The Machine Learning Revolution: How it can be used in the fight against Climate change

2020 was a devastating year for flooding across Africa. The Nile rose to its highest levels in half a century and Ethiopia and Sudan saw large areas swamped with water devastating farms and rural areas. Many African cities are ill prepared for natural disasters and with the continent’s urban population rising fast floods will increasingly devastate cities as well as rural areas.

As well as washing away crops, homes and livelihoods, floods can bring malaria and other water borne diseases to a weakened populace.

Climate change is making a hotter and wetter world with more unpredictable rainfall a perfect recipe for devastating floods.

The floods that shocked Germany in the summer of 2021 were proof that rich countries will not escape climate risks either. But wealth and technology can play a role in adapting to and measuring climate risk.

The World Observed

Across the world thousands of earth observation instruments, satellites, sensors and cameras are constantly collecting millions of points of data. This data includes temperature, greenhouse gas emissions, polar ice melt, wildlife statistics, forest cover (often using LIDAR which measures the density and carbon content of a forest) and lots of other useful information.

These critical indicators help capture the sadly declining health of the natural world and spiralling climate risks. But the enormous quantities of data collected by these instruments can appear overwhelming.

However, as the world is discovering machine learning techniques can be applied to the data, allowing organisations to sift through the information and turning into useful indicators.

Machine learning is a branch of artificial intelligence which uses data and algorithms to imitate human learning and therefore improve in efficiency over time.

Three Magic Ingredients

The three ingredients which make this possible are the collection of huge amounts of data via sensors, satellites etc, allied to powerful computing power which can handle the data and the application of machine learning systems which can improve the way in which they collection and interpret data.

Machine learning is a sub-division of artificial intelligence, and it means that systems can learn and improve the way in which they collect and interpret data independently.

Satellite data can used to track climate risks like drought, flood and deforestation which can be transformed into financial indicators with the help of machine learning helping firms monitor their risk profile.

Machine learning can be used to sift through the information provided by camera traps in wildlife reserves. Trailguard cameras use AI to spot different species and send an alert when the camera detects humans (or more importantly poachers) rather than animals.  Within minutes of poachers entering one of Africa’s wildlife reserves wardens are alerted and can respond to the threat.

Climate is Data Problem

Machine learning techniques are being deployed in an ever-wider number of settings.

Google have created the Environmental Insights Explorer which monitors the carbon dioxide footprint of buildings and transport networks allowing users to calculate their carbon footprint.

Satellite technology can monitor large scale carbon emissions, while sensors collect energy use data in buildings which can be used to optimise heating and cooling systems.

Climate risks are now a stark reality and machine learning can be used to help the world adapt. This could be through using data to predict floods or weather changes more accurately. Machine learning can also be used to effectively forecast energy usage to optimise renewable usage.

What Does the Future Hold

Identifying the scale and intensity of climate risks is a major challenge for governments and companies. Banks and insurers want to understand the physical risks to their portfolios. In other words: how much and where will sea level rise, how and where will extreme weather and wildfires impact on their assets on a granular level.

This is a problem for machine learning – collecting billions of points of data about the land, climate and sea and using them to accurately predict the future.

For example, researchers from Montreal Institute for Learning Algorithms (MILA) simulated what would happen to homes in Canada after damage by intense storms and rising sea levels. The objective is to try and make the risks of a changing climate real to people and businesses and provide them with actionable information.

How Can Machine Learning Aid the Battle Against Climate Change

Machine learning (ML) is particularly well primed to help the battle against Climate Change. Below are just some of the many methods and sectors Machine Learning can be harnessed to help mitigate, measure and adapt to a fast changing climate.

Energy Usage

Machine Learning (ML) can cut the leakage of methane through the monitoring of seepage data from pipe sensors and satellite imagery. ML can also be used to pinpoint where repairs are necessary in electrical infrastructure, cutting wastage and therefore increasing energy efficiency. However, ML could help the fossil fuel industry by making oil and gas more efficient and cheaper to extract and emit more fossil fuels.

ML can be used to model carbon emissions and energy mix helping planners to optimise the usage of renewable sources.

For countries without universal electricity ML can identify which electrification methods would be most suitable for a particular region. Normally this could require intensive resource heavy surveys. ML can use satellite imagery to speed the process up.

Transportation

Transportation is the source of around a quarter of global greenhouse emissions and represents low hanging fruit in terms of decarbonization. Cars and planes are the usual villains in this sector, but cargo ships are a major source of emissions.  

There are four ways in which to decarbonize the transport sector:

  • Reducing transport activity
  • Improving fuel efficiency
  • Switching to Alternative fuels
  • Moving to transport alternatives (car to train)

ML is in a prime position to drive these strategies. Firstly, ML can be used to collect large amounts of data about transport habits and patterns. For example, traffic can be monitored, and models created to forecast future demand which can help drivers and planners avoid congestion.

Predicting public transport usage and aeroplane take off times can make for more efficient, less energy using and time wasting travel. Similar techniques can be used for freight, using ML to consolidate trips to avoid empty trains/lorries and ships therefore driving efficiency and cutting the number of journeys.

Driverless cars driven by artificial intelligence are a particularly controversial transportation topic. In theory using driveless vehicles would be more efficient and safer (taking the quickest routes) and would free up time for humans.

However, this technology is unproven at scale and there remain many ethical concerns about the use of these vehicles, primarily who is responsible when things go wrong. The driver, car company or the programmer.

Electric Vehicles (EV) by contrast are now a familiar sight on the roads in many countries. ML and EV dovetail in climate friendly ways. Manufacturers can monitor EV and use ML to predict faults, battery management and usage. Over time as more drivers use EV more data will be collected on their usage. This can be used to improve performance by proactively spotting fault and identifying battery state degradation.

Cities and Buildings

Building, cities, towns and workplaces are a major source of carbon emissions. But they also offer some of the easiest fixes. Many modern state of the art buildings consume virtually none or no energy. Smart buildings using sensors and control systems can monitor energy usage identifying where more is required and using tech like windows with built in solar panels to collect energy for the building.

ML can be used to model energy consumption and in modern buildings with sensors optimise energy usage.

Energy efficiency also comes with major cost savings for occupants as well as the environment.  

The challenge is that you cannot replace building stock very quickly. Buildings also vary widely in size, shape and usage so one size fit solutions will not work. This means that these solutions take a long time to implement.

Climate Forecasting and Modelling

The many satellites orbiting the world are constantly producing huge amounts of data about land use, weather and climate patterns of the world. This data can used by scientists to build ever more complex climate models. ML has been utilised to classify crop cover, pollutants and many other kinds of data.

Deep neural networks could be used to account for cloud cover, a major source of uncertainty in climate models. Clouds can block sunlight and trap heat but are difficult to account for in climate models. Deep neural networks (an extension of ML) can be used to simulate cloud behaviour which and learn over time to improve the accuracy. Putting more accurate cloud behaviour into climate models should make them more reliable.

ML can be used to make climate predictions at a local level. Knowing which areas are likely to flood or suffer more wildfires is valuable information for firms trying to map the climate risks to their assets.

For example, an agribusiness dependent on the land will be impacted by any shifts in long term rainfall, while flooding and extreme weather could also drastically alter the productivity of the land. Understanding and modelling future shifts in climate at a very granular level will help businesses adapt.

Forests and Farmland

Huge amounts of carbon cycle through the biomass of trees, soil, bogs and peatland. Thanks to unsustainable farming practices and deforestation along with intensive cattle and livestock farming around a quarter of all greenhouse gases are released through agriculture.

As the world heats tinder dry summers cause ever bigger forest fires and permafrost which release ever more greenhouse gases. Carbon release in agriculture is not only a major contributor to greenhouse emissions but also one of the most difficult to tackle given well established agricultural practices and growing demand for meat in much of the world.

ML along with satellite imagery can identify how much carbon is released from the ground and how much is held within forests and soil. This would make is easier to identify how to manage land to where regulations are being breached and to help governments avoid further carbon release.

ML can aid reforestation by ensuring that trees are planted efficiently – by locating planting sites and then analysing data about tree health and biodiversity. ML could also be utilised to predict the direction and speed of fires, allowing firefighters to decide where to fight and where to try and stop the spread of the fire.

Adaptation to a new Climate

A new era of climate change or Anthropocene will be one of rapid adaptation. Humans will have to quickly adapt to a new world of painful extremes. Navigating a world of devastating natural disasters, disappearing coastlines and blistering heat will mean a wholesale shift in how societies function. Current infrastructure and agricultural systems will buckle under the stresses of these changes and new ways of working and living will have to be rapidly improvised.  

ML will be a critical part of mapping and planning this new world. ML has applications from predicting disasters, to designing and maintaining new infrastructure. From monitoring ecosystems to detecting carbon release from soils and forests.

ML is not a replacement for the political and economic shifts that are required for a zero-carbon economy, but they represent a potent tool which can aid the policy decisions which drive reductions in carbon emissions.

ML could also be used to measure and coordinate individuals and groups to push for action on decarbonisation. By identifying and predicting how individuals or groups will react to changes like carbon taxes, governments can assess their impact prior to implementation. This could help avoid protests and strikes that could hold up meaningful climate action.

Speculative Technologies

ML could also assist some of the speculative technologies which have been proposed to tackle global heating. Carbon capture and storage would collect C02 direct from the air and store it in the ground. The technology has been trialled, but it is extremely costly and unproven at the scale required to make any difference. ML could help model and detect where the prime underground storage places for carbon might be.

Solar geoengineering is the idea that reducing solar radiation would cut temperatures on Earth and the impact of global heating. Proposals include cloud whitening, robot boats crossing the ocean, mirrors in space reflecting the sun. All of these proposals are speculative but as desperation about climate change grows the incentive and temptation to try these moonshot ideas will grow.

Machine Learning is far from a solution or silver bullet for global heating. Instead it represents a potent tool which can be deployed in many different approaches that can aid in the battle to mitigate and adapt to the climate era.

When Technology and Politics Collide: How to Manage Geotechnology Risk

Geotechnology issues are a growing global risk for multinationals. I examine what does geotechnology risk entail and how can it be managed effectively.

In 2020 the UK ordered the removal of all Huawei infrastructure across the country by 2027 . Initially the UK had welcomed Huawei’s investment, but warnings from parliament, the intelligence services and from the US steered the government in a new direction. The Huawei ban effectively brought to an end to the “golden era” of relations between the two nations.

Huawei’s global power has grown steadily across the last decade as it leads the way in providing cutting edge 5G infrastructure. The company with origins in the Chinese People’s Liberation Army has been pivotal in developing new technologies such as 5G which allows unprecedented connectivity. Allowing people to watch videos and use the internet on the go. 5G is also crucial to developing the Internet of Things (IoT).

5G and the IoT allows millions of physical devices to be connected to the internet opening up new possibilities such as driverless cars and smart jackets. The IoT also enables so called smart cities with thousands of sensors providing up to date information on everything from traffic, to air quality to security. Connectivity allows constant feedback loops that allow officials to monitor and improve on key performance indicators. Critics would argue they also allow officials to snoop and spy on citizens.  

Technology has been pivotal in geopolitical battles through history. Now new technologies are driving new political divisions which create global risks for organisations.

Tech Rules the World

Technology companies now make up roughly a quarter of the world’s stock markets. While European firms do have strengths in areas like the development of 5G (Eriksson) and Software (SAP). It is increasingly China and the US that dominate the global tech scene. Large domestic markets, access to finance and entrepreneurial culture have all helped the US and China cultivate strong technology sectors. Now firms are looking to dominate new areas such as fintech, climatetech and the internet of things to build and dominate new markets.

This rivalry has been demonstrated by the global political row over Huawei. Building 5G infrastructure appeared to be dull behind the scenes job. But in fact, building 5G allows Huawei enormous power over the development of this critical technology and standards that regulate it. Huawei is a private company. However, like all Chinese firms – the Beijing government can exercise a great deal of control over their actions and would expect full cooperation if required.

Tech is a Political Choice

China and the US are both competing to set global technology standards. When countries choose Huawei over a western firm for 5G or vice versa they risk angering the other side.

The Australian government moved to ban Huawei from its 5G networks along with the US and other countries. This rejection of Chinese technology along with other factors caused a major diplomatic rift with China. China banned Australia imports of wine and beef, while Chinese investment in Australia has fallen 61 percent in 2020.

China is Australia’s biggest economic partner so declining trade and investment relations is a major blow to the nation’s economy. However, Australia has effectively followed the lead of the US its major diplomatic, military and intelligence partner in rejecting Huawei on national security grounds.

Choose Wisely

Companies or countries that select Huawei even for part of a 5G network will faces political pressure and exclusion from the US networks. Interoperability between different networks can also be a potential issue, while different 5G providers can work together it is more efficient to use one carrier which in turn makes choosing a single vendor more likely in the longer term.

Battles over infrastructure have a long history. Britain pressured Egypt and France into taking control over the newly built Suez Canal in the nineteenth century and fought unsuccessfully to retain that control in the 1950s. Today China often receives a political dividend from its sprawling Belt and Road infrastructure investments in every corner of the globe.

Competing Network Initiatives

The US has actively promoted their Clean Network Initiative an attempt exclude China from global telecommunication networks. China has responded with their own Global Data Security Initiative described as the Chinese attempt to write rules on data governance. Dominance in this sphere gives the winner a major advantage in terms of intelligence gathering, commercial edge and political firepower.

China’s Digital Allies

In contrast Saudi Arabia and other Gulf States have embraced Huawei which is rapidly rolling out 5G across the region. China views this rollout as part of the Digital Silk Road itself a strand of the Chinese Belt and Road Initiative, the cornerstone of China’s foreign policy.

Saudi Arabia’s decision use Huawei is likely to see it align itself more closely with China on tech policy. The countries are perhaps natural partners in this sphere as they both share a top-down approach to governance and rejection of western human rights norms. This approach could eventually lead to rifts with the US, Saudi Arabia’s traditional security partner. 

While some US allies have effectively banned Chinese firms from 5G infrastructure taking the side of the US. Others such as Turkey have used both Chinese and western firms for 5G infrastructure in an attempt to placate both sides.

However, trying to remain independent will become more difficult to maintain over time as 5G becomes more widespread and both the US and China may push countries to take digital sides.

Hard Data Choices

Tiktok was the first global social media brand born in China. Designed for creating short form videos the App spread rapidly becoming the most downloaded App in the world in 2020. Tiktok and its parent Bytedance were gathering data from their user base across the world (of course no different from other firms).

Concerns were raised when it was clear that large amounts of data could be indirectly accessed by the Chinese government (although a CIA report concluded that they had not done so). This coincided with growing digital nationalism particularly between the US and China.

The Trump Administration soon moved to ban TikTok or force its sale to a US company. Trump’s Executive Order was blocked by the US courts but eventually a deal was hammered out to ensure US consumer’s data was not held in Chinese jurisdiction.

There was speculation that US also feared TikTok because it was dominating a newly important industry, namely Social Media. This is an industry the US had a stranglehold over since its birth, Facebook, Twitter and Instagram were all started in the US . Many saw Chinese firm arriving to disrupt the sector which collects huge amounts of data and now has incredible political power. This pushed the US to act and try to stop TikTok’s runaway growth.

Growing Digital Nationalism

TikTok is not the only case. India has banned 177 Chinese Apps on the grounds they present a “threat to the sovereignty and integrity of India”. India and many others do not want to see a rival like China to gain dominance in key platforms such as social media.

Data localisation laws are also likely to become more popular. Governments and citizens concerned about data leakage and sovereignty will demand that data collected within the country should remain there.

Making decisions around buying technology hardware or software might at first seem like a choice between brands, price and which has the most advanced or appropriate technology. In fact, it is clear that technology choices are increasingly having a geopolitical impact. Organisations need to actively manage this risk.

How Can Organisations Manage this Risk?

Geotechnology risk is technology driven geopolitical or global risks or change which impact the operations of an organisation.

Consider your geopolitical choices when backing a Chinese or European company for any kind of technology service, infrastructure or hardware. It might seem like a technical choice but in fact it is a political one with long term implications.

Digital Nationalism is here to stay so preparation is essential. Organisations need to thoroughly understand geotechnology threats. Understanding who in your organisation is responsible for overall political risk is crucial. They need to be supported with information to make effective decisions.

Multinationals should be aware of data onshoring governments like the US. IF they view their citizen’s data as being exposed or misused or their essential interests under threat by others will move to protect them. This could include sanctions or taking legal action against foreign companies.

These are the questions Executives need to be asking themselves

Can we work with stakeholders, business partners, regulators suppliers, governments national and local to manage Geotech risk in a similar way to managing geopolitical risk. All these stakeholders could have a different reaction to this risk. But there could be severe commercial and reputational consequences if firm is partnered with another from China, the US or other country which is then suddenly barred from working with national governments.

Firms should question whether they have the ability in house or hired in to understand and track Geotech risk. Understanding an often fast changing landscape is difficult as many understand the tech or the geopolitics, but rarely the interplay of the two.

What can be done to effectively manage Geotechnology risk? Companies should be proactively managing these risks. Can they influence stakeholders to prevent or smooth over politically charged issues. Speaking with government or regulators to see and influence events before they become a risk will help organisations navigate political risks.

Deciding on technology partners should be considered with a political lens as well technical and pricing considerations. How will that firm’s national origins be viewed now or if there is political friction in their countries of operation. The national origins of any technology partner should be considered whether it is Chinese, Japanese, German or Vietnamese. Firms from all countries carry a potential risk.

Be prepared for complexity. Governments may require tech firms to be divided or set up separate arms. This could mean one arm serving Chinese markets and another Western markets with clear national divisions in data hosting and usage. This could also mean companies working more through alliances rather than formal mergers to avoid regulations.

Horizon Scanning

Scanning for future technology based risks is an important activity for any prudent firm. The emergence of driverless cars, ever more advanced artificial intelligence and renewable energy are all future flashpoints of competition and disruption. Both the US, China, Russia and many others will view critical technologies as worth shielding and protecting from foreign competition and interference if the political climate becomes worse.

Protectionism

For example the US is trying to protect its solar panel industry from Chinese dominance. China successfully subsidised its renewable technology sector for years to achieve higher market share. But other nations do not necessarily want to be dependent on Chinese imports for solar and wind tech.

Understanding how competitors have dealt with geotechnology risk is crucial. Learning from the mistakes and lessons of others will allow organisations to hone their own strategy.

Politically motivated cyber attacks are another threat. Governments or their proxies may be driven to attack organisations because of links or even perceived links to governments. Large companies or organisations like banks or infrastructure companies like the US’s Colonial Pipeline or the UK’s National Health Service could be targets because of their strategic importance.

Turning Geotechnological Risks to your Advantage

Understanding and monitoring technology based risks and how it can combine with geopolitical risk effectively. By effectively identifying rising digital nationalism and how some companies or sectors will be impacted by this change. Once identified these sectors/companies can be avoided if possible. A well informed company may identify growing digital nationalism in advance and plan accordingly. This might mean ensuring they have geographically flexible data storage options.

Geopolitical Arbitrage

Far sighted organisations may identify opportunities in the growing digital divide and turn them to their advantage. This could mean carefully surveying the political pressures that push out other firms from working in a country. After all any organisation or company excluded because of political pressures leaves a gap in the market. This is arguably a very cynical play, but a well prepared firm can potentially take advantage of another’s misfortune.

Rebuilding the Living World: How to Act on Nature Related Risk

The widespread destruction and despoliation of nature is increasingly recognised as a global risk. Humans are reliant on clean water, air and the natural world to support our way of life. Arable land, oceans teeming with fish and forests full of life are just some of the things we take for granted but are under threat through massive overuse.

Since the industrial revolution in the nineteenth century economic development has accelerated across the globe. The global human population has risen at a stunning rate from just under 2 billion a hundred years ago to close to 8 billion people today.

Each new town, farm and factory built to accommodate these people and the increasingly intensive economic activities that support them has taken a devastating toll on the natural world.  Now this assault on the natural world is coming back to haunt us.

Over the last century a stunning 83 percent of mammal life and half of all plants have been driven to extinction and two thirds of all marine environments have been severely altered. The destruction of the natural world is clear, but now it has now gone so far it poses a major threat to humans.

Former Governor of the Bank of England Mark Carney said: “we have been trading off the planet against profit for far too long, living for today and leaving it to others to pay tomorrow. This has depleted our natural capital, had a devastating effect on the planet’s biodiversity and is causing unprecedented changes to our climate.”

Repairing Nature

This has prompted many business and political leaders to consider how the damage to the natural world can be measured and reversed. The time has passed for just charities and civil society groups lead on biodiversity. In the age where Environmental, Social and Governance (ESG) indicators are the norm we increasingly expect private companies to take the lead on these issues.

The World Economic Forum 2020 report placed biodiversity loss as one of the top five risks of the next decade. The World Economic Forum also estimated that nature positive transitions, in other words restoring and protection the natural world could create US$10 trillion in business value and 390 million jobs worldwide. Some would argue that you cannot put a price on nature and that this rationalises the destruction of nature – if the price is right.

Nature’s contribution to business is at once strikingly obvious yet usually completely ignored or taken for granted. Clean air, potable water and farm land are just some of the necessities that the private sector gains from natural capital. If these are damaged or disappear then companies are put at risk as they cannot produce goods and services that rely on nature.

Taskforce on Nature Related Financial Disclosures

While the risks may appear obvious, there is the problem of measuring them. Currently organisations lack data on how their activities depend upon nature and therefore find it difficult to measure the nature related risks they face. The Task force for Climate Related Financial Disclosures (TCFD) created a framework for Banks and others to identify how they are exposed to climate risk.

The TCFD which is still being implemented has given rise to the  Task Force on Nature Related Financial Disclosures (TNFD). Since 2020 an informal working group drawn from civil society, government and private business has been working with a technical expert group and a partner group with the objective of delivering a framework by 2023. The TNFD will complement the TCFD so organisations have a full picture of their environmental risks.

These risks are often difficult to measure, many companies rely on complex supply chains which provide much of the raw materials, minerals, commodities, metals, oil and agri-produce which both rely on the natural world and whose extraction can so often devastate it.

These risks can them impact on companies disrupting supply chains, change the price of raw materials, destroying capital. This in turn creates the financial risk for banks and insurance firms which until now has not been recognised.

Sustainability Leadership

While the TNFD is working hard to develop a new framework much as been done already. The University of Cambridge Institute for Sustainability Leadership (CISL) published a handbook which aims to identify and understand nature related risks. The handbook also wants to connect the natural and financial world in terms of risk and plot financial risk exposures.

Nature related risks can be divided into the physical such as climate change, pollution, land use change and invasive species. These can manifest through loss of air quality, water scarcity and food production. The other type of risk is transition risk which can manifest through new legislation, regulation or consumer sentiment around the protection of nature which forces change upon companies.

The TNFD is still in its infancy but the scale of the problem suggests that companies will have to incorporate it into their corporate risk framework and start measuring and reporting on how exposed they are to nature related risks.

Opportunities for Firms to Reverse the Decline

There are also opportunities for companies to positively contribute to nature. A World Economic Forum Report identifies 15 areas of transition where firms can contribute to so called nature positive activities. For example scaling circular and resource efficient models of production will reduce the amount of new resources needed to be extracted. Ecosystem restoration and regenerative agriculture will allow the natural world to flourish, increase biodiversity while still producing food. Sustainable management of forests would allow these spaces to flourish while still extracting timber.

Measuring Impact

How have we got to this point? For years companies have promised to clear up their supply chains such as deforestation causing beef, palm oil and soy production. But in reality most have failed to clean up their acts.

One problem lies in the profit motive – companies might want to stop deforestation but their first instinct is make money. Improving regulation and pushing companies to take social responsibilities more seriously may push them into change. Secondly there is a lack of transparency and data, it is difficult for firms to understand their own supply chains which are often are opaque and complex.

But now tools are emerging using new technologies which help firms track and map deforestation and other nature based risks. Mapping supply chains and measuring nature related risks is becoming easier thanks to advances in satellite technology and artificial intelligence.

Encore maps how businesses might be exposed to natural related risks depending on the industry and activity type. Firms from various different sectors can map their geographical footprint to potential risks. Trace Finance tracks commodity traders and financial institutions most exposed to deforestation risk. These new tools will hopefully create a leap in understanding around nature related risks.

The Dasgupta Review

Another landmark for biodiversity was The Dasgupta Review which was commissioned by the UK Government. The report calls on society to “change how we think, act and measure success” to “protect and restore natural capital and use that capital sustainably”. It recognises that we have collectively failed to engage with nature sustainably. The result is extinction rates 1000 times the normal rate as well as degrading pretty much every ecosystem on the planet. It also makes the point that our economies are ultimately dependent on nature not detached from it.

The report also recognises that much of the responsibility to act falls on the global financial system. Dasgupta recommends among other measures removing the numerous subsidies that governments provide that harm nature. For example his might mean ending subsidises for pesticide reliant agriculture which does so much to destroy insect life.

The report goes on to recommend that restoration and preservation of nature or increasingly the “supply” of nature in the dry economic language of the report. This means restoring degraded parts of the environment and better protecting remaining natural areas.

Climate Change

Biodiversity loss is intrinsically linked to climate change and the two issues need to be dealt with together. Accelerating climate change is devastating for biodiversity as species struggle to cope with a fast warming planet. Protecting biodiversity and natural areas acts as a brake on climate change. Deforestation is one of the biggest emitters of carbon, stopping that and planting more forests helps both biodiversity and climate change.

The challenge of stopping biodiversity loss is not to be underestimated. Changing the habits and assumptions of hundreds of years on a global scale is no easy task. Much of the world is so used to taking nature and the natural world for granted for so long, its no surprise that it has been trashed so comprehensively.

Changing these attitudes and getting firms to understand the risks around biodiversity and natural capital loss is akin to turning a supertanker around. However, the risks at stake concerning natural capital are so fundamental that failure should not be an option.

How Risk, Regulation and Technology are Forging a New Climate Economy

The convergence of key technologies, the existential global risks that climate change present as well as fast emerging government policies are creating a new climate economy. What does this mean? The climate economy means companies creating goods and services which drive decarbonatization. Climate will become the new lens through which all activities are viewed and sustainability will disrupt virtually every sector and industry from manufacturing to transport to energy.

The most obvious example of the climate economy are the wind turbines which increasingly dot the seas, oceans and hills across the globe. But the climate economy is far wider than just renewables, it means any goods and services that reduces greenhouse gas emissions or addresses the impact of climate change. This could mean companies that produce more efficient engines for trucks to firms focused on protecting global forests

The climate Economy is broadly connected to the rise of Environmental, Social and Governance (ESG) investing. The ESG movement attempts to tackle with the broader non-financial risks and opportunities of investing. Currently most economic activity in the modern world is entirely dependent on energy which is primarily supplied by carbon emitting fossil fuels. However, times have changed and now renewable energy can compete with fossil fuels on price, consumers increasingly favour climate friendly companies and government policies across increasingly seek to reduce emissions.

The New Drivers of the World Economy

The next few decades will see climate (decarbonisation) and more broadly sustainability (ESG) become the new driving force of the global economy. All business will eventually have to embrace decarbonisation and sustainability. Three main trends will drive this: technology, renewable energy is cheaper than ever and continues to become more efficient, but also other new technologies such as artificial intelligence (for more efficient decision making), growing meat in a lab and industrial batteries will all drive decarbonisation.

A wave of new legislation and regulation designed to encourage decarbonisation such as the Task Force for Climate Related Financial Disclosures (TCFD), the EU Sustainability Taxonomy as well as national level legislation to fulfil climate targets will shift vast amounts of capital away from carbon intensive activities. Much of this capital will need a new home, which is where new wave of innovative companies in the climate and clean tech fields will emerge as well as existing firms with the ability to pivot to the new reality.

Perhaps above all the climate economy will be sparked by the unfolding reality of climate change, each unpredicted wildfire. Each temperature record broken, each mm of sea-level rise will force change onto society and inspire new companies in the Climatetech space and force governmental and geopolitical shifts.

A Grand Opportunity

As the global economy shifts toward decarbonisation the opportunities for Climatetech firms will emerge rapidly. Some parts of the world with more favourable regulatory regimes and a technological edge will become leaders in Climatech. China despite its record emissions is a leader in the Climatetech field. Many US firms so often leaders in innovation have taken up the challenge to decarbonise.

Perhaps the key firms in building the climate economy are those which are still emerging. Start-ups could in time become key drivers decarbonisation through innovation and imaginative use of technological solutions. The new wave of climate investment is looking beyond renewables to transform agriculture, food, mobility and much else beside. For example firms such as Beyond Meat, Impossible Foods and New Wave Seafood are offering plant based meat and seafood substitutes which reduce demand for carbon emitting and deforestation causing meat ocean ravaging seafood.  

Technology Rules

Solar energy has dropped 89 percent in cost over the last decade and wind power has declined by 70 percent in the same period of time. This demonstrates the power of applied technology which is a key element to the success of many Climatetech firms. The climate economy is very much tied to the so called Fourth Industrial Revolution. Like previous revolutions before it promises major improvements in efficiency and huge upheavals in society.

The Fourth Industrial revolution promises a dramatic leap forward in the application of robotics, artificial intelligence, quantum computing and energy storage, as well as the mass connection of society and businesses through the internet of things and 5G.

These new developments bring huge global risks such as the increasing exposure of infrastructure to cyberattacks. But also major benefits, more efficient storage and distribution (through smart grids) of energy makes renewables more hugely more attractive, overcoming their traditional limitations such as windless days and night time. Artificial Intelligence advances can help humans monitor climate change risks such as deforestation as well as providing more detailed and accurate predictions and simulations of climate change.

Other new technologies will also prove vital in the decarbonisation process. These include industrial batteries for storing energy, energy efficiency measures (such as more efficient home appliances), cutting edge energy such as hydrogen as well as the electrification of cars, planes, trains, ships all of which will ease the move towards decarbonisation.

Services that employ technology such as those which measure climate risk, carbon trading platforms, measurement of ESG risks and measures will all have a part to play helping service the climate economy.

The New Regulatory Framework

The EU has led the way in providing a regulatory framework for decarbonisation, countries that follow can grow and nurture the climatetech firms of the future.

Nations like Russia are likely to favour a rearguard action and continue backing oil, gas and coal for as long as possible in the hopes that the shift to renewables will be slower than hoped. Others like Saudi Arabia can hedge their bets – able to host vast solar arrays in empty deserts and even become an innovative exporter of blue hydrogen while remaining a major oil producer.

The Task Force for Climate Related Financial Disclosures is designed to push Banks into diverting financial resources into climate safe investments. By identifying the assets at most risk from climate risks in terms of either physical or transition risks banks can avoid projects exposed to climate change. The G7 recently moved towards making TCFD reporting mandatory.

This mass movement of capital will impact over time oil and coal producers who will be unable to access capital as it becomes clear that investing in these industries is not only environmentally damaging but also financially unsustainable. The launch of the TCFD has given rise to a new similar piece of regulation which attempts to measure the financial impact of biodiversity loss.

The EU has recently published its long-awaited sustainability taxonomy which will clearly define which economic activities contribute to decarbonisation. This will make it clear to investors which companies are backing climate friendly projects and which favour carbon intensive activities.

Carbon pricing or emissions trading is another instrument of change. Putting a price on carbon encourages polluters to reduce emissions. The EU is planning to extend its scheme beyond large firms to buildings and transport. This does risk a backlash if users are landed with big bills to reflect the cost of change.

Geopolitical Winds of Change

China’s Belt and Road Initiative (BRI) was built partly so China could secure oil, gas and raw materials such as iron ore. All key for feeding Chinese economic development. The rise of the climate economy could mean geopolitical battles for materials such as cobalt, copper and lithium all vital to develop electronics, batteries and cleantech (A wind turbine uses 4.7 tonnes of copper). This will be mirrored by the fall in use for fossil fuels and materials associated with that industry.

The Next Wave of Government Action

The United States has new impetus with a major decarbonisation plan for the US aiming at a 50 percent reduction on 2005 levels of carbon and international financing for decarbonisation of developing countries is underway. This legislation alone may spur other countries onto more ambitious plans. Perhaps the most critical achievement of the plan will be the demonstration effect.  

The US and other climate action leaders need to show and prove that societies and economies can continue to thrive in spite and because of decarbonisation. The success of these plans will help dispel doubts and excuses for countries still planning a fossil fuel future who can take up new targets with confidence of a positive outcome.

China Laggard and Leader

China is home to 40 percent of solar capacity and roughly one third of global wind power. Its bus fleets are nearly all electric and it is a world leader in terms of electric vehicles being sold. Solar prices have dropped 80 percent wind turbines while lithium batteries have dropped one sevenths of the cost compared to a decade ago. On these terms China is global climate leader.

This claim comes with a major caveat: China is doing little in the short term to decarbonise. The country remains hopelessly hooked on coal and oil imports to power an economy rapidly rebounding from the shock of Covid. China has promised to cap carbon emissions by 2025 but for this to happen there needs to rapid uptake of renewables, energy efficiency measures and a major unprecedented scaling down of coal use.

Countries that fail to embrace the climate economy will face a number of risks: failing to keep up with international regulation like the TCFD and EU Taxonomy leaves them open to transition risks. Continued focus on fossil fuels for countries like Indonesia, Russia, China and Iran make the shift to renewables harder and more painful when it does inevitably happen.

The Shift has Started

There is a long road ahead before the climate economy is a reality. The companies and countries that forge ahead with change now are likely to be the winners. Companies that fail to embrace new green regulation, ignore public sentiment and growing climate risk and geopolitical change will see themselves fall behind and increasingly out of sync with fast changing times. For start-ups and new ventures focused on decarbonisation the next decade will be a golden era for growth as the climate economy picks up momentum.

Quick Guide: The EU Taxonomy on sustainable finance & why it is important

Why Create a Taxonomy?

The 2015 Paris Agreement and 2030 Agenda for Sustainable Development were created to tackle world’s biggest global risk – climate change. But these agreements created a problem. Plans to decarbonise economies had to actually be put into action. So the EU Commission developed the Action Plan for Sustainable Development and then the Technical Expert Group (TEG) on Sustainable Finances to tackle this issue.

The TEG set to work and developed the Taxonomy on Sustainable Finance. The Taxonomy creates a shared language, a lingua franca for investors, governments, policy makers and anyone else interested in defining sustainable activities.

This emerged into a pack including the EU Taxonomy Climate Delegated Act which came into force in April 20201 as well as a Corporate Sustainability Reporting Directive, These along with another a further delegated act will define the technical criteria for identifying the economic activities which contribute to climate change mitigation.

The Green List

Described as a “Green list” or classification scheme for sustainable activities as well as a pioneering piece of legislation. The Taxonomy will create a common language and principles for firms and investors around green investing. It will be a living document designed to change overtime to adapt to new circumstances. The Act is part of efforts to enact the EU’s Green New Deal which promises to shift the EU to a more sustainable future.

The Taxonomy dodges (for now) some critical issues such as nuclear power, natural gas and the climate impact of agriculture. Despite these shortcomings it represents a major milestone in driving Environmental, Social and Governance (ESG) driven investment. It is also likely to influence other nation’s legislation and standards as well as being used by investors across the world as a reference point and guide for their own investing plans.

The Taxonomy lists six environmental objectives which economic activities must help achieve:

1. Climate change mitigation (aka reducing greenhouse gas emissions).

2. Climate change resilience & adaptation (helping the world adapt to a changing climate).

3. Sustainable use and protection of water and marine resources.

4. Transition to a circular economy, waste prevention and recycling.

5. Pollution prevention and control.

6. Protection of healthy ecosystems.

An activity must contribute to at least one of the above points and do no harm to the others in order to be eligible for the criteria. Interpreting the full text of the legislation is likely to keep ESG financing experts, lawyers and environmental specialists busy for a long time.

Who should Use the Taxonomy?

The Taxonomy will be used by banks, insurers and other financial institutions that want to invest in sustainable activities and companies.

How will Users adopt the Taxonomy?

  1. Identify the activities conducted by the company, issuer or covered by the financial product (e.g. projects, use of proceeds) that could be eligible.

2. For each activity, assess whether the company or issuer meets the relevant criteria for a substantial contribution e.g. electricity generation <100g CO2 /kWh.

3. Verify that the Do No Significant Harm (DNSH) criteria are being met by the issuer. Investors using the Taxonomy would most likely use a due-diligence like process for reviewing the performance of underlying investees.

4. Conduct due diligence to avoid any violation to the social minimum safeguards stipulated in the Taxonomy regulation (article 13).

5. Calculate alignment of investments with the Taxonomy and prepare disclosures at the investment product level.

What Information do investors need

Investors will need data about company or issuer performance on the Taxonomy activity criteria for the taxonomy to operate. Data markets will take time to develop as issuers and ESG research and rating companies gather information and data. The data will need to include:

A. Revenue breakdown by Taxonomy – eligible activities, or expenditure allocation to each Taxonomy criteria.

B. Performance against the technical screening criteria, or environmental management data where this is an acceptable proxy for compliance with the technical screening criteria – including DNSH assessment.

C. Management data on social issues: Labour rights policies, management systems, audits, reporting.

Asset managers will then use this investment to create sustainable products and portfolios which will be able to state their levels of sustainability

Sustainable Finance Disclosure Regulation

This information can then be used to demonstrate which products are “light green” (partially sustainable development as objective) or those which are “dark green” – investments contributing to an environmental or social investment.

What do Companies Receiving Investment have to do?

Large or listed firms will have to report on their sustainability risks, the impact of their business on climate and the impact of climate on their business. Firms will have to report what percentage of their future revenues and current activity is aligned with the Taxonomy.

This information will go to investors (see above) who can then use the information to develop financial products and identify in a transparent manner how green firms and financial products really are. This in turn will help the buyers of financial products, shareholders and other stakeholders to get a firm grip of how green their portfolio is.

What Comes Next?

Now the Taxonomy has been published it will come under a great deal of scrutiny as it is a major tool in delivering the Green New Deal. Firms have to start publishing their percentage of their activities which are Taxonomy aligned as soon as 2022.

Doubtless there will be arguments on what should and shouldn’t be included (for example there is a relatively relaxed view on burning wood). The true test will be how much it encourages investors to back sustainable investments. In order to meet the target of carbon neutrality by 2050, there needs to be roughly EUR 1 trillion in sustainable investment a decade. The Taxonomy needs to help investors by establishing a transparent sustainable finance market, free of greenwash for this to be achieved.

The other major achievement may be geopolitical. The Taxonomy could provide an impetus and model for other countries to create similar or complementary legislation, this could be neighbouring UK, the USA, China and Japan. If other countries follow suit this could give sustainable finance the boost it needs to help to truly decarbonise the global economy.

Corporate Resilience and the Pandemic

My latest article published in ‘PRMIA Intelligent Risk – April, 2021 ‘COVID’s impact on cyber and operational risks looks at how corporate resilience has evolved in the face of a major global pandemic. Covid represented an unprecedented global risk factor and a major test of corporate resilience.

The Dragonslayer App matches your personality to different travel experiences around the world to help select an ideal holiday. The App launched three months before Covid hit the USA, so its business model was quickly dead in the water. Rather than packing up, the founder refocused and relaunched the venture in September 2020 as a subscription-based service that gives travellers up-to-date information about COVID restrictions across the globe. The company had taken a radical approach and adapted swiftly to the new environment, demonstrating its resilience in the face of crisis.

The global pandemic was the crisis that no one could avoid. Corporate resilience was tested as businesses were squeezed in many directions: loss of demand, supply issues, and workforces facing sudden mass remote working.

But how has corporate resilience evolved over the course of the pandemic to deal with a business landscape which has moved a decade in a single year?

McKinsey survey

A McKinsey Survey of 300 executives found that half of the respondents reported that COVID exposed weaknesses in their companies’ strategic resilience and that business model innovation was the most effective response. Over 60 percent of the respondents felt that these innovations would last beyond the crisis. Interestingly, 42 percent felt it had weakened their position, while only 28 were in a stronger position.

Companies that were in the right sectors such as online retailers, software firms and pharmaceuticals enjoyed a boom, whereas companies in the vulnerable sectors such as energy, retail and transportation were hardest hit.

Two stories from the retail sector demonstrate how agility and adaptation can be the difference between success and failure.

Traditional retail was one of the hardest hit sectors in the pandemic; busy high streets were left desolate, and shops shuttered.

Traditional retail

Retailers without a significant online presence faced ruin. In the UK, household name, Debenhams, dependent on physical shops and so unable to reach its customers filed for bankruptcy. In contrast, another traditional retailer Mars Petcare innovated quickly during the pandemic by moving beyond traditional lines of dog food and pet products to providing animal telemedicine.

Telemedicine is a field that has shot to prominence in the last year. Mars Petcare demonstrated it is not just for humans, as it helped many veterinarians shift online to treat patients.

Hybrid working

As the world looks gingerly towards a post-COVID world, hybrid working has appeared as a term, which promises to make organizations more resilient. In theory, a more dispersed organization (with staff split between office and home) will reduce dependence on physical buildings, and more flexibility could result in a more contented workforce.

However, hybrid working at this new vast scale is untested. Many workers have to adapt to new technology and another change in working practices. In addition, there is a potential conflict between those who favour working face-to-face and those who prefer technological solutions.

The pandemic has provided a number of lessons for organizations striving for resilience. The companies that are adaptable, agile and understand risks will thrive in the future.

As Microsoft CEO Satya Nadella commented in 2020; “We’ve seen two years’ worth of digital transformation in two months. The quarter is the new year, and the fastest will win”.

The lessons of the pandemic

Adaptability: Organizations can change processes, structures, and business models, or design them with maximum flexibility in order to adapt to new circumstances. For this to work, the organization needs to have a willingness and desire to learn from mistakes and evolve through trial and error. In a similar vein, volatility and exposure to stress, rather than seen as a negative should be viewed positively.

The experience of this (unless taken to an extreme) will help the organization face the future. Adaptability can come at the price of stability. Agility is usually easier for a startup like DragonSlayer but much more difficult for a vast lumbering multinational.

Understanding Risks: Many firms in the software, online delivery, and pharmaceutical sectors did well during the pandemic, but that does not mean they will thrive in another crisis. In fact, their success may blind them to risk in the future. Identifying and prioritizing risks as they appear is critical for a resilient organization. Organizations should be asking what risks will appear in the future, how they will play out over time, and are we equipped to respond effectively to these threats as they appear.

Businesses should employ horizon scanning and identify key emerging risks that will affect them in the future.

Adopting the precautionary principle: Murphy’s Law states, “If anything bad can happen it probably will.” This pessimistic view was borne out by the evidence; most people have a bias towards optimism and a tendency to ignore even obvious risks. For example, the World Economic Forum Global Risk report has been warning of a global pandemic for many years. Inadequate planning in many western countries has created an opportunity for this threat.

Businesses can adopt this principle through contingency planning across business units and stress testing of their activities for weaknesses. Business units should draw up contingency plans and test these in live scenario exercises. Of course, these measures are often time consuming and disruptive, but increasingly organizations will have to adopt them if global crisis and widespread systemic change continues to be the norm.

Geopolitical Aftershock: Climate Change and Commodities

Food security and the dangers of a hungry population are a major global risk and geopolitical flashpoint. Corn, rice, soy, coffee, copper, iron, nickel, crude oil, natural gas and propane are just a few of commodities traded in huge Supertanker sizes quantities across the world.

Commodity trading is worth billions a year and is a cornerstone of the global economy, the glue that connects farmers, miners to merchants, industrialists and refiners to consumers.

However, a sobering new report by the Commodity Futures Trading Commission highlighted the fact that financial markets are not recognising the risk that climate change poses to commodity trading. These risks could plunge commodity markets into chaos even if they are recognised.

Millions of people already suffer from food poverty and insecurity in India, Africa and Latin America, but even in the wealthy United States around 10 percent of households suffered food insecurity last year as the country experienced a sharp pandemic sparked recession.

Climate change over the next couple of decades will dry rivers, disrupt traditional weather and weather patterns such as monsoons. A warmer world means more wild fires, drought and sea level rise which will destroy coastal farmland and river deltas.

All this spells bad news for agriculture, climate change will decimate crop yields across the world while population is still predicted to be growing.

The FAO expects the global population to rise by 2 billion and food demand to grow by 60 percent by 2050. But by 2050 without drastic action catastrophic climate change will be ravaging agriculture.  

For example India, Vietnam and Thailand are the world’s premier rice exporters, a major drought in two or three of these places would see a major global rise in the price of rice.

As these effects take hold over the next decade and the realisation that agricultural produce is less secure, there will be a concerted effort to monitor and protect food sources so exports do not mean local people starve.

Food Nationalism

Food nationalism will take hold across the world as populations demand government’s prioritise local food chains. During the pandemic a number of countries put exports controls in place to ensure their own people got fed first. Export clampdown will in turn create further prices swings.

There are many ways which humans will combat these problems, many innovative solutions exist including:

  • Vertical farms growing crops inside away from the vagaries of weather, such Danish venture Nordic Harvest.
  • Growing more climate resilient crops which are better able to withstand heat and drought.
  • Farming and agricultural production could also be boosted through improved technology or by utilising more farmland

However these measures are unlikely to stop the full force of climate change, some crops such as rice and wheat cannot be grown at scale indoors and there is limit to resilience measures and how far crops can be adapted.  

Insecticides and pesticides are already decimating insect populations across the world and much of the world’s land is already severely degraded. Given so much land has already been put under the plough there is a limit to how much more can used.

The trade in metals and minerals are not immune to climate risks. It might appear that mining would be unaffected by climate change, but droughts, extreme weather and extreme heat could all make certain mining operations much more difficult. Mines that rely on regular water supplies could see those dry to a trickle.

Global Supply Chains

Global supply chains which bring these metals from deep inside the earth to be processed and sent onto to manufacturing plants in an intricate series of steps will be under more threat than ever before. Extreme weather events, flooding, greater incidence of disease and growing geopolitical tensions are just a few of the factors which those governing supply chains will be concerned about.

In geopolitical terms fluctuating commodity markets will create major price fluctuations and supply problems will push suppliers to look for more stable sources of commodities.

Crops and agricultural produce will be sourced from new more climatically suitable areas. So the South of England could become a major wine growing region while the Spain and Italy suffer as their crops suffer in excess heat. Innovative companies like Nordic Harvest could be big winners as the world turns to innovate climate friendly solutions.

Coffee Shortages

Countries most exposed to climate change – South Asia and Africa will suffer most acutely will also see the commodities such as coffee, chocolate, rice are likely to be hit hard.  Coffee the drink which powers people’s mornings in every corner of the world is a US$ 70 billion a year industry. Now warmer temperatures are encouraging the fungal diseases which are destroying crops.

Changes in rainfall patterns are also costing coffee growers, too much rain can make the fungal infections worse, too little and the crop will not grow. Adaptation is hard because of the unpredictability of rainfall and heat, if you invest in a drought resistant crop but then experience excessive rainfall and widespread fungal growth any resilience measures will be unhelpful. Right now customers are not feeling any change, but in time they could see prices rises and many varieties wiped out.

Instability and the effect of climate on commodities has not been priced in by global markets which means any correction could be painful and expensive. Investors are increasingly turning to risks assessment like the Task Force for Climate Related Climate Disclosures which attempt to measures a company’s climate risk exposure.

Commodity trader and suppliers will have to pay close attention to climate risks as they disrupt global markets over the next decades.

Taking the Long View: Climate Change and the Military

The new US Defence Secretary Lloyd Austin has declared that climate change would be recognised as a global risk and a major security threat. The contrast with the Trump administration which ignored climate change or actively took measures to make it worse could not be starker. Recognising the problem is the first step to addressing it. Unfortunately, climate change is a major systemic issue which cannot be wished away through policy changes.

Environmental and political groups have long made headlines about climate issues but much less noticed militaries around the world have also been expressing concern and quietly making plans. Climate change is not on its own going to make the world more violent. Instead, it is a threat multiplier, a changing climate will create the conditions that will result in a more dangerous world.

Sea Level Rise

Sea level rise threatens to start destroying many of the world coastal cities in 20 to 30 years time. Thousands of seaside settlements and millions of acres of farmland will be lost to the incoming sea. Migration will start from low level island states in the Pacific. This will be politically explosive as it will effectively mean countries disappearing under the sea and homeless migrants turning up to neighbouring countries.

But the real impact will be felt when megacities like Dhaka, Shanghai and Mumbai start losing their battles with the sea. While some metropolises may try building walls or other defences, ultimately the sea will be unstoppable.

This process is already underway in Jakarta. The wealthy and governments will flee inland or go the new capital planned for the neighbouring island of Borneo leaving the poor to suffer in decaying, drowning cities. The chaos and mass movement of people will cause conflict as people try move to different regions of their homeland or to cross borders in huge numbers creating social upheaval on terrifying scale.

Tensions will flare between newcomers and existing residents, rich and poor. To make matters worse tropical storms and extreme weather will increase in strength creating more disasters which will make living in coastal cities even more undesirable.

Military Installations

Military installations such as naval bases are also vulnerable to rising sea levels and extreme weather. These factors can overcome infrastructure built for different era. It will not have escaped the US Military Command’s attention that a wealthy well developed part of the country, Texas, was devastated by cold weather and snow. The Lone Star State ground to a halt in February 2021 with many losing power and water as result around 80 people died.

The US military has been trying to find ways to cut down on its massive fossil fuel consumption. More use of renewable energy and greater efficiency will cut the bill and reduce carbon emissions and cut energy bills.

Militaries around the world constantly develop scenarios which may occur and test their response. Most obviously this would be war with a rival, but militaries have to respond to many different situations.

All Hell Breaks Loose

One Scenario the Pentagon have imagined is the “All Hell Breaks Loose” where other countries are torn apart by conflict and extreme weather creating overlapping and never-ending disasters. At the same time the military are dealing with trying to provide relief efforts at home.

The US military’s own installations could be at risk. Naval bases are threatened by sea level rises and more frequent storms will mean installations have to be evacuated.

Competition for scarce resources such as water and food are also likely to cause conflict particularly in poorer countries and those with limited resources or that are already experiencing conflict. Covid has squeezed the price of food which has shot up along with many other commodities recently.

Prices will likely fall as the world eventually returns to normal. However, this could take a few years as the world readjusts after Covid which gives plenty of time for unrest or revolution to be encouraged by a hungry fed up population suddenly released from the bonds of Covid isolation. Some analysts linked the Arab Spring to dramatic food prices rises, while this may be simplistic, empty stomachs are a potent reminder of the poor governance and inequities suffered by many.

Food Security and Ethiopia

Covid disruption is one factor then the effects of climate change truly hit home the impacts will be much harsher. Rising temperatures in Africa and the Indian Sub-Continent are likely to reak havoc on agriculture.

Food security are already major concerns in these regions, climate change will make it far, far worse. For example coffee production in Ethiopia and maize growing in Mozambique could be disrupted by 2030 seeing a drop in yields from anywhere between 10 to 25 percent.

The widespread failure of crops will result in food shortages and famines but likely result in export bans which will cause food prices to shoot up across the world. This instability and chaos will put pressure on militaries who might be forced into action to try and stop large scale migrations, act as a humanitarian forces and intervening in conflicts.

Water Wars

As resources such as food and water become scarce, the potential for conflict increases. Egypt and Ethiopia recently came close to war over a dam the Ethiopians were building which threatened to cut the flow of water to the Nile.

Pakistan, India and China face potential conflict over the headwaters of the many rivers which flow from the “third pole” the Himalayas. When disappearing glaciers threaten the flow of the Brahmaputra, Ganges or Indus tensions between the countries facing existential threat could explode into war.

Militaries around the world are waking up to the reality of climate change and threats it poses. While they will not be the biggest advocates for change or mitigation around climate change they could be a group that effectively highlights the risks that a changing climate poses.

How to Build a Resilient Company

The Covid crisis has exposed widespread weaknesses in companies, countries, and society. The inability to deal with a major pandemic, something which has been widely predicted for many years demonstrates the short-term thinking that pervades much of our thinking and presents a major global risk.

Many firms in the hospitality industry, transportation and consumer firms have been dealt a harsh blow by the pandemic. Many firms have been put out of business or placed on government life support. Destined to become “zombie” companies propped up by tax payers until they become viable again.

Governments particularly those in Europe and North America have experienced heavy death tolls, large parts of their economy closed down and growth go into sharp reverse. Many Asian countries such as Vietnam, Taiwan and New Zealand were far more agile and have avoided the worst affects of the virus. The relatively recent experience of SARS helped build awareness and capacity in handling a pandemic.

Looming Crisis

The pandemic continues to rage across the world and although it may subside soon, many observers believe the world is becoming more unstable, chaotic and dangerous. The looming threat of climate change, the dangers of an economy increasingly based on new technology and the prospect of a multipolar world all point to an unpredictable future.

Faced by this new world the question for businesses and leaders is how can we prepare for this unpredictable future? The answer lies in building a resilient organisation. Resilience is usually defined as the ability to recover key infrastructure, absorb stress and thrive in adversity.

Many companies are focused on short term shareholder value whereas resiliency requires long term thinking. For example, nurturing and developing loyalty in staff over the long term may be expensive, but loyal staff are invaluable in a crisis.

Most organisations have well thought out strategic plans which are designed for reasonably predictable circumstances and when relationships are clear. Crisis can change all this and resilience means dealing with change and unpredictability.

Many companies take their customers, the countries they are based in for granted. Crisis can change all this and throw old assumptions out the window. Resilience needs to take into account unidentified risks. Firms are usually good at identifying and reducing exposure known risks. Resilience must consider “black swans” or unknown unknowns.

When crisis hits companies they must adapt and look for advantages in the new environment. For example, when Covid hit the restaurant industry LWC quickly shifted to supplying households instead. Many other firms have thrown their business model out the window and have embraced the pandemic world as best they can.

How Can Companies Develop Resilience

Redundancy builds buffers against shocks, at first sight this can cost money and appear inefficient. For example, having additional staff cover key positions or duplication in production. This appears wasteful until there are widespread absences. When staff particularly those who cannot be replicated easily start falling sick or leaving, then those “inefficiencies” make business sense.

Diversity of response: This involves developing an environment which encourages multiple ways of thinking and responding to crisis. Again this can appear inefficient and chaotic, with different views and no shared vision. But the result can be that better decisions can be made because more experience and viewpoints come into play.

Modularity: this means allowing parts of an organisation to fail without causing total collapse. The trade off is that the organisation as a whole may lack cohesion. Unless an organisation is already modular then shifting to this model is particularly difficult.

Precautionary principle or prudence: if something can go wrong it will go wrong. The response is widespread contingency planning and stress testing of relevant risks. Critical parts of the business should be tested through desktop scenario exercises and stress tests. Other risks should be identified by horizon scanning and early warning systems.

Adaptability is evolving through trial and error. This requires that processes and structures in resilient organisations are designed for flexibility and the willingness to learn through mistakes. This comes at the price of stability.  

This can be taken a step further by actively seeking to take advantage in adversity. Instead of just looking to mitigate risk the firm should seek to improve its position by adjusting to new realities. Using a crisis to its advantage, either by using it transform the company internally, or to take a position in a new world.

This could mean acting to take advantage of new markets. As the global Covid pandemic subsides much of life will return to normal, but much will change permanently. More widespread permanent remote working and therefore smaller office footprints, more home deliveries, fewer flights and many other facets of life and business will shift. The skill is identifying these changes and adapting to the new environment quickly or face extinction.

Embedding these principles while in alignment with the company’s goals and activities is critical. Having a deeper purpose than short term profit can help a company articulate resilience, particularly when resilience is at odds with short termism.

Embeddedness is the alignment of a company’s goals and activities with those of broader systems. It is critical to long-term success because companies are embedded in supply chains, business ecosystems, economies, societies, and natural ecosystems. Articulating a purpose — the way in which a corporation aims to serve important societal needs is a good way to ensure that the company does not find itself in opposition to society and inviting resistance, or reputational risk and sanctions.

Diversification or migration is a more obvious strategy: this means developing new markets, geographies, or business models. This is commonly done by companies to ensure they are not over dependent on any one area or product.

However, migration during a crisis is a much more difficult proposition. Deploying resources in the business requires business intelligence and foresight to spot opportunities and risks in advance. The company also needs the flexibility to reallocate resources at speed.

What are the Benefits of Resilience?

By recognising the idea and planning there is a better chance of spotting threats earlier. These plans will be useful when the company is put under stress during a crisis.

Resilience will allow the company to rebound when the crisis subsides. Having the agility and the ability to learn an adapt will mean the organisation will better able to thrive in the new reality. While many retail outlets will have been hit by Covid, some will divert resources to online and delivery which will outlive the crisis.

While a crisis may appear the time to revert to stability and familiar structures. There is a famous saying “Never let a good crisis go to waste”. A crisis can be the harbinger of change, transformation to a digital organization has been achieved by mass remote working rather than a strategic plan.

A resilient agile organisation will press this advantage by enjoying the efficiencies allowed by remote working, reducing their physical footprint to save money and allow hybrid working at home and the office to get the best out of their staff.

Resilient organisations should assume that change is the new default andallow for constant iterations and experiments. So for example making plans and policies than can be easily updated and have room to manoeuvre and avoid a major breakdown. Constant small shocks and incidents to an organisation make it fitter, less complacent provided that staff and management are alert more adaptable.

The Green Futures Index: How to Rate the World’s Climate Progress

If the world is to hit ambitious climate goals over the next ten years and avoid the worst effects of climate change, we need huge shifts in our economy. This means mass uptake of renewable energy, rapid decarbonization policies and the development of sustainable economies.

There are signs this is happening, the pandemic has seen the oil industry hit hard in 2020, losing 40% of their revenues due to a huge drop in demand. In turn this helped greenhouse emissions fall 7% (relative to 2019). But the fossil fuel industry still made US$ 1.5 trillion in revenues over the same period, five times total investment in renewables which indicates the scale and difficulty of transitioning to a sustainable, climate friendly economy.

At the same time there is an appetite for change across governments, the corporate sector and the public. But how should this progress be measured, the new MIT Sustainable Green Futures Index attempts to do just that. The Index rates 76 leading countries on their progress and ability towards building a low carbon future. The index measures countries across five pillars; carbon emissions, energy transition, green society, clean innovation, and climate policy.

It is probably no surprise that European countries dominate the top of the index with 15 of the first 20 places. Iceland is the leader, followed by Denmark – both countries renowned renewable energy and climate policy leaders.

Norway is third in the table thanks to measures such as leading the adoption of electric cars and rapid transition to a low emission economy. However, Norway remains a major oil exporter and contributor to other countries carbon emissions, which may be reflected in its poor score in the green society pillar.

The energy transition pillar was dominated by African countries; Ethiopia, Angola, Uganda and Cameroon are all leading a move to clean energy.

Much of the continent has seen rapid adoption of solar and wind energy. Ethiopia has been in the news thanks to its construction of its monster dam near Sudan and conflict in the Tigray region but its Green Climate Resilient Economic Strategy has been in place since 2011 and has led the way in promoting a clean future.

Morocco is also prominent in the Index as an African country which has pioneered clean innovation. Morocco made an early decisive shift toward renewables, lacking the oil or gas reserves of its neighbours (such as Algeria) it grasped the future with both hands.

Now the country is on track to have a 52% renewable energy share by 2030. The Moroccan Agency for Energy Efficiency has become a centre for expertise – it hopes it can promote and share expertise on renewable energy across Africa.

The green society pillar is driven by preserving the environment, recycling levels as well as meat and diary consumption. Singapore tops the pillar thanks to its advanced recycling program and low use of meat and dairy.

New Zealand despite being a high performer overall is last in this category thanks to its high meat consumption and lack of green buildings plus a poor recycling rate.

New Zealand does top the Climate Policy Pillar, which is the most important element contributing 40 percent of the total score. This pillar measures countries climate ambition as determined by the national determined contributions (NDCs), as well as the effectiveness of the policy frameworks that will deliver these targets.

Policy is also defined as the development of carbon pricing measures, sustainable agricultural policies and the so called “pandemic pivot” – in other words what do stimulus packages offer towards decarbonisation such green infrastructure and transition. Denmark and France excelled in this pillar. Denmark’s recovery program placed EUR 5 billion to make homes more energy efficient.

While each pillar can contain some interesting results, it is the overall index score which counts. There is no real surprise that the countries at the bottom of the chart are the so called climate abstainers.

These are typically fuel exporters like Saudi Arabia and Russia who have consistently blocked climate initiatives. We can probably expect these nations to delay meaningful change until it is too late.

Arguably the most critical countries are those which will drive global decarbonisation due the size of their economies and emissions. Right in the middle of the table (40th Place) is the US, it should and must improve this position under the new Biden Administration.

China sits just below the US at number 46. While the country is a leader in renewable technology it also remains heavily dependent on coal. But China should now feel the pressure from the US to up its climate game.

India is perhaps surprisingly just outside the green leaders at 21 in the table overall given its high carbon emissions, but it partly makes up for this thanks to its rapid uptake of renewable energy, primarily vegetarian diet and ambitious climate policy.

The Green Futures Index will help judge the relative performance of nations in the drive to decarbonise and develop sustainable economies. In time the Index could become a well known benchmark like the World Bank’s Doing Business Survey.

Decarbonisation and sustainability will become a growing factor in judging whether to invest or even broker alliances with other nations (climate diplomacy). As the world faces climate breakdown understanding who the laggards and the heroes are will be ever more critical.

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