By Ahmad Wani, CEO and Co-Founder
The global climate debate, climate resilience, and climate commitments are red hot right now. While most industry pundits see the space either through an ESG lens or a carbon lens, we view the world through a resilience lens, where resilience means protecting people and places on the planet from the increasingly devastating impact of climate change. This is something that we’ve been working on since One Concern was founded six years ago. And increasingly we’re no longer alone in our view that resilience represents an economic opportunity to rewire the way companies and countries manage sustainability and the role that finance and insurance play in building lasting resilience.
It’s why our partner SOMPO has committed more than $100 million to working with One Concern to develop the global market for resilient solutions. And we see other large global players equally excited about the resilience space. This shift from reacting and responding to an event to predicting and preventing the event before it literally becomes a “disaster” is what we believe in. It’s why our mission is to make disasters less disastrous using AI, machine learning and lots of data — in effect, a digital twin of the world.
Let me pull back the curtain a bit on what we’re seeing in the marketplace and why it gives One Concern and our partners the advantage. I’ll focus my comments on three things: customer insights, the global infrastructure deficit, and the intersection between resilience and sustainability.
The Four C’s in the Boardroom
Recently, we had the opportunity to speak with more than 80 companies — nearly all global and Fortune 500 firms — in finance, manufacturing, logistics, transportation, energy, and consulting. Our main topic was essentially what keeps you up at night — what’s your One Concern?
We discovered four key insights from these discussions about resilience:
- Cyber and civil unrest are covered but what about climate and COVID? Most of the Boardroom and C-suite executives we spoke with told us that they felt they had tools and resources to manage cyber risk and protect employees from civil unrest, but felt ill-prepared to manage climate risk and pandemic risk. In fact, many of the companies we spoke with, who have made net-zero carbon commitments, privately admit that they have no clear plan for how to manage those commitments or no clear view on how much it will cost over time. They’re leaning on consulting firms to navigate the way.
- Employee safety is the number one concern. In a world turned on its head by the pandemic, employee safety is the primary concern for large enterprises. Last year’s dramatic shift to a virtual workforce meant that employers wanted to ensure that their employees were safe no matter where they worked.
- Large enterprises have the resources — and motivation — to invest in resilience. Whether it’s regulatory pressure from financial regulators, increasing ESG pressure from shareholders, or simply reputational risk, these companies want to get ahead of it and are willing to invest in resilient solutions that protect the bottom line, and in our view, will ultimately grow the top line.
- What about unknown risks “outside my fence”? COVID-19 has exposed vulnerabilities that organizations had not previously considered to be a threat, and thus had not incorporated into wider resilience planning. In particular, organizations were not prepared for the cascading impact of an unknown risk — such as a pandemic — to their operations, whether through reduced sales, disrupted supply chains, or displaced workforces. It’s these unknown risks “outside the fence” that are driving enterprises to re-jigger supply chains, invest in on-premise microgrid solutions to keep the power on, or look for public-private partnership opportunities to improve public infrastructure.
The Global Infrastructure Deficit
Most enterprises have historically looked to governments to take the lead on climate action, the development of climate-resilient infrastructure, and the inevitable post-crisis clean-up.
The problem is that governments, including the U.S. government, lack resources to address the widespread needs of improving infrastructure. That means the infrastructure companies rely on — roads, bridges, electrical grid, and communications networks — cannot consistently meet mission-critical reliability standards.
This is why the Biden Administration’s $2 trillion climate infrastructure plan is so critical. While some see the plan as too ambitious, the American Society of Civil Engineers suggests the proposal only begins to address the actual U.S. infrastructure investment gap, which it estimates will reach $5.6 trillion in less than two decades. A case in point: the storm that hit Texas in early February. The storm’s impact on business and infrastructure is projected to cost more than $200 billion, not to mention the 111 lives lost in part due to infrastructure-related conditions.
Globally, there’s a $15 trillion infrastructure deficit. That gap widens daily as the existing infrastructure remains vulnerable to climate threats, disruption, and decay.
Only the private sector can help close the gaps by cooperating with governments. But the private sector needs a compelling incentive to get involved. If climate risk and hazard risk can be better measured, then they can be better priced. It’s why you’re seeing the Securities and Exchange Commission undertake a public comment period on updating the 2010 climate risk disclosure policy. While ESG plays an important role in market behavior, it can only go so far due to the lack of standards and because it drives compliance more than action. We believe there’s a role for adding an “R” for resilience so that companies, government, and investors are incented to invest in resilience, rather than simply comply with ESG shareholder optics.
The Intersection Between Resilience and Sustainability
We see the world as a graph database where buildings are “nodes” and the infrastructure that connects them are “edges.” It’s how we’ve built our “digital twin” for the US and Japan. Break a node or an edge with extreme weather and you can see the domino effect that occurs. It’s exactly what we saw in Texas earlier this year due to an “unforeseen” cold spell that froze the grid. The only thing is, Texas had experienced similar cold spells in the past, but they didn’t invest in resiliency to prevent the cascading effects from occurring.
It’s this linkage between physical risk and transition risk — or between resilience and sustainability — that excites us the most at One Concern. We think of it in terms of “zero / zero” — by investing in resilience, you aim to reduce your vulnerability to zero while simultaneously accelerating your path to zero carbon.
Considering that most of the US grid continues to be coal or natural gas-powered, it only makes sense to invest in low carbon, microgrid solutions to keep the lights on, the factory humming, and the sales coming.
With the Biden Administration’s push to cut greenhouse gas emissions in half by the end of the decade, we’ll soon see a massive uptick in investments in renewable interventions with the goal of achieving both zero vulnerability and zero-emission as soon as possible.
The question then becomes how to prioritize your investment spend. And that’s where AI and data come in. With AI and a digital twin, you can run countless scenarios to determine operational risk for the enterprise and insurer, or value at risk for the investor. It enables enterprises to reduce the likelihood of business interruption while securing better insurance coverage. And it allows the investor to better understand climate risk, so they can make smarter investments.
In any hot market, there will be winners and losers, innovators and imitators, champions and skeptics. One thing that we’ve learned in the six years that we’ve been building this company, is to stay focused on our view that investing in resilience makes business sense. With the impact of climate change costing billions more each year, we believe the economic, market, and regulatory tailwinds blow in our favor.
While the sustainability market has a 50-year head start on us, we believe the resilience economy is ready to take off and will ultimately eclipse the market opportunity that we’re seeing today with batteries, renewables, hydrogen and electric transport.
Market leaders aren’t born overnight, and we’re excited for what the future holds. Much more to come.