Apr 29, 2019 8:00 AM

Companies Can Predict Climate Catastrophes for You—as a Service

One startup in the growing climate services industry lets you pull up a map and design your own disaster, to help put a price on climate change's impacts.

The map of New York that Jupiter Intelligence shows its clients looks a lot like the one you might get on Google. The main difference is the dropdowns.

The map’s left rail lets a user set some deeply unsettling parameters. In the version Rich Sorkin (Jupiter’s CEO) and Dinesh Sharma (its head of products) show me, the options include “Year of Flood,” “Event Probability,” and “Sea Level Rise.” Sharma clicks for maximum impact: 2050, 1 percent, and High. Which is to say, Jupiter, show me what a 100-year-flood event will look like in 2050, given the worst possible outcomes modeled by the science used by the Intergovernmental Panel on Climate Change and other similar bodies.

The result: Let’s just say you’re going to need a decent set of waders. On the map, the edges of Manhattan turn a desaturated indigo. They’re underwater. So are JFK and LaGuardia Airports, the waterfront neighborhoods of Brooklyn and Queens, most of the Rockaways, and—maybe most critical for the kinds of clients Jupiter works for—much of the industrial warehouse and port sections of New Jersey. If you owned those warehouses, or had a business model that relied on shipping to that port, as some of Jupiter’s customers do, all that blue might make you rethink your infrastructure spends for the next decade. The hard part of dealing with climate change is that “there are concentrated benefits to emitters and distributed, not fully-understood costs to everyone else,” Sorkin says. “A big piece of what Jupiter is doing is … putting a price tag on the impacts.”

Climate change is already making life on Earth tough. If you run a business, or maintain a city, or plan power plants or highways or bridges, you’d like to know how bad things are, and how bad they’re going to get. That’s what Jupiter and other “climate services” companies sell. Jupiter explicitly incorporates climate change into its models for catastrophe risk, both proprietary and public, and then offers that knowledge to the kind of people who might lose money when the floods, fires, storms, and heat waves really kick in. Scientists bang on about parts-per-million of carbon dioxide and ocean surface temperatures, but none of their warnings seem actionable—not to everyday humans wondering if they should recycle more, and not to the people who run businesses and cities. Yes, they say, but what do we do?

Jupiter and the climate services industry have some ideas, but they come down to this: Hedge. Understand the price of the risk, and aggregate it, maybe into a financial instrument of some sort. The more you know about what’s coming, the more accurate a price you can put on it. Don’t think about climate change in terms of famine, displacement, heat death. Think about it in power plant downtime, in warehouse square footage lost to sea level rise. However much that’ll cost, that’s how much insurance to buy. And the people who know less? Well, you might have heard that the future is unevenly distributed. It’s the analytics of eschaton. Apocalypse as a Service.

Jupiter Intelligence

Sorkin had previously built companies dealing in aerospace, private satellites, and eventually weather prediction. That led him, in 2016, to climate services. It was non-obvious. The world of weather prediction and catastrophic risks is, as the business people say, “mature.” Lots of people are in it, selling their own analyses, custom data, and repackaged government reports. But those kind of number-crunches tend to stretch barely a year into the future. “It became pretty clear that the analytics for understanding the impact of climate change in both the public and private sector were extraordinarily immature,” Sorkin says.

Not the science—that’s rock-solid. All the greenhouse gases we humans have been pumping into the atmosphere since the dawn of the industrial revolution are cranking up Earth’s thermostat. Hurricanes and storms are going to get more severe, heat will get more extreme, wildfires will burn farther and faster, diseases will range across more populations, and sea levels will rise. The remaining fights are not about “if” or even “when.” They’re about “how bad.”

Figuring out how your company is going to deal with all that from a financial perspective, though? That’s not easy. Part of running a good business is paying for things that make you resistant to exigencies—you buy insurance, you move vulnerable buildings to higher ground, you spread out your supply chains. But you can’t do any of that if you don’t know (or more importantly, understand) what’s coming.

And to whom is Jupiter selling this advantage? Sorkin says Jupiter has 10 current clients, including one of the top five American power companies and one of the world’s largest mortgage holders, as well as the cities of New York and Miami. But a spokesperson for New York City tells me that the city is not a client, that New York funded a study of stormwater flooding at Brooklyn College, and the school hired a Jupiter scientist. Jane Gilbert, chief resilience officer for the city of Miami, says the city engaged Jupiter for a smallish pilot study, around $25,000, to look at flood risk in a vulnerable neighborhood.

So that could just be a bit of bombast from a relatively new company. “Jupiter’s bringing a lot of technology, knowledge, and data that wasn’t accessible to the insurance industry, businesses, or governments,” says Barney Schauble, a managing partner at Nephila Advisors, which sells reinsurance and disaster bonds (and is both a client of and investor in Jupiter). “Anything that gives us potentially better information about catastrophe or weather risk, we’re interested in.”

A couple of decades ago, Hurricane Andrew and the Northridge earthquake (among other disasters) taught the insurance and finance industries that they had underestimated how much risk loomed over their portfolios, and overestimated the available collateral to cover it. They needed to spread it out through financial instruments, disaster bonds that a market could buy. But to make that work, they needed better math. Today, lots of European countries have an official, government-run climate services office. (Not the US, though—Republican congressmembers said they feared such an office would be “propaganda,” and nixed the idea.) Big reports like the ones the IPCC puts out, or the domestic National Climate Assessment, don’t really help here, either. An IPCC report is a white paper about greenhouse gas emissions. “It was never intended to be used as a roadmap by the private sector for capital budgeting and adaptation,” Sorkin says.

A smart business on the other hand, would operate with a sense of what the next decade or two were going to look like—a time horizon that encompassed big capital expenditures and could factor in not global changes but whatever was going to happen locally, to the terrain outside the front door. If you know your warehouses are going to be underwater the next time a superstorm hits your coastline, you move the warehouses, or build them higher. If you know sea level rise will swamp the roads and railways you use to move your goods, you know you need to find alternative routes for shipping.

The established catastrophe risk industry has typically operated at timescales too short to deal with all that. “The question is, how do we account for climate change in today’s models, even though we’re using data from several decades in the past?” asks Peter Sousounis, director of meteorology at one of the biggest modelers of catastrophe, AIR Worldwide. Generally, AIR has delivered a snapshot of today’s risk based on yesterday’s numbers—even though some climate scientists fear that in a changed world, yesterday’s numbers no longer have predictive power. Companies like AIR and its competitor RMS are changing tacks, but slowly.

Meanwhile, a mortgage someone signs today is still going to be an outstanding debt in 2050, whether the beachfront it was on is underwater or not. Even though the US government largely does not acknowledge climate change as a problem, state governments, the military, and businesses do. And all those entities increasingly have to have climate resilience plans to show regulators or boards and stockholders.

All this has helped to give rise to the climate services industry. One market analysis says it's a $2.6 billion business worldwide, growing at up to 10 percent a year. This is one way poor people are more vulnerable to the effects of climate change. Jupiter is a venture-funded entity to the tune of $32 million, with offices in Silicon Valley, Boulder, and New York, and expansion plans for other countries. It employs scientists to develop and refine climate models. It uses public data, but also private, and its conclusions are available on a subscription basis only.

That suggests a few potential problems. For one thing, it’s not peer-reviewed science in the public interest. It’s data analysis deployed for competitive advantage—science for the haves, not the have-nots. A New Jersey warehouse owner that pays Jupiter knows a little bit more than his neighbor, even though climate change affects them both.

The most nihilistic take here is that Jupiter’s value proposition is a leg up on adaptation, on dealing with the effects of climate change while (or before) it happens. It isn’t much help with mitigation, with actually trying to save the world. That’s potentially quite attractive, because businesses don’t actually have to care about saving the planet. In fact, arguably some companies come out better under an extreme climate-change scenario. Their managers may in fact have a fiduciary duty to watch the world burn.

It might also be true, though, that directing investment toward mitigation and risk-hedging also encourages investment in low-carbon technologies and decarbonizastion policy, as some in the environmental-social-governance investing community might argue. Meanwhile, it’s time to build some seawalls. “For many people, that feels like an admission of defeat, or there’s a sense that it dilutes the effort on mitigation,” Sorkin says. “Both of those are natural human reactions … but the risks are already here. We’ve seen the impact. They’re going to get steadily worse.”

To an economist, the reason for society’s apparent helplessness and plodding fight against climate change is that no one owns it. No one has been able to put a price on “mitigation” versus “not-mitigation.” Catastrophe risk modelers, disaster bond sellers, and insurance companies are having to learn to build climate change into their pricing, so people know whether it’s worth fixing. Now, one possible worst-case here is that a company could realize it’s a lot cheaper to insure against a catastrophe than pay to prevent it. Sorkin says that won’t happen. “Once those costs become clear, you have a whole set of entities all over the planet that have to invest hundreds of millions, if not billions, of dollars to adapt to their increased risk exposure,” Sorkin says. “If the insurance or mortgage industry comes to the table, or ironically the power sector comes to the table and says, ‘man, these costs are really changing our business economics,’ then it’s a different political discussion.”

Sorkin and Sharma guide me through more maps, zooming in and out, changing the sea level rise predictions and the percent-likelihood of storms. I see floodwater sneak in behind Hoboken and fill MetLife Stadium. The waters rise around Charleston’s imported-car storage spaces in the ports, drowning the ring-road highway and leaving one port facility literally high and dry. In Florida, Miami Beach acts like the barrier island it is, until the water gets four feet high and submerges most of the beach, the causeway islands, and much of the city of Miami itself.

The data is grim. It has been for a long time. Seeing it in blue-and-white makes it even more palpable. The dropdown menus tell the story: Someone is going to have to pay.