Sixth Assessment and CMIP6 Data
First, Menker walked through how companies and organizations should identify the data and scenarios to include as they plan for short-term and long-term climate outcomes.
The IPCC assessment is actually the work of 27 labs that are mapping 5 climate scenarios out to 2100. She talked about the process within Gro that was unique in the industry - the quick ingestion of large amounts of data, including the data used in the IPCC’s assessment. "Within a day of the report at Gro, we had ingested all the data so that we could visualize… We could play with the numbers and extract insights,” Menker said.
The report shows that the outcomes, under all 5 scenarios, have converged in the implications between now and 2040 to 2050. Menker put forward that enough damage has already been done that we need to protect ourselves now from the coming impact. "Code red to me should not be what is happening 100 years from now or 60 years from now. It's what is happening in the next 20 to 30 years,” she said.
Impact By Location Varies Widely
The impact to cities, facilities, and supply chains - and the planning and mitigation strategies required - will vary widely. "If you put up a map that measures the maximum and minimum increase or decrease in temperature, it's a very colorful map. Not everywhere is going to get warmer."
Menker used the example of Beijing and the likely increase in temperature by 4 degrees under baseline scenarios: "Really heavily populated areas of the world are going to be facing huge increases in temperature [under these scenarios]. So what does that mean for economic outcomes?" she asked.
"Thinking about the spatial variation in outcomes is now possible [with this most recent assessment]. There have been huge improvements in the models," she concluded.
Within the IPCC Report, Lack of Predictability Was Finally Proven
Menker talked through the implications for planning and resilience for all types of decision makers. “This [report by the IPCC] is the first time that lack of predictability and volatility was proven,” Menker said.
Menker described the need for powerful predictive platforms that allow us to see around the corner and prepare for volatile economic and ecological futures. “If we are planning for transition and resilience, predictability is a key factor in modeling any type of risk,” she said.
Mapping in Climate Scenarios Is Both an Opportunity and a Risk to Be Managed
As risk management becomes increasingly important amidst a rapidly changing climate, Menker talked about the questions at the heart of all risk management strategies: what is the risk that we are sitting on, how are we measuring it, and what do we do about it? Ultimately, planning for climate scenarios can be both an opportunity and a risk to be managed.
“Your company actually tends to be opportunistic if you better understand what these risks are, because you’re going to make longer term decisions that are different from a strategy and a capex standpoint,” Menker said. “Then you can build new businesses, you can expand your portfolio of offerings. We need to look at it from both lenses, because if we’re only thinking about it from a risk management lens, then the transfer of that risk starts to become near impossible, because everyone is risk averse.”
At Gro, the goal is to make risk in this new environment not only measurable, but actionable, as well. "We’ve been trying to balance that because we need to create robust markets around risk for the transfer of risk to actually start to happen,” Menker said.
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