Who wins, who loses from the boom in climate forecasting startups?

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New companies are harnessing AI to predict how climate change will affect plots of land, which could affect investments, loans and insurance – and enrich those with access to the data

* New companies are using AI to predict climate threats on plots of land

* Data should be key for banks, real estate, insurance

* Data access costs increase threat of worsening inequalities (adds details on academic discussions)

By Avi Asher-Schapiro

LOS ANGELES, October 5 (Thomson Reuters Foundation) – After Hunter Connell’s hometown of Santa Rosa, Calif., Was partially cremated in a wildfire in 2017, she vowed to find a way to predict – and ideally prevent – similar disasters linked to climate change.

“We needed a way to accommodate the complexity and interrelationship of the environment and climatic conditions that led to an event like this,” said Connell, an environmental engineer turned investor in capital risk.

“A human brain alone cannot understand all of these forces,” she said.

Connell is now the CEO of Terrafuse AI, one of a constellation of climate analysis start-ups that aim to predict the impact of climate change on certain industries, communities, zip codes and even individual properties.

Companies are building complex models to examine flooding, wind, wildfires, and other climate-related threats, merging known climate science with mounds of additional data, from satellite imagery to existing migration patterns and to the drainage of city streets.

This can generate risk scores, allowing investors to determine how different climate scenarios will affect their assets – with some companies even recommending the purchase of new plots of land.

The rise of these analytical tools could alert policymakers and asset owners to the risks posed by climate change – and even help guide resilience efforts.

But they also raise a host of concerns, climate equity experts have said.

“What happens in a world where only people with a lot of money have access to these predictions – and the rest of us don’t? Asked Miyuki Hino, professor of environmental planning at the University of North Carolina.

“More data doesn’t necessarily lead to benefits for everyone,” she said.

Rich Sorkin, CEO of Jupiter, one of the industry’s most established players, said he sees the risks as well.

“In the wrong hands, it can be like dynamite,” he told the Thomson Reuters Foundation, noting that it could “trigger panic.”

But the information could also have the opposite effect – reducing risk as users better understand climate threats, helping drive the behavior change needed to reduce emissions and prepare for climate change, he said. .

‘SUPER POWER’

For everyone from home buyers and utility companies to large property owners, accurate weather risk predictions are increasingly a financial necessity.

In 2020, for example, wildfires burned more than $ 13 billion in insured property in California. Connell, of Terrafuse, said money could have been saved with more accurate predictions of wildfire behavior.

Using historical data, the company trains its AI model to make increasingly accurate predictions of forest fire losses each year, she said, which can help insurance companies decide where to buy properties.

“Climate intelligence is a superpower,” said Iggy Bassi, CEO and founder of Cervest. “You’re going to need it whether you are a policy maker, an insurance broker, a real estate builder, a speculator, or a slum dweller.”

Cervest spent two years developing its own model that allows users to see climate risk for individual plots or larger portfolios, breaking down threats from heat, wind, and other factors.

Tech venture capital firm Draper Esprit, an investor in Cervest, estimates the global climate analysis market to be worth $ 40 billion

While some aspects of Cervest’s platform will be offered free to users, holders of larger portfolios will be charged for more personalized forecasts. The firm says more than 30 large companies are already users.

“These types of analyzes are going to govern every transaction,” he predicted, with mortgage brokers, for example, using the tool to research the risks on a particular property before offering a loan.

“If it looks like it’s a pretty safe house from a climate risk standpoint, they can offer the buyer a green mortgage” at a lower rate, he explained.

Such analytical tools are now taking root in all sectors, including financial services, municipal agencies, insurance companies and utilities.

Since 2019, Moody’s – one of the three main credit rating agencies responsible for assessing the risk of bonds and other securities – has acquired two climate analysis companies.

Last year, Broward County in Florida worked with Sorkin’s Jupiter Company to develop its 100-year municipal flood projections.

And last summer, California insurance regulators approved the use of Zesty.AI, another forest fire forecasting platform, to inform insurance rates in the state.

For those who wish to invest in climate resilience, such analyzes could help decide on the most effective place to channel limited funds, Bassi said.

“INTELLIGENCE ARMS RACE”

Analyzes can also be used for private purposes.

“There are nimble billionaires who say, ‘I’m throwing land (because of climate risk), tell me where to buy,'” said Parag Khanna, CEO of ClimateAlpha.

The company calls itself the Palantir of ownership, after the famous data analysis software company founded by Peter Thiel.

ClimateAlpha, Khanna said, has designed a “data lake” that integrates 50 environmental, demographic, fiscal, energy and other variables for a given property.

It runs the data through its proprietary algorithm and provides customers with value forecasts based on various climate scenarios.

Chris Marlin, the former president of Lennar International, one of the largest home builders in the United States, recently joined the board of directors of ClimateAlpha.

Everyone from home buyers to banks to real estate owners will ultimately need access to climate risk data, he said.

“The entire real estate value chain will wake up to climate impacts,” he said. “The questions are: when and who will be best prepared?

Jesse Keenan, a professor at Tulane University who studied industry and sits on Jupiter’s advisory board, noted that “of course people are going to make money from climate change.”

He described the race to develop the best algorithms for predicting climate impacts as a “climate intelligence arms race” – but says there is a reluctance to consider the implications of this trend.

In 2018, unbeknownst to him, a dean at the University of California at Berkeley changed the title of a talk Keenan was scheduled to give – “How to Make Money from Climate Change in Real Estate” – because she was offended by the concept, he said. .

But “it is happening,” he said. “We have to understand how it works so that we can find the right regulatory environment.”

The university did not respond to requests for comment on the name change.

Regulators, for example, could step in and use climate analysis tools to predict how the assets of financial institutions will perform under different climate scenarios, to better protect investors and the economy, Keenan said.

Before the end of 2021, the U.S. Securities and Exchange Commission is expected to put in place new rules requiring publicly traded companies to disclose the risks climate change poses to their assets.

Some new climate analysis companies see helping make these predictions a possible source of income.

GOOD DATA, BAD POLICY?

But assessing risk and making accurate predictions is not the same as tackling or responding to climate change fairly, said AR Siders, a professor in the Center for Disaster Research at the University of Delaware.

“Pricing for risk makes sense” – but doesn’t necessarily lead to better public policy, she said.

“If what a city needs is a better planner, that doesn’t really help,” she said.

Better forecasting – without policies to protect the most vulnerable – could also simply exacerbate climate inequalities, she added.

“Let’s say you use these tools to get a better idea of ​​the flood risk,” she said. As a result, “you are making flood insurance more expensive and all low-income residents have to go.”

Hino is concerned that the information derived from the technology may be deployed for the benefit of a narrow set of interests.

“They can very well be used to advocate for investments to protect the assets of those who need them least,” she said.

Related stories:

Burned by forest fires, the insurance industry is rethinking the risks

United States urged to update flood maps and building rules as risks increase

Rising flood risk threatens limited supply of low-cost housing in the United States

(Report by Avi Asher-Schapiro @AASchapiro, edited by Laurie Goering. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, which covers the lives of people around the world who struggle to live freely or fairly. Visit http: / /news.trust.org)

Our Standards: Thomson Reuters Trust Principles.


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