2021 Summer Speaker Series: Tackling Environmental Challenges Through Sustainable Entrepreneurship
Building off the success of last year’s summer speaker series, Bethesda Green’s Innovation Lab is once again bringing together founders, industry experts, and policy makers for a series of conversations that will inspire and educate all who attend.
During our 2021 Summer Speaker Series, 14 industry experts are coming together to discuss two primary topics: 1) Building Sustainable and Ethical Supply Chains and 2) Measuring Impact and Managing Risk.
The following is a summary of the fourth session hosted on Thursday, August 12, 2021.
Session #4: Climate Risk Management for Early Stage Startups
Panelists:
- Dr. Aurele M. Houngbedji – Financial, Capital and Climate Risk Management Professional, International Finance Corporation (IFC)
- Zachary Kaplan – Vice President, DAI Sustainable Business Group
Watch the full session on YouTube here:
https://youtu.be/5662_-vj3p8
For this conversation, we brought together industry experts to discuss how climate risk management through mitigation and adaptation is vital for building a business in today’s world, and presents an opportunity to proactively rather than reactively address the challenges of climate change and other global crises. We welcomed Dr. Aurele M. Houngbedji of the International Finance Corporation and Zachary Kaplan of DAI Sustainable Business Group to explore system-wide and forward-looking strategies to incorporate climate risk management into a business model from Day 1. Below, please find a collection of some of the key takeaways from this conversation.
Dr. Houngbedji opened the conversation by defining and giving examples of climate risk management. He described how climate risk is composed of both physical risks such as natural disasters that threaten assets and financial risks resulting from the legal, technological, and market changes caused by climate change. These risks can be acute or chronic and can pose risks to a company’s credit, market, and operations. He pointed to the 2019 bankruptcy of California utility company, Pacific Gas and Electric, which he calls the world’s first bankruptcy due to climate change to highlight the necessity of implementing climate risk management.
Kaplan outlined the players involved in climate risk management, which, it turns out, includes all of us. From CEOs to customers, everybody plays some role in climate risk management. He discussed how climate risk is reshaping our lives, our businesses, and our opportunities. While the public sector is attempting to set targets and rules, political opposition means there still is much dissonance and non-convergence around this important topic. Development agencies and banks take a global perspective when it comes to climate risk management as they attempt to appease their multiple beneficiaries and stakeholders. And ultimately, he said, consumers are driving all of this through our decisions about the standards to which we hold the brands we support; the governments we put in place; who we hold accountable; where we want to travel, work, study, and live; what we want to eat and wear; and how we care for our communities.
Companies of all sizes – multinational corporations (MNCs), small and medium enterprises (SMEs), and startups – are shifting their mindsets even though risk means something different to each of these actors. For entrepreneurs, Kaplan said, there are two distinct mindsets regarding regulation and market changes: reactionary or forward-looking. Leaders with a reactionary mindset will respond to new regulations or changing market conditions, but do not anticipate them or act proactively. Leaders who are forward-looking will frequently forecast where the market is headed, which allows them to leapfrog reactionary businesses that are standing still and will later be forced to retrofit their model and practices. Forward-looking businesses envision the economic environment of not just 2022, but 2025, 2035, and beyond.
Our panelists agreed that this is important because even if governments are not requiring climate risk management practices now, financiers increasingly expect them. And so do consumers who are increasingly likely to boycott a business if they feel it is not being transparent, sustainable, or ethical. Businesses that prioritize the environment can get better credit and access to capital, while companies that ignore their environmental impact may be charged a premium if they are depleting or degrading natural capital.
As a founder, Kaplan shared that there is a balance to be struck so that regulations do not overly burden small, growing businesses. Astute founders can turn reporting and other regulations into a competitive advantage when they can find the specific factors (e.g. CO2, water, plastic, etc.) that enable them to use data to authenticate their green image. This effort can begin on Day 1, but the scale of reporting should fit the scale of the business. Companies that seek to access external capital are increasingly expected to conduct data-driven risk management efforts, and Kaplan believes that the market will positively reward businesses that do the right thing.
Dr. Houngbedji shared insight into what climate risk management professionals look for when they evaluate a company or government policies. Risk managers use historical data to predict threats, but climate poses more of a challenge than some other risks because it can be so unpredictable. Banks are required to disclose their climate-related financial risks, and evaluate risks and opportunities in their portfolios. Key to this is scenario analysis, in which various potential outcomes are considered. The Network for Greening the Financial System (NGFS), a group of Central Banks that share best practices about climate risk management, published an updated scenario analysis last June that outlines six potential pathways, mapping “nearly 1,000 economic, financial, transition and physical variables.” This concern extends to private banking as well, with over 91% of Chief Risk Officers at private banks reporting climate change as the top emerging risk in the next five years.
Convincing business and banking leaders that climate is integral to risk management requires continued communication and research. This persistence is necessary because of the constant pressure on these leaders to deliver results. Dr. Houngbedji noted that it is different In Europe because there is more regulation and more agreement about the necessary strategies. He also believes that more regulation will occur over time here in the United States, too.
Our panelists ended the session on a positive note. Dr. Houngbedji concluded that a lot is happening in different sectors around the world, and risk managers are trying to keep up with that pace and adapt to the new reality. The more information risk managers receive, the more adaptation they have to do to make sure the capital is allocated appropriately for the good of the world. Kaplan noted that the climate story is still unfolding before us, but there is a lot of good happening. There are a lot of pressure points that need to come undone for companies to transition, and he encouraged patience as the green revolution takes hold and founders create the businesses of the future.
About the Author:
Caroline Davenport joins the Bethesda Green team as the Innovation Lab’s Impact Intern. She will graduate in December 2021 from the University of Maryland with a Bachelor of Arts in Public Policy and minors in Spanish and Sustainability.
Dr. Houngbedji opened the conversation by defining and giving examples of climate risk management. He described how climate risk is composed of both physical risks such as natural disasters that threaten assets and financial risks resulting from the legal, technological, and market changes caused by climate change. These risks can be acute or chronic and can pose risks to a company’s credit, market, and operations. He pointed to the 2019 bankruptcy of California utility company, Pacific Gas and Electric, which he calls the world’s first bankruptcy due to climate change to highlight the necessity of implementing climate risk management.
Kaplan outlined the players involved in climate risk management, which, it turns out, includes all of us. From CEOs to customers, everybody plays some role in climate risk management. He discussed how climate risk is reshaping our lives, our businesses, and our opportunities. While the public sector is attempting to set targets and rules, political opposition means there still is much dissonance and non-convergence around this important topic. Development agencies and banks take a global perspective when it comes to climate risk management as they attempt to appease their multiple beneficiaries and stakeholders. And ultimately, he said, consumers are driving all of this through our decisions about the standards to which we hold the brands we support; the governments we put in place; who we hold accountable; where we want to travel, work, study, and live; what we want to eat and wear; and how we care for our communities.
Companies of all sizes – multinational corporations (MNCs), small and medium enterprises (SMEs), and startups – are shifting their mindsets even though risk means something different to each of these actors. For entrepreneurs, Kaplan said, there are two distinct mindsets regarding regulation and market changes: reactionary or forward-looking. Leaders with a reactionary mindset will respond to new regulations or changing market conditions, but do not anticipate them or act proactively. Leaders who are forward-looking will frequently forecast where the market is headed, which allows them to leapfrog reactionary businesses that are standing still and will later be forced to retrofit their model and practices. Forward-looking businesses envision the economic environment of not just 2022, but 2025, 2035, and beyond.
Our panelists agreed that this is important because even if governments are not requiring climate risk management practices now, financiers increasingly expect them. And so do consumers who are increasingly likely to boycott a business if they feel it is not being transparent, sustainable, or ethical. Businesses that prioritize the environment can get better credit and access to capital, while companies that ignore their environmental impact may be charged a premium if they are depleting or degrading natural capital.
As a founder, Kaplan shared that there is a balance to be struck so that regulations do not overly burden small, growing businesses. Astute founders can turn reporting and other regulations into a competitive advantage when they can find the specific factors (e.g. CO2, water, plastic, etc.) that enable them to use data to authenticate their green image. This effort can begin on Day 1, but the scale of reporting should fit the scale of the business. Companies that seek to access external capital are increasingly expected to conduct data-driven risk management efforts, and Kaplan believes that the market will positively reward businesses that do the right thing.
Dr. Houngbedji shared insight into what climate risk management professionals look for when they evaluate a company or government policies. Risk managers use historical data to predict threats, but climate poses more of a challenge than some other risks because it can be so unpredictable. Banks are required to disclose their climate-related financial risks, and evaluate risks and opportunities in their portfolios. Key to this is scenario analysis, in which various potential outcomes are considered. The Network for Greening the Financial System (NGFS), a group of Central Banks that share best practices about climate risk management, published an updated scenario analysis last June that outlines six potential pathways, mapping “nearly 1,000 economic, financial, transition and physical variables.” This concern extends to private banking as well, with over 91% of Chief Risk Officers at private banks reporting climate change as the top emerging risk in the next five years.
Convincing business and banking leaders that climate is integral to risk management requires continued communication and research. This persistence is necessary because of the constant pressure on these leaders to deliver results. Dr. Houngbedji noted that it is different In Europe because there is more regulation and more agreement about the necessary strategies. He also believes that more regulation will occur over time here in the United States, too.
Our panelists ended the session on a positive note. Dr. Houngbedji concluded that a lot is happening in different sectors around the world, and risk managers are trying to keep up with that pace and adapt to the new reality. The more information risk managers receive, the more adaptation they have to do to make sure the capital is allocated appropriately for the good of the world. Kaplan noted that the climate story is still unfolding before us, but there is a lot of good happening. There are a lot of pressure points that need to come undone for companies to transition, and he encouraged patience as the green revolution takes hold and founders create the businesses of the future.
About the Author:
Caroline Davenport joins the Bethesda Green team as the Innovation Lab’s Impact Intern. She will graduate in December 2021 from the University of Maryland with a Bachelor of Arts in Public Policy and minors in Spanish and Sustainability.
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