Climate Management technology encompasses all the data, intelligence, and risk associated with a changing climate. While Climate Management spans a vast number of industries with many areas of specialization, it can be primarily subdivided into three functional areas, emissions and sustainability reporting, increased understanding of climate-related risk and weather patterns, and adaptation to climate change externalities.
In 2021 alone, the US experienced 20 climate disasters (as defined by cost greater than $1b), resulting in the loss of 724 individuals and economic damages of $152.6B. With the effects of climate change increasingly felt across the globe, Deloitte estimates that if unchecked, climate change could cost the world’s economy US$178 trillion over the next 50 years. As a result of these trends, ClimateTech overall has received considerable media and investment attention over the past few years. As reported by PwC, ClimateTech has seen a 210% year-over-year growth, with more than $60B raised across 600 ClimateTech start-ups in the first half of 2021 alone. Considering the increasing price tags and damages of climate-induced events, the hype surrounding Climate Management is justified. Companies can leverage existing tools and start-ups to future proof their businesses in the following ways:
Climate Risk Management: The estimated economic cost of climate change is substantial, with severe weather events posing considerable operational and long-term investment risks from asset destruction. Climate Management software aims to mitigate these physical risks by providing predictive climate outlooks and innovative insurance solutions.
Resilience and Adaptability Planning: Consumer and business needs will begin to look very different as climate change continues to impact everyday life. These climate stressors will broadly impact all industries, and new solutions and measures will need to be modeled, designed and implemented to adjust.
Operational and Emissions Efficiency: As the cost of emissions increases, a larger emphasis has been placed on the tracking and transparency of overall operations as well as energy efficiency. Software can help improve decision making and help communicate business impacts and planning to all stakeholders.
Climate risk management is a comprehensive approach that factors in the hazards of a changing climate. There is a broad spectrum of risks ranging from extreme weather events such as intense flooding and pervasive forest fires to slow-onset environmental shifts such as desertification and sea-level rise. Climate Management software, leveraging AI and climate data from sensors, satellites, and scientific research, has emerged as a way for companies to make informed decisions. One current challenge in this space is the veracity of prediction models. While this is less pertinent for shorter prediction software, it will be integral for the success of long-term climate risk forecasting startups.
There is a wide degree of specialization, with some startups focusing solely on short-term extreme weather events. For example, Tomorrow.io, a Boston-based startup, provides advanced notice up to 14 days before potential severe weather events. For the energy and utility sector, Tomorrow.io’s fixed and movable asset weather intelligence platform offers 24/7 monitoring and preemptive recommendations to protect billion-dollar assets and optimize operational effectiveness based on weather events' predicted energy impact. More niche examples include FloodMapp, which focuses specifically on asset inundation predictions up to 7 days before an event, and Terrafuse AI, which provides asset-specific wildfire risk.
Some startups are focusing on long-term climate risks. One of them is Jupiter, a California-based company that provides asset and location-specific analytics based on projected macro changes in climate. For the energy and utility sector, Jupiter’s platform can help identify the future risks of current assets and minimize future investment risk by strategically positioning new assets in less risky geographies. Furthermore, Jupiter’s climate prediction platform can help inform utilities of prospective customer and value chain needs. Similar examples include Cervest, which enables companies to estimate financial impacts associated with varying climate shock scenarios, and Climate-X, which quantifies the probability and severity of climate events at an asset level.
InsurTech's use of technology, such as data analytics and AI, is disrupting the insurance industry by offering increased efficiency and reduced cost. As climate change intensifies, more people and assets will be at risk during extreme weather events. As a result, predictive climate analytics alone will only be able to mitigate so much; however, new approaches to insurance are helping to assess and price risk more effectively. One example is FutureProof, an InsurTech startup that utilizes an algorithmic underwriting platform to price risk more effectively based on asset-specific details. Another approach gaining traction for climate disaster insurance is parametric policies, in which data from a trusted third party automatically triggers claim payouts, where the payout amount depends on predetermined factors and the selected level of coverage. Parametric policies aim to reduce the payout timeline by instilling an if-then logic to claims, meaning that if a predetermined threshold is hit or exceeded, then the policy is automatically triggered. Some startups, including Arbol, Demex, and Descartes, currently operate in the parametric insurance space with products that span extreme weather, agricultural fluctuations, and energy. This space is currently in its infancy, with notable growth potential; however, its success is heavily dependent on the pricing algorithms' precision and the third-party data's accuracy.
An additional approach to mitigate future risks and damages from climate change is adaptation. This approach aims to moderate potential damages and take advantage of opportunities associated with climate change by adjusting current processes and structures for future resilience. An example of a start-up in the adaptation space is Mitigrate, a Norway-based company that offers an integrated SaaS platform providing businesses and asset owners with cost-economical solutions to reduce future climate risk. Additionally, the platform connects users with local, certified adaptation experts to implement these solutions. Another start-up focusing on adaptation through resilience is Urban Footprint, a SaaS platform that provides intelligence at the intersection of climate change, urban transformation, social equity, and community resilience.
Operational and emissions efficiency is mainly concerned with how well particular systems perform. Operational efficiency is focused on the production system as a whole, attempting to achieve the most output for a given input. In contrast, emissions efficiency has a focal point around the quantity of emissions generated per economic output. Previously, companies' main priority was solely operational efficiency since the cost of emissions was immaterial. However, as pressures from stakeholders and looming regulations drive sustainability and net-zero commitments, a larger emphasis has been placed on tracking and transparency of overall operations as well as emissions efficiency. Companies must first have supply chain visibility to be transparent about overall operations and the associated emissions intensity. ClimateTech aims to provide companies with visibility and data granularity throughout global supply chains to facilitate better decision-making, enabling companies to be transparent to their stakeholders.
The previous two years have spotlighted a once otherwise hidden function, the supply chain. The COVID-19 pandemic, the conflict in Ukraine, and increasing natural disasters have demonstrated the fragility of globalized production. With this realization came the necessity for supply chain resilience. Supply chain resilience is preparing for and responding to unforeseen circumstances while keeping operation efficiency high. Companies must understand who makes up their supplier universe to have the necessary foresight to create resilience. ClimateTech software has emerged to map out these essential data points, improving supply chain visibility and operational efficiency. One example is Correntics, a Switzerland-based startup that helps companies map and de-risk dependencies throughout their value chains.
An additional challenge for companies is complying with growing pressures surrounding sustainability and GHG emissions. According to the EPA, supply chains often account for over 90% of companies’ emissions. An approach to fulfilling stakeholder pressures is through various emissions tracking. For example, CarbonChain, a London-based startup, tracks company-level emissions throughout the supply chain, whereas Emission Critical creates product-level carbon footprint metrics for companies. A more niche emissions-tracking startup is Orbio, a methane intelligence platform that provides asset-level leakage detection.
A digital twin is an indistinguishable virtual representation of a real-world system or asset. This digital counterpart is enabled through a variety of technologies, such as IoT sensors, AI, and cloud computing, allowing for various applications. Using a digital twin can have notable impacts on operational efficiency as the system can monitor real-time data within the context of the environment, analyze what-if scenarios, and increase the lifespan of the physical asset through predictive maintenance. The use of a digital twin can optimize the asset’s performance, thereby reducing emissions and increasing efficiency. Some startups deploying digital twins software include Akselos, FutureOn, Enersis, and ThermoAI, with use cases ranging from offshore wind turbines to natural gas and power plant applications. The deployment of digital twins could potentially help companies reach emissions and net-zero goals faster and more precisely.
At ECV, we are extremely excited about the future of Climate Management technologies as they will play an integral role in mitigating the effects of climate change and transitioning businesses to be more reliable and resilient. We look forward to connecting with potential entrepreneurs in the space, and if any of the highlighted companies make sense for your business, we’d be happy to introduce you to them.
A special thank you to MBA Associate, Rex Anderson, for all of his help in writing this article.