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Preparing for the Impacts of Climate Change - Part 1

  • Episode 2 Part 1
  • June 7, 2021

Verisk’s Wood Mackenzie thought leaders Ed Crooks, vice-chair of Americas, and Amy Bowe, head of carbon research, share their insights on how climate risk affects businesses, the environment, and economies. What are the costs of reducing greenhouse gas emissions and the opportunities presented by the energy transition? How can we reduce climate risk? What does the future hold? A must-listen to help you understand the impact of climate change and how you can prepare.


Amy Bowe

As head of Wood Mackenzie’s Carbon Research practice, Amy Bowe is responsible for the strategy and development of the company’s carbon research offerings for the natural resources industry. She develops new carbon-related solutions with a consistent approach to climate-focused analysis across all sectors and value chains. Amy has nearly two decades of experience covering the energy industry, with a strong focus on climate risk and strategy, including energy transition strategy development, lifecycle emissions analysis of portfolios and investments, and scenario analysis for purposes of Task Force on Climate-related Financial Disclosures (TCFD). She holds an MA from Johns Hopkins School of Advanced International Studies and a BA from the University of Arizona.

Please send your comments to Amy at

Ed Crooks

As vice-chair of Americas for Verisk’s Wood Mackenzie business, Ed Crooks covers all energy commodities and sectors, helping customers understand the forces shaping the industry worldwide. From coal to cobalt, wind power to heavy oil, Ed produces regular publications that explore how the interactions of politics, finance, and technology are changing the world of energy. Ed has more than 30 years of journalism experience spanning energy, sustainability, and economics. He won the “News Story of the Year” award from the UK Foreign Press Association and holds a degree in Politics, Philosophy, and Economics from Oxford University.

Get Ed’s analysis of the forces driving the week's biggest stories in Energy Pulse.

Please send your comments to Ed at

Gabriel Cohen

Hi. I’m Gabriel Cohen, host of the Verisk podcast series, Verisk Talks Risk. Welcome to part one of our conversation on Preparing for the Impacts of Climate Change. We’ll hear from three Verisk experts on many of the issues surrounding climate change.

We’ll ask questions such as:

  • What are the risks to businesses and our physical environment?
  • What are the costs?
  • How can we reduce these risks?
  • How do we quantify them?
  • What roles do catastrophe models play?
  • And how is the insurance industry responding?

First, in part one, we’ll chat with Ed Crooks, vice-chair, Americas, and Amy Bowe, head of carbon research, at Verisk’s Wood Mackenzie business. Then in part two [coming your way on June 21], we’ll hear from Shane Latchman, vice president and managing director of Verisk’s AIR London office. Shane is an expert on the impact of climate change on business decisions.

Ed and Amy, thanks so much for joining us today. Let's start with why businesses are thinking more about climate risk.

I'd love to start by asking what are the implications for businesses and national economies?

Ed Crooks

Well, I think basically you can think about climate risk as falling into three broad categories. There’s physical risk, which is the risk that a changing world presents to the physical infrastructure of businesses.

For instance, something we've been looking at recently is the question of energy installations in the Arctic, installations that are based on permafrost. If that permafrost starts to thaw and melt, that's obviously a risk to those installations.

Another big one would be refineries, petrochemical plants on the coast — particularly we’ve seen this recently in the Gulf of Mexico — being more vulnerable to storm surges and sea-level rise. So that's physical risks.

Then I think you also think about policy risk. That’s essentially to do with governments setting climate policy in order to address the threat of climate change: putting prices on carbon, restricting fossil fuel industries, encouraging renewables, and so on. Changes to the competitive landscape benefit some businesses, damage others, and so on, and so that's clearly another big area of risk that businesses have to think about.

Finally, there is what you might call commercial risk or market risk, really brought about by changes in customers and capital markets; the way people view businesses.

So, for instance, we're seeing a lot of tech companies now wanting to buy renewable energy. That has big implications for their power supplies. They’re wanting to get electricity off-grid, they're wanting to know that they're sourcing their electricity from renewable sources. If a lot of people start driving electric vehicles, that has implications for gasoline demand and so on.

And a very big and important subset of that, I think—this is something Amy knows a great deal about—is what you might call capital market risk: the risk that investors and banks will not finance investment projects, activities that are high-carbon and are seen as increasing carbon risk. That's one of the things we are focused on very specifically at Wood Mackenzie. And Amy you've been following that closely, haven’t you?

Amy Bowe

Yeah, exactly Ed, and I think that's a really important point to mention around that capital market risk because that has been a major driver behind the increasing focus climate risk is receiving from our clients in the energy and extractive industries.

In particular, the Task Force on Climate-related Financial Disclosures has been instrumental in bringing greater focus to climate risk within corporate portfolios. Now, for those who may be unfamiliar with the task force work, the TCFD was formed at COP21, the same UN conference of parties where the Paris Agreement was initially agreed, to develop guidelines on the types of information that companies should disclose to help appropriately price climate-related risks and opportunities into investment decisions.

Now, the guidelines apply to all sectors. However, there are supplemental guidelines for heavily exposed sectors, including energy and the financial sector, so all sectors essentially have guidelines that fall into four areas, particularly in terms of governance around climate risks strategy, risk management, and metrics and targets.

And in particular, it's really those guidelines around metrics and targets and strategy where the supplemental guidelines for heavily exposed sectors are asking for additional granularity from companies that fit into the sectors, particularly in terms of providing forecasts of how the business might be exposed under a two-degree scenario. That includes, for instance, financial exposure as well as providing really explicit details around the emissions performance of the business; breaking that down by emission scope, providing both historical trends and forward-looking projections, etc.

The fact that the financial sector, in particular, is included as one of those heavily exposed sectors is really significant.  Because banks are being asked to provide greater transparency around the climate risk within their portfolios, they in turn are then placing increasing pressure on clients to provide greater transparency and comply with those TCFD guidelines. And as Ed has already mentioned they’re increasingly linking the extension of financing to climate-related metrics.

So that is then forcing companies within emissions-intensive sectors such as oil and gas or metals and mining to not only consider the exposure of their business to climate-related risks but develop strategies to address those risks so that they can continue to receive financing and be deemed investable.


What about the physical risks posed by climate change?


Well, the things that we're seeing already starting to have an impact are pretty clear. One of the things that definitely seems to be affected already by climate change is patterns of precipitation. So rainfall and snowfall: where it happens around the world. We're seeing much less rainfall in some parts of the world, and much more in others.

And those patterns do seem to have been destabilized by climate change. I mean, for instance, if you've been following the news from California, there’s been much less precipitation than California this year so far. It's looking like it's going to be building up to be another very dry summer there, with obviously huge risks then for wildfires, that terrible devastating damage that we've seen in previous years. The risk of that happening again this year is definitely high, and it's being elevated by low levels of precipitation, which seem to be a consequence of climate change.

Another one I think people would definitely point to is rising sea levels. Sea levels have been rising and are set to rise further as a result of global warming, and that is something that raises the risks of storm surges, raises risks for people along the coast when hurricanes hit, and so on.

Something we think about a lot is the United States hurricane season in the Gulf of Mexico. And often some of the worst damage from these hurricanes is caused by the flooding and that the risk of that flooding increases because of higher sea levels, and so that's another very serious impact and a growing risk that people are thinking about.

It can be brought under control [by], essentially, the kind of things that governments have been talking about over the past year or so, which is cutting greenhouse gas emissions to net zero.

If we can get global emissions to net zero, you can put a stop to global warming and stop these risks from continuing to build up. Actually working out how to do it, of course, is much more difficult.


Well, there are an awful lot of costs of acting in order to curb these emissions and change some of the behaviors. What type of work have you been doing there to try and understand the costs of acting to curb these emissions?


Yeah, that's absolutely right, I mean, that the cost is enormous. It’s fair to say that the cost has come down a lot, and is continuing to come down, in particular, because of advances in renewable energy and battery storage and some other low carbon energy technologies.

If you think about what's happened to, say, the cost of solar power over the past 20 years, that's dropped by about 90%. It has absolutely plummeted. 20 years ago, solar was very much a kind of a niche product, really not economic or competitive under most circumstances. Nowadays, it can often be the cheapest source of power generation in many parts of the world, and costs are continuing to fall, so it's going to become increasingly competitive over time.

Batteries and electric vehicles, similarly: costs are falling very substantially, partly just because of economies of scale; as we make more batteries, the costs of them are coming down. 

So there have been some very positive trends. I think our number at Wood Mackenzie, we've done an estimate on the amount of investment that would be needed to put the world on a trajectory to limit global warming to 1.5 degrees Centigrade. That's the sort of stretch goal, if you like, in the Paris Agreement.

The Paris Climate Agreement had two goals. It said that the world was committed to keeping the rising global temperatures to “well below” 2 degrees C. But it also said that countries would pursue “efforts” to limit that temperature increase to just 1.5 degrees C.

And that stretch goal we think will need about $50 trillion of investment over the next 30 years or so to reach. So, as I say, even though the cost has come down, it's still a colossal amount. And some of that investment would be needed anyway, because you're replacing worn-out equipment, power plants that are becoming obsolete.

The costs of allowing global warming to continue would be greater. And certainly The UN Framework Convention on Climate Change has done work on this, basically saying that the costs of allowing climate change to continue would be much greater than $50 trillion. So on a cost-benefit analysis, you could say it looks like that would be money well spent.

I think one of the things that I particularly worry about, and I think this is something which is really important and sometimes neglected, is the issue of access to energy. If you're shifting to renewables, low-carbon sources of energy, if you're making that the priority, there is a risk that you will neglect billions of people in the world who still have inadequate access to energy.

There are about 770 million people in the world who don't have any access to electricity at the moment, about 2.8 billion people who don't have clean fuels to cook with. And of course, cooking on coal or wood is a very polluting activity, responsible for lung disease. It's an absolute killer in developing countries that are reliant on these sources.

So I think the thing that we really should be thinking about is how do we tackle those two problems simultaneously? How do we address the threat of global warming, while also making sure we can give people reliable, clean, affordable access to energy? And that still is also another huge task.


So we know it's going to be really expensive and we talked a lot about some of the negative consequences. But let's talk a bit about some of the opportunities that are created by the shift to low carbon energy.


To think about it in a positive sense, the good news is we know what we have to do.

We have very largely the technologies to do it. Addressing climate change doesn't really require anything to be invented that is totally non-existent today. I mean, I think it would probably help if we had advances in battery technology. In particular, if we had long-duration battery storage. The sort of current batteries that people have on the grid and have in their homes last for a few hours. We'd really like batteries with a much longer duration than that.

But everything else in terms of wind and solar power, electric vehicles, carbon capture and storage, hydrogen, all of these technologies exist. Some are more developed than others. Carbon capture and storage is still pretty marginal. We'd need a lot more of it. Green hydrogen, which is carbon-free hydrogen made from splitting water and hydrogen and oxygen: that's very much at the early stages of development. But still, we know the technology. We know it can be made to work, it's just a question of rolling it out on a large scale.

So in that sense, I think we're telling quite a positive, upbeat story. And also you have to think that addressing this issue of climate change and also of energy access creates enormous opportunities for business. There are huge businesses to be built in all these areas. We've seen several companies become hugely successful, for instance, in renewable energy. There's scope for many more businesses to do the same. There are millions and millions of jobs that can be created in these low-carbon energy technologies.

And so I definitely think it's important to think about the opportunities, and the upside as well as the downside. If you're addressing climate change with renewable energy, electric vehicles, etc, you could also help with other things, in particular with local air pollution, as I've said.

Cooking on dirty fuels is a massive cost of local air pollution, and it's fatal to millions of people, because of lung disease, but also burning coal for power generation is terrible in terms of local pollution. Getting rid of that would have huge benefits to human health.

Same thing with diesel vehicles: buses, trucks, and cars in cities. Again, swapping those out for electric vehicles would deliver huge benefits in terms of local pollution, air quality, and human health, so there's a lot of upsides to this as well. We shouldn’t underestimate the challenges, but there are huge benefits as well.


And Ed, you were talking a lot about some of these new technologies that are going to be needed to curb emissions and reduce climate risk. Where should organizations be placing their bets? Are there going to be winners and losers in this race?


Broadly speaking, we need everything.

Roughly speaking, the world uses fossil fuels for about 80% of its energy, and those are fossil fuels that are emitting carbon dioxide and other carbon-based gases into the atmosphere. That has to stop if you're going to get to net zero.

Net zero emissions means not having any fossil fuels that do not in some way have carbon capture equipment attached to them or are being offset by carbon being captured out of the air, or offset by what they call carbon sinks and nature-based solutions: forests, wetlands, and things that are sucking in carbon and storing it.

So to go from 80% unabated fossil fuels to zero, that's a huge shift. That means you do need everything. You need wind and solar power. You need nuclear. You need batteries. You need electric vehicles. You need carbon capture: equipment fitted to power plants and industrial facilities that will capture their emissions. All of that is needed.

There are going to be opportunities for business, commercial opportunities, money to be made right across that spectrum of technologies, I think.

There's no silver bullet; it's often a cliche to say that in energy, but it's true. No one technology is fit to achieve all the objectives you wanted to achieve. Wind or solar power have their limitations: generation is variable. Nuclear power is great and doesn't have to be variable; it can operate 24/7. But it's at the moment very expensive. Carbon capture is still at quite a small scale and needs to be rolled out at a much larger scale.

So everything has its strengths and weaknesses.

As you say, when people are thinking about where to place their bets, what to invest in, I would say it could be among any one of those technologies. If you can advance them, push them forward, tackle their weaknesses, and build on their strengths; I think there's going to be money to be made with that.


And so, Amy, I'd love to understand from you what are some of the strategies that companies are adopting to respond to the risks and opportunities presented by the energy transition?


Thanks, Gabe. So I think it's fair to say first of all, that there is no one energy transition strategy. Really, strategies are going to depend very much on individual companies’ unique portfolios, capabilities, risk appetite, access to capital, and various stakeholder drivers.

However, Wood Mackenzie really sees that there are sort of three primary energy transition strategies emerging; particularly across our companies, within the oil and gas sector, but the same strategies could also apply to other emissions-intensive industries, including power generation or, again, some metals producers, for instance. But those three primary strategies are diversification, decarbonization, and market capture.

So in terms of diversification, this is really characterized by transitioning away from perhaps core businesses around, and again using the example of oil and gas producers, oil and gas production or refining and moving towards more sustainable businesses such as renewables or other low carbon sources of energy. Also focusing on more consumer-driven solutions; in terms of providing energy to end users through, for instance, charging infrastructure for electric vehicles for instance.

The second strategy, decarbonization, is really then focused around reducing the emissions intensity of that core business, and that can also include within that, technologies such as CCUS, or for instance, even blue hydrogen where you know you are effectively also potentially building a new business around decarbonization and management of that carbon.

And then finally the third strategy, market capture, is really characterized by focusing on reducing costs within the existing business, as well as reducing carbon and really focusing on geographic areas where you can have market dominance.

So in terms of sort of the client types that we see pursuing these different strategies in terms of diversification, this is really being led by a lot of the European oil and gas majors that we've seen invest significantly into power and renewables. So thinking about BP, Total, Shell, all of them have established new energy businesses and are putting significant capital towards expanding into the renewable space as well as more end-user solutions.

In terms of market capture, that's very much a strategy that we see more national oil companies, for instance, pursuing where they do already have a core portfolio that is geographically focused within their home country of operation. Many of those NOCs already do benefit from very low-cost oil and gas extraction, as well as sometimes low carbon, and that positions them well for a potential future where we see you know, potentially declining commodity prices, as well as an increased focus on decarbonization.

And with regards to decarbonization itself, this is actually a strategy that's probably going to be most widely pursued by companies, but some of the companies that we are seeing really focus on decarbonization, particularly with regards to building carbon management businesses, so taking their own as well as potentially other energy-intensive industries’ carbon and managing that through storage. For instance, some of the US oil and gas majors such as Chevron, Exxon, as well as Occidental Petroleum are really kind of at the forefront of pursuing that strategy. 

Now it's fair to say none of these are particularly mutually exclusive. It's likely that all companies will pursue some mix of all three. It's really just a matter of emphasis for companies, and again that gets back to, really, where they see their core capabilities, as well as the pressures that they're getting from their various stakeholders.


So Amy, to that point, when you think about supporting these big strategic decisions, they need to be informed by some sort of data or intelligence as a critical aspect of this. How does data or intelligence help enable some of these strategic transitions?


Yes, so I mentioned the TCFD guidelines earlier, and in particular two of those guidelines in relation to strategy and metrics and targets. So specifically, in regards to strategy, the guidelines, for instance, recommend that companies conduct scenario analysis in order to understand their business exposure in a low carbon future. So this is one area that Wood Mackenzie has developed both data sets as well as tools to help clients understand first what a low carbon future might look like, as well as how their business might be exposed.

So our Energy Transition Service does produce two different long-term scenarios around how the energy transition might unfold. One is aligned with a 2-degree scenario and the other a 1.5-degree scenario. So keeping in mind that Paris Agreement objectives are to limit global warming to a maximum of 2 degrees Celsius above preindustrial levels and ideally 1.5 degrees above preindustrial levels. So our energy transition service has developed scenarios around how each of those might unfold; what impact energy demand might have under those, including the specific implications for different fuel sources as well as energy technologies.

Within the Energy Transition Service, we do also provide data around carbon pricing, for instance, which is also going to be important for companies to take into consideration when assessing the economics of projects going forward and produce a technology readiness index around different technologies as well as very detailed analysis around some of these new low carbon technologies that will be important for the energy transition to help companies understand how those technologies might be evolving, when is the right time to invest, and how they can perhaps build profitable businesses around them.

The other area where we’re developing solutions to help inform strategic decisions is really to help address some of that question or those guidelines within the TCFD around metrics and targets. So even though the TCFD guidelines have called for companies to disclose more information around their emissions performance, it's fair to say that there's still really a lack of consistently available and standardized data to allow for this type of analysis in comparing companies in terms of how they are performing. In the UK, they just made it mandatory from this year for companies to begin sort of complying with those TCDF guidelines in terms of disclosures, but that's, you know, brand new and most jurisdictions have no formal requirement around this.

So as a result not all companies do disclose information related to their emissions performance, and even those companies who do disclose voluntarily or otherwise, there tends to be quite a lot of variance in the frameworks and methodologies that they use, the basis on which they report their emissions, the metrics that they disclose. And all of that makes it quite challenging to again compare companies on a like-for-like basis.

Moreover, all of that data tends to be relatively high level at a corporate level, or perhaps at a business unit level. There's no granularity beneath that at an asset level to understand what's really driving differences in performance across companies. And moreover, all of that data tends to be effectively an annual snapshot looking backward in time, so reporting performance from the past year rather than forward-looking data that might be more helpful in understanding how the business is likely to evolve under a low carbon future or out into the future.

So this is another area where Wood Mackenzie has developed our Emissions Benchmarking data set, which provides independent and objective assessments of emissions at an asset level for both oil and gas operations, as well as seven different metals and mined commodities.

And of course, all of that asset-level data can be aggregated at a corporate level such that we can provide an independent and transparent assessment of emissions performance and risk that both companies themselves can use in terms of understanding how they are aligning against their peers in terms of performance, as well as investors, in considering which companies they want to continue to extend financing to or which even individual projects they want to continue to extend financing to.


Yeah, it's really interesting to hear how we're plugging some of those data and intelligence gaps. So I just wanted to end by asking each of you there's so much work still to do. What are the things that are exciting you at the moment? What are you working on over the next few months, over the next year or so?


Well, the thing I'm doing most work on right now, actually — and will be, I'm sure for quite a lot of the year — is looking at COP 26. That's the big climate summit coming up in Glasgow at the beginning of November. It's basically a five-year review of the Paris Agreement. The Paris Agreement of course was concluded in 2015. What that did, as well as setting these goals for limiting global warming, was put in place a system of what's called Nationally Determined Contributions, where countries essentially are volunteering to reduce their emissions in order to hit those goals for global temperatures.

The pledges, the NDCs that were produced for the Paris Conference, were absolutely inadequate to achieve those emissions goals that people said they wanted to reach those 2 degrees, 1.5 degrees C goals. But what they did, then, was they put in place this essentially 5 yearly cycle of reviewing the NDCs, with the idea that every five years, countries come out with new NDCs that are more ambitious: that propose bigger cuts in emissions, and that put the world on that path to an emissions trajectory which will achieve those goals for global warming.

And we've actually seen a lot of progress already. Last year, China said that it wanted to move to net zero by 2060, and also for its emissions to peak by 2030. We've had the EU talk about net zero and commit to net zero by 2050, and also aim for a 55% reduction in emissions by 2030. We've had the UK, Canada, Japan, South Korea, a number of other important economies, making commitments to net zero by 2050 or around them. Climate policy is moving in really quite a dramatic way at the moment.

There are still a number of very important economies that have not made commitments to net zero; places like Brazil, India, there is still uncertainty. They're talking about heading for net zero but have not kind of formally locked in commitments to get there yet.

And so that's going to be a big thing to watch, and something we're going to be following very closely over the coming months.

And then the second step, which is how do countries actually aim to achieve those goals. They set these targets. If they can achieve their targets, then the world is going to achieve the goals of the Paris Agreement: we are going to get to the point where global warming can be stopped. But there's still an enormous amount of detail to be filled in about exactly how countries are going to achieve those goals. And so that's the other thing we're going to be watching very closely and analyzing and explaining what it means for our clients in the energy and natural resources industries and for the world.


Well, that certainly gives us something to look forward to for the rest of the year. Amy, and anything else that's coming up for you?


Absolutely Gabe. So the Carbon Research function at Wood Mackenzie is a relatively new function within the organization. We were officially established, a little over a year ago. Although some of our products, particularly that Emissions Benchmarking initiative that I mentioned, is an initiative that we've had under development for the past five years. But because we are such a new function and there is so much opportunity in the market, we're really focused on continuing to expand our existing datasets, extend analysis to new sectors; for instance, we're likely to launch an emissions benchmarking data set for the chemicals industry this year, which will be probably one of the first of its kind to look at emissions in detail from the chemical sector.

We're also looking at new ways to derive data or provide more accurate data to our clients around emissions, and that is largely drawing on satellite data. So already within our emissions benchmarking data set, we do use satellite data to look at flaring associated with oil and gas assets, both upstream assets as well as refining assets, but methane, in particular, has been a huge focus for the industry and really received a lot of attention over the last couple of years, and that's because, one, the industry doesn't have actually a very good sense of what the methane emissions are associated with operations, and that's primarily because methane losses can occur from multiple different stages of the value chain that aren't necessarily directly measured.

And moreover, methane has a global warming potential 28 times that of CO2. Every ton of methane effectively is amplified in terms of its impact on the climate. We are also exploring how we can use satellite data to get a more accurate view of emissions from the industry and provide that sort of real sense check in terms of measured emissions to our clients.

One of the other areas where we are looking to potentially expand and develop new offerings is also around nature-based solutions.

This sort of classic example of planting trees, but it can also be preserving trees, better land management to effectively lead to better carbon sequestration within the natural environment. And nature-based solutions are going to be a big area of investment for industrial clients as they look to meet their climate strategies. So we're looking to develop new offerings that might be helpful for them, as the world does look to expand investments in this sector.


So we'll be able to hopefully at some point, be able to actually measure the benefits of actually planting trees.


Absolutely, and monitor that over time, which is where there's the sort of big question mark right now. How sustainable are some of these projects? And that's also leveraging satellite data image I should mention, so satellites are opening up huge opportunities in terms of climate emissions management and monitoring.


That's fascinating. Ed and Amy, thank you so much for joining us today and providing such an enlightening view of some of the key issues, opportunities, and just the general world that's going on at the moment within climate risk.


Thank you. Great to talk to you.


Thank you for having us; it’s been a pleasure.


To learn more about the risks impacting businesses, communities, and people, be sure to visit us at and follow Verisk on LinkedIn, Facebook, and Twitter.

We hope you enjoyed this podcast and we invite you to join us for our next podcast on Financial Resiliency in the Payments Ecosystem. Until next time.



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