How to Measure Nature Risk?
In June 2024, Dawn Lalonde, a beekeeper in northern Ontario noticed a sudden die-off of about a million bees. The bee die-off affects much more than the amount of honey she can collect from her hives. Without bees, local crops and orchards do not get adequately pollinated, leading to lower yields. This is but one recent example of a type of risk coming into new prominence in business and economics: nature risk. Nature risk, the loss of things in the world not created or domesticated by humans, affects businesses and economies directly, by impacting operations such as lack of pollination, […]
AI, ESG, and 1.5 Degrees
Moving to a sustainable future on a global scale is challenging. The United Nations Environment Program (UNEP) was founded to encourage member nations to develop sustainability agendas. Through their Financial Initiative (UNEPFI), the UN plans to harness the power of the financial system to this end as well. How can banks, insurers, and investors help accelerate sustainable development? How can they manage transition risk, namely the collection of non-physical risks associated with the transition to environmental sustainability? Does artificial intelligence (AI) have any role to play? In 2015, the Financial Stability Board created the Task Force on Climate Related Financial […]
The Cost of Sustainability
It seems not a newscast goes by without mention of carbon taxes, or emissions trading, or severe weather events. As wildfire season ramps up, the benefits to switching to renewable energy are apparent. Gradually—some might say too gradually—climate policy (both to mitigate and adapt to changing conditions) is being implemented. New measures chiefly target industry sectors that have the greatest carbon emissions, such as fossil fuels, agriculture, and fashion. But how does sustainability affect the cost of capital, in other words, the minimum rate of return a company must earn before generating value? “There’s plentiful research on the benefits,” said […]
Geopolitical Risks
Many conflicts and potential conflicts disturb various parts of the world in the post-pandemic era. For those who must manage various sources of risk in a portfolio, what are the biggest threats on the horizon? Is there a common thread among several sources of conflict? The Global Association of Risk Professionals (GARP) provides a series of podcasts featuring specialists discussing their area of risk and we at TextMedic enjoy listening in. This is the first podcast we have summarized in our blog, and for starters we delve into country risk. On April 14, 2024, Daniel Wagner, CEO of Country Risk […]
Decarb Economics 101
To mitigate the consequences of climate change, the world requires international coordination. In 2015, the Paris Agreement was signed by 195 nations. Its long-term temperature goal is to keep the rise in mean global temperature to well below 2°C (3.6 °F) above pre-industrial levels, and preferably limit the increase to 1.5 °C (2.7 °F), which would reduce the worst effects of climate change. Many countries are developing policies to get themselves on a path toward achieving the agreed-upon 1.5 °C goal. Although present progress may seem piecemeal, in the words of a Chinese proverb, “A great journey begins with a single step.” The figure below […]
Free the Data
Hurricanes, floods, heat waves, droughts: weather events are increasing in severity as the earth’s atmosphere warms. The consensus is that we need to reduce greenhouse gas (GHG) emissions. Yet recent reports show waning interest in initiatives such as Climate Action 100+. “When performance is measured, performance improves,” according to Pearson’s law, and “when performance is measured and reported back, the rate of improvement accelerates.” Such is the reasoning behind the data repository known as the Net-Zero Data Public Utility (NZDPU). On February 21, 2024, three panelists from NZDPU spoke about the “why” and the “how” of their new organization. The […]
Diversifying Wildfire Risk
Climate change is altering risk profiles the world over. In the US, it has led to an increase in wildfire season length, wildfire frequency, and the size of burned area. When it comes to such disasters, is the economic risk only borne by those in the risky area, or can the economic risk be shared among investors? A recent webinar looked at a longstanding tool for financial adaptation. For nearly a century, mortgages have been used to create mortgage-backed securities (MBSs) in order to share the risk (and thus the return) of financing real estate. “What are the benefits of […]
World Energy Outlook
On October 24, 2023, the International Energy Agency (IEA) released its annual report, World Energy Outlook (WEO), to an international audience. The agency states that the energy world “remains fragile but has effective ways to improve energy security and tackle emissions.” Agency analysts looked at how close the countries of the world are to meeting the objectives of the Net Zero Emissions by 2050 (NZE) Scenario, which limits global warming to 1.5 °C, a goal signed by many countries and often referred to as the Paris Agreement. [As of March 2021, 194 states and the European Union have signed the […]
Bearing Witness
Climate change is the biggest issue of the present day. It affects the physical world, and will irrevocably change economics and business. For scientists coping with climate changes, today we at TextMedic pause to consider: How does it feel to know you are studying the last of certain species? or ecosystems that are irreparably damaged? Today’s weekly magazine of the New York Times calls itself “the climate issue.” Several pieces of excellent journalism speak about climate change. The most poignant article in the climate issue profiles 7 scientists whose life’s work will soon be made irrelevant, due the destructive power […]
The Greenium
Does the average household want to invest in climate-friendly assets? If so, what proportion of assets are earmarked for green investments? What kinds of assets (equity or fixed income) are preferred? “Green investments are popular, but only about one-third of German households have some kind of green account,” said Monika Piazzesi, Professor of Economics at Stanford University. She was speaking at a webinar titled “Household Climate Finance: Theory and Survey Data on Safe and Risky Green Assets,” held on September 7, 2023, as part of the Virtual Seminar on Climate Economics sponsored by the Federal Reserve Bank of San Francisco (FRBSF). Her […]