- Sustainable Finance Solutions
- Sustainability Perspectives - ESG Podcast by Refinitiv
- Episode 40: How California Fires & Similar Events Affect The Investor Community
Anita Van Breda, Senior Director, Environment & Disaster Management at WWF
Alessia Falsarone, Head of Sustainable Investing at PineBridge Investments.
Disaster Management: How California Fires & Similar Events Affect The Investor Community
Episode 40 | Duration: 18 minutes
How can investors integrate such wildlife risks as the 2020 California fires? What are the key changes in disaster management (and what role does climate change have to play here)? And even more importantly, what can institutional investors do to prevent and to mitigate such risk?
Keesa Schreane [00:00:00] Hello, everyone. This is Keesa Schreane and today we're going to talk about the impacts of climate change. We're seeing these impacts more and more, and in various different forms, natural disasters, as well as policy discussions, politics and even changes in investment strategies. Now, do investors actually have a role in preventing these risks and mitigating these risks? Today with us we have Anita Van Breda, Senior Director of Environment and Disaster Management at WWF, and Alessia Falsarone, Head of Sustainable Investing at Pine Bridge Investments. Thank you both for joining, Anita and Alessia.
Keesa Schreane [00:00:42] So Anita, let's first talk about the way disaster management has changed over the last few years. Specifically, we'd like to think about and talk through the ways hazards have come to mean different things to us and underlying risks that are changing. Can we speak to those two things specifically?
Anita Van Breda [00:00:57] Sure. And I want to start by saying thank you for including us in this important discussion. It's a pleasure to be with you here today. I also want to recognize the experience that people are having around the world facing different disaster risks, particularly the climate influence, risk and disasters that are being experienced now in the U.S. on the West Coast. These are ongoing challenges and people are still in great need of support and are dealing with rescue and relief and so I just want to put that upfront, which is an ongoing and urgent issue. But as you mentioned, hazards and risks are changing, and the reason why we have the Environment and Disaster Management Program at World Wildlife Fund is a recognition of that, that environmental issues can contribute to disaster risk, but they also play a very important part in the safe and resilient recovery from extreme events. So, it's an important piece of work and we're learning, as time goes on, how different hazards are changing, how that presents risks to those people and ecosystems, and how to deal with that risk successfully for the future. We need to look at an integrated approach to understanding risk, understanding hazards, but also in our response and recovery efforts.
Keesa Schreane [00:02:37] And Alessia, let's look at this from the institutional investor perspective. What are these risks, such as these hazards in the US, specifically the California wildfires? What should institutional investors do to adjust their strategies when they're considering such risks?
Alessia Falsarone [00:02:55] Yeah, thank you Kessa. You know, it's in a way, how do investors relate to extreme events? Is really the question here, right. Whether they're institutional or not, and more often than not, investors decision-making has been really affected by the time horizon likelihood right out of a near-term context that deteriorates farther.
Alessia Falsarone [00:03:16] So if you're thinking about California, for example, wildfires, we're really thinking about the whole U.S. situation of having had over, I think, 12 or even 14 of these two-billion-dollar events in the U.S. just last year. And the sheer volume dilemma. So, investors, they think exposures, no matter what causes one extreme event, could be the weather, could be bankruptcy filing, right. The first question that investors ask is, 'do I know or do I own it directly in my portfolio?' Now, if not, any other adjacent risk I'm facing as a result of conditions deteriorating further obviously needs to be considered. So, the fact is, investors at first, they start zooming in at one point on the map, right. In a very localized fashion, and then they spend their lens after zooming in on that particular exposure as time goes. Where I see the importance of the situation, what Anita just said that obviously, risk prevention, in this case, has to change and has changed is that investors continue to fail to do several things. The first one is even the ones with very advanced analytical capabilities, called prediction analytics, over extreme weather events and quality assurance of insurance companies, for example, you know, which directly links the outcome of an industry event in a disaster. The financial impact again disappears when zooming out of that localize mode sooner and starting to looking for, in a way, balancing effects that usually come somewhere else on that geographic map. This may end up affecting the total loss both financial, environmental, and human, which is associated with that catastrophe.
Keesa Schreane [00:05:11] When we're looking, Anita and Alessia, when we're looking at prevention, my thought is partnerships would likely play a role in mitigating and preventing such future events. What do these partnerships look like? So, in terms of institutional investors and governments, how do these partnerships come about? Then once they're in play, what is the expectation around solving for these things? Anita and Alessia, I would love for you both to chime in and get your thoughts there.
Alessia Falsarone [00:05:39] Again, as I was saying earlier, how to show for it, right. When you're thinking about including metrics and evaluation of uncertainty, and all the risks that call in a variety of disciplines, right, like Anita was pointing out before. So you have a one end risk management perspective to advance prevention. On the other hand, you said climate change adaptation all the way to sustainable development, right. You're thinking where did the catastrophes localize? You understand that the alliance has to be slightly different. And again, in the developing world, for example, there is certainly a need to strengthen and build capacity monitoring, right. A completely different indicator coming forward so that coordinating data collection can help move in a way that thinking and that partnering and those partnerships together. For example, what I think is extremely helpful is when we're thinking about resilience, thinking of resilience at least from an investor's perspective, building layers. So I call it an influence map investors have available and they need to tap in, which is their own network of government and national bodies. You're talking about municipalities and scientific bodies in this case, NGOs, in a forward-looking way. That obviously allows for early intervention, but planning for and that will ultimately reduce the financial costs of future disasters. So, that in a way, how does this influence map work overtime? What sort of resources can be portable from these types of risks?
Keesa Schreane [00:07:19] Anita, what are your thoughts?
Anita Van Breda [00:07:21] Yeah. No, that's great. And I have almost exactly the same thoughts of what Alessia just said in that if we replace what she said in terms of the private sector and companies with civil society organizations and NGOs, we have almost the same approach. And Keesa, you mentioned partnerships, and that is a fundamental element to the work that I do, integrating the environment and disaster management, and that's key for us all going forward. So, we're trying to move away from the notion that climate change adaptation or resilience-building is the responsibility of a department or a team or an individual. No, we all have to build our own capacity to understand what is adaptation? What is resilience? And what is my role and responsibility in contributing to that?
Anita Van Breda [00:08:19] So, we are working very deliberately within WWF to look at how to build the capacity to do that, to try to facilitate that type of multi-participant, if you will, analysis, and then response. Because of the way that the world is changing, the number, scale, and scope of hazards and risks that we are all facing, it will be virtually impossible for one group, one organization, one sector to address that. We really have to figure out how to do that more successfully together. And so I am very committed, for example, to training the next generation of practitioners and actively facilitating their ability, whether they're working for an NGO like WWF or the Red Cross or CARE, or the private sector or company, or those working in the public sector with governments. We all need to be able to work together, understand each other and communicate in a way in order to deal with these hazards and risks that we're facing.
Keesa Schreane [00:09:27] One word that I hear, that I've heard from both of you, and it keeps coming up is- resilience. So resilience planning, determining resilience. Is there a top three, you know, who wants to give a three-step process, these are the top three things that we should think about, that any entity should think about, when it comes to resilience? This crosses sectors and crosses regions.
Anita Van Breda [00:09:51] Sure, that is an interesting and complicated challenge that you put to us. We hear the word resilience a lot these days and we all think of resilience as a good and positive thing, and by and large, it is, but bad things can also be resilient, right. So, we really have to, one, sort of clarifying when we say resilience, what do we mean by that? And then look at a comprehensive approach to understanding what needs to be resilient. Who needs to be resilient? How do you need to be resilient? And then how do you get there? So, it's a matter of taking that time and the effort, and having the space to think about what it means for you and how you're thinking of that term in that word and that approach? And then working with others to maybe expand that perspective. I know that within WWF, my colleagues who specifically work with the private sector, they take basically a three-pronged approach. One is to help the private sector look at where the is risk? What is resilience? And then, how to prioritize those issues? Then secondly, looking at nature-based approaches to try to address that resilience objective or that risk. And then thirdly, to collaborate with others because of what we were just talking about in terms of the integrated need to address these things over time.
Keesa Schreane [00:11:34] Perfect. And the last question here, I just want to get your thoughts about, have the philosophies of corporations and investors, have they changed over the last few years? If so, what would you say was the benchmark event or the time period? And then where is, in terms of our hope for the desired outcome, where would we like these mindsets be, say, in 12 months, or 18 months or so?
Alessia Falsarone [00:12:00] I think Kessa that, you know, I have a very visual image of, you know, growing up in a highly seismic region in central Italy. And so your question reminds me, 2017 alone we had six months of deadly earthquakes, which resulted in 24 billion losses for the country. But, you know, hundreds of deaths, right. So, when we're thinking about resilience, building programs and, you know, we have to consider that climate change can be approved without putting into context some demographic change as well. Now, obviously, the population has shifted and transitioned overtime where the rebuilding happens and so on and so forth. So, I think from my perspective that the changing nature of demographics is something that obviously is grabbing a lot more headlines along the lines of sustainable development, obviously issues or goals and ambitions that our world has along with investors. Yet, you know, I go back to how many days go by after an extreme event, call it the wildfires before investors start, number one, worrying about the longer-term consequences. And number two, thinking about other negative externalities that are associated with this increased social costs of these extreme events, which affect not just the local ecosystem, as I said, this zooming-in effect. So, I think going back to what Anita just said, it is not just about what has changed, you know, what headline may have switched, you know, sort of the focus on how do we build resilience? And what we mean by that? But also the fact that this is a dynamic process that can be even more prolonged than rebuilding infrastructure or physical infrastructure itself, right. If you're thinking about the loss of biodiversity, if you're thinking about the increased level of pollution, and so on and so forth, and the loss of different axis of mobility or connectivity, that all goes into place when we're discussing the demographic change that we're facing. So I think, again, a topic of demographic change is probably what is affecting that influence that investors should and started to look at. But also, the way we build, obviously, resilience for the long term.
Keesa Schreane [00:14:33] And Anita, if you had a magical ability to kind of shift the future and what, 12 months from now, 18 months from now would look like, whether it be from a policy perspective or whether it be from a collaboration perspective, what would be your desired outcome? If you were able to do that?
[00:14:48] I think it would be really helpful if 12 months from now, that we in this community and the role that we play, whether we're working for an NGO like mine or in the private sector, is to shift the focus on extreme events from the headline-grabbing event itself and the aftermath and focus more attention, and time, and effort investment on risk reduction before the extreme events. There are all sorts of perverse incentives to focus on the event and its aftermath, and we need to shift the dynamic. It's to focus more on preventing these bad things from happening. And I think that would point the way to great progress. In addition to what Alessia said about looking at this from an integrated fashion and understanding that we in our roles can no longer work separately in our silos, but we have to do the hard work of figuring out how to work more together successfully.
Keesa Schreane [00:15:57] Great information. So we've heard today that risk prevention and hazard, the way we think about hazards is really changing. We have tools now such as prediction, predictive analytics around extreme weather events. Also, sustainable development, risk management, prevention, analytics, and data collection all play a role in prevention and mitigation. But it takes a village, municipalities, scientific bodies, private companies, and NGOs. These sorts of partnerships can really work toward reducing the human and financial costs around these disasters. Also, we need to clarify what this resilience means to us, to individual companies, and corporately as a society, and also look at constructing a plan to get there. Finally, some critical points that shifted how many of us think about these sorts of risks. Demographic changes, one critical point, loss of biodiversity as well as, changing into sustainable business models. And the last word I have here, one of the future things that it would be great to aim for is focusing attention, more on risk reduction, the more extreme events, not just in its aftermath. Anita, Alessia, thank you so much for joining us.