How are Climate and Finance Interrelated and How Should They Be: Research Institutions and Insurance Markets

I’ll propose Friedman’s law: The further people are from a location where a problem occurs, the less likely they are to understand it, and to view the problem through the lens of their own values, needs and philosophies- which may further their own goals, but not actually solve the initial problem.

I’ve also noticed a general tendency for forest policy to become more overrun by people and disciplines from outside our traditional communities.  I try to welcome these new folks with grace.  They bring interesting and novel ideas, energy, enthusiasm and sometimes lots of political pull and funding to get things done.  I’m concerned, though,  that our world of trees and people is becoming more abstract, controlled non-locally, and financialized (since, say, Hayfork doesn’t have a big presence in the financial sector, the latter two tend to go together).  Just yesterday I was on a phone call with some folks who thought that current investments in federal lands were not going to be “enough” and we need to have “durable financial mechanisms” to support federal land management, possibly including using federal lands for offsets.   Like I said, they might be right.  But I think we should be able to engage with local people, elected officials and practitioners and before the policy ideas become hardened.  That is,  groups go to their buds in Congress, who happen to be partisan, so when local people respond negatively (especially those who are of the Other Party), political lines are drawn and defended when they don’t need to be.  Perhaps we need more mechanisms to encourage discussions between these different communities.. local people and and practitioners, traditional forest users, interest groups and scientists,  and the new philanthropy, political and academic folks, earlier in discussions of policy options.

Anyway, today I have two stories that focus on financialization and climate, and how that affects, in turn,  research priorities and insurance rates.

Forest Science is Too Focused on Climate and Climate Finance; Nature Editorial

What’s interesting about this Nature open source editorial is how it internationalizes our own field of forest policy.

It has a pretty weird headline, though, “forestry social science is failing the needs of people who need it most”: way to blame the victim, Nature!  No, big scientific institutions are more interested in climate modeling than in solving today’s problems.  They allow scientists to prioritize, design, and fund and publish research without feedback from people.  But a full scale redesign of research governance is not what Nature has in mind..

The review is far from the first to highlight that research that should aim to benefit all stakeholders instead focuses on areas that are priorities for the governments of high-income countries. This is an important and timely reminder. It should not be difficult for the researchers involved in the world’s largest scientific networks — the IPCC for climate and IPBES for biodiversity — to create a shared agenda for the study of forests that extends beyond climate change and climate finance. And, given the need for such action, funders should respond positively to such a proposal.

Earth’s forests have the potential to benefit people everywhere. Researchers, policymakers and funders must ensure that everyone’s needs are taken into account.

There are actually plenty of forest social scientists around, though they are chronically underfunded, at least in the US.  There’s a difference between the people at IPCC and IPBES “aiming” to benefit all stakeholders and developing an agenda with stakeholders.  But perhaps the questions and solutions would then be local,  and not international.  Anyway, it’s fascinating to think about how over time the ideas of “climate” and “biodiversity” have changed the locus of inquiry (to international), changed who counts as experts and which disciplines, what questions are asked and what data is used (satellites) and so on.  Meanwhile, I hope social scientists are studying the non-powerline sources of wildfire ignitions  with the idea of understanding and reducing them.  So much more valuable than studies like “impacts of climate change in 2070 on beer production.”

Who’s Running and Supporting the Climate Insurance Scam?

Some of us simple people wonder what all the recent wildfire-but-not-really insurance drama is about.  Yes, climate change can increase risks.  But is there any reason to think that these increases won’t be gradual such that past pay-out history will gradually change, and insurers can still use history to set rates? Not to speak of the fact that for wildfires, the USG and philanthropists are spending zillions on the technology of detection and response, which will conceivably have some kind of effect.

And in my hood, hail is bigger than other risks to home and auto owners, and so far there isn’t a climate signal to hail.  So the stories don’t seem to add up.  I’ve found in my experience, that when claims are made that don’t seem to parse out logically, that there is usually politics of some kind involved, and too many efforts to understand might make you unpopular in certain quarters.

Anyway, there’s a professor named Jessica Weinkle who works at the coastal end of the climate/insurance drama biz, and she often has insights that are applicable to wildfire insurance, the bogus maps,  and all that.  The financial part of her analysis in this Breakthrough Substack article is over my head, but somehow I am not trusting of the financial industry.  Perhaps all the vitriol directed at the oil and gas industry is a magician’s trick to divert us from looking at what the financial folks are up to.  Like most folks, I use oil and gas products daily, and they are important for, among other things, fire suppression; but derivatives could go away tomorrow and I wouldn’t miss them.

Here’s an excerpt:

Last fall, Senators Sheldon Whitehouse (D-RI), who is chairman of the Senate Budget Committee, and Ron Wyden (D-OR), who is chairman of the Senate Finance Committee, announced an investigation into the ways in which insurance companies are managing “mounting risks from climate change.”

The senators foresaw climate change leading to a systemic financial crisis as rising insurance costs put heavy pressure on the mortgage market. “A widescale decline in coastal and wildland-urban interface (WUI) community property values would present a systemic risk to the U.S. economy,” they noted, “similar to what occurred in the 2007-2008 mortgage meltdown.”

The senators’ evidence for this looming catastrophe?

Insurers’ own climate change risk models.

Whitehouse and Wyden’s insurance investigations come after a series of hearings last summer that kicked off with a familiar character: Carney, along with Robert Litterman, a former asset manager and member of government advisory groups on climate related financial risk. Both argued that climate change is causing increasing frequency and intensity of weather extremes and losses creating risks to financial stability. Both argued for managing emission to control losses. For his part, Litterman, referenced his work as chairman for the development of a report of the Commodity Futures Trading Commission on managing climate risk. The report, of course, made ample use of Bloomberg funded modeling projects.

In a later interview about the investigation, Whitehouse zeroed in on climate risk and financial risk. “There’s a core underlying reason for the insurance problems that Florida’s experiencing right now and for the risks it faces,” Whitehouse said. “And that is the persistent failure to deal with the problem of climate change.”

This is wrong. The underlying problem is the failure of policymakers to inspire a critical debate about urban development and risk mitigation—and about the misguided investor risk perceptions that may be inflating insurance costs.

Food for thought.

4 thoughts on “How are Climate and Finance Interrelated and How Should They Be: Research Institutions and Insurance Markets”

  1. I still don’t know exactly who needs forest social science the most and aren’t getting it . Also a coherent “forest policy “ for the US might, like Ghandi’s comment on western civilization, might be a good idea.

    Reply
    • I’d say a bunch of us need forest social science and aren’t getting it. My example was wildfire ignitions. Another one would be real-world practical barriers to community wildfire mitigation projects. I have neighbors who give me an earful regularly about the difficulties of different responsibilities in different levels of government, apparent gaps and overlaps and all that. That could be policy research, maybe and not strictly social science, but then again social science is an abstraction and it depends on how you define it. In one sense, the policy and decision sciences, sociology and economics are all social sciences.
      I’ll ask around if anyone’s generated a list of research needs in forest social science.

      Reply
  2. Maybe the insurance stuff is over my head, but why is it “wrong” to say that a cause of insurance risk (climate change) is a problem underlying “risk perceptions” and “risk mitigation?”

    Reply
    • The fact is that we can’t actually parse out the exact climate contribution to anything we see today, wildfires being the most obvious example. So… how are we to know what’s going to happen in the future? How will new technologies, paying firefighters better and fuel reduction projects, mitigation, home hardening and all that, contribute? We don’t know exactly. Modelers certainly don’t know more than we do. so the only rational thing is to look at trends in real life and adjust as time goes on. As we have seen, insurance companies are perfectly capable of adjusting on an annual basis… so… could there a tendency to use climate change as an excuse to raise rates and make more money? In my view, that is one of the reasons people become skeptical of climate change itself.. because of what we might call climate-adjacent rent-seeking corporations.

      Reply

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