Waterloo Innovation Summit: Climate Resilience through Tech

On Tuesday November 13th I had the opportunity to attend the Waterloo Innovation Summit speaker series hosted at Microsoft’s office in downtown Vancouver, British Columbia. The focus of the day’s events was climate change with the broad theme of “Beyond Impact: Climate Resilience through Tech”. I wanted to write this post in order to summarize some of what I learned through this session, in addition to a resonating set of thoughts/ideas I have had since the event.

A significant portion of this post is meant to highlight the most interesting speaker of the day, Blair Feltmate, and the numerous insights he shared. Blair is a professor at the University of Waterloo and the head of their “Intact Center on Climate Adaptation”. To put into perspective the value of his words, I have a sentence or less for every other speaker, and 3 pages of notes based off his 30 minute presentation and two discussion panels he participated in. He was actually asked to join in on a discussion panel he wasn’t even supposed to sit on because his insights were simply that valuable. So what made him so valuable?

Blair began by making a few sobering points:

  1. 50-60% of Bay street executives do not consider climate change an issue.
  2. G20 nations will not engage in any solutions that negatively affect the economy.
  3. It is real and it is irreversible.

To me his opening remarks boil down to two realities about the world, and nation, we live in:

  • This is a problem. We are causing the problem. This is supported by data and overwhelming evidence.
  • Decision makers will not attempt to implement any solution that affects their bottom line.

So the question naturally becomes: how do we communicate the value of solutions to climate change issues in economic terms? In order to summarize Blair’s view a definition is in order. What is risk?

Risk is a measure of the severity and likelihood of consequence. Blair makes a compelling argument for the likelihood and severity of economic loss as a metric for communicating the value of adaptation based climate change solutions to decision makers.

His mandate, via the Intact Center, is to help decision makers at all levels identify and reduce the economic risk associated with extreme weather and climate change events. He began with an example that hits close to home: increased flooding in GTA homes.

A few metrics he shared with the audience (since I love metrics so much):

  • Up to 2009 there was an average of $200-500 million in catastrophic home insurance claims.
  • In the period ending in 2017 this had grown to an average of $1.9 billion.
  • As severity and likelihood of flooding events in the GTA increases the likelihood and magnitude of catastrophic home insurance claims increases.

Ultimately we are about to witness a crisis unfold in the GTA. Many of these home owners purchased these homes with the assistance of a mortgage. These mortgages were valued based, among other factors, upon eligibility for the home to be insured against catastrophic loss. Many borrowers do not have sufficient savings to cover the costs of repairing catastrophic damage due to flooding. Due to the rate at which the risk of catastrophic loss associated with GTA homes is increasing, many homes mortgaged under the assumption that they would be insurable throughout the entire duration of the mortgage are now deemed too risky to be insured against such events. In other words the likelihood of extreme weather events, such as flooding, is evidently increasing, and the severity of such events in terms of economic loss is also increasing. Hence the risk of such loss is increasing at an alarming rate in the GTA.

Such events are not isolated to the GTA. The flooding events in South Western Alberta in 2013 led to an estimated $5 billion in damages, only $1.7 billion of which were deemed insurable damages. Prior to the Fort McMurray wildfires this was deemed the most expensive natural disaster in Canada’s history. This is another example of how the severity and consequence of climate change and extreme weather is shifting home insurance risk profiles nationally towards reduced coverage.

Very soon many Canadian homeowners will be faced with a harsh reality: default on mortgage payments to repair their property, or allow their property to become inhospitable in order to meet their mortgage payments.

Blair used this example as a vehicle to pose his most relevant, and important, question of the day:

How do we calculate what extreme weather risk constitutes for different industries?

This question has broad reaching implications:

  • Framing climate change and extreme weather issues in terms of economic loss and economic risk demonstrates how a failure to address such issues affect the bottom lines of decision makers.
  • Decision makers will no longer need to debate the source of such trends (i.e. is climate change a human driven phenomenon) and can move forward with solutions that minimize economic loss.
  • The ability to answer such questions, and to minimize economic loss, is extremely valuable.

A few other points Blair made with regards to capital markets that are of relevance:

  • Securities commissions must disclose risks material to investors. These risks are immaterial unless they can be communicated in economic terms.
  • Credit rating agencies are rapidly adjusting models to best fit climate change and extreme weather into their risk profiles. There is a tremendous amount of uncertainty associated with how to model the likelihood and severity of catastrophic loss as a results of climate change and extreme weather events.
  • Pension funds are struggling to adjust their investment strategies in order to account for such risks.

I believe these ideas can be extrapolated beyond assessing the risk of loss in terms of property damage, and can be applied to natural resources in general.The key to generating viable solutions to climate change related problems is to frame them in a manner that demonstrates the following:

  • Why the economic value of maintaining a large scale natural system outweighs the economic value of destroying it.
  • Why the economic value of augmenting a large scale behavior pattern outweighs the economic value of maintaining it.

To frame such problems in this manner is no simple task. Challenges of scale, accurate economic models and the data required to generate actionable information are most obvious, but merely constitute the tip of the iceberg. I believe that the best means to derive the economic value metrics for phenomenon of this scale is via the analysis of location based data and satellite imagery.