Climate change is here. While the science to understand it has been building for decades, the past few years have confirmed that its effects are now at our doorstep. Here in California we saw upwards of $31B of claims in 2017–2018 wildfires alone. 2017 saw Hurricanes Harvey, Irma, and Maria cause nearly $100B in insured losses, in 2020 dollars. Meanwhile, more than 20M people globally are forcibly displaced by climate events each year.

Reversing climate change is the work of a lifetime, and we’re eager to help founders who are building us a better future. Among the myriad early-stage opportunities in climate change — we need them all! — I’ve been particularly interested in climate risk, resilience, and adaptation for a few reasons. First, the physical impacts of climate change are being felt in the near term. Researchers warn that we’ll see significant impacts to economies and human life in the next 5–10 years. Conservative estimates from McKinsey suggest that the value at stake from climate-driven disasters could increase from ~2% of GDP to >4% of GDP by 2050. Second, we are wildly underinvested. Estimates have found that we are underinvesting in climate resilience measures by at least 70%, while the upside of investing in resilient infrastructure stands to be 4x the cost. Third, in a world where climate change work likely needs to align with business priorities to scale, risk associated with climate change is a good place to start. Investors, governments, companies, and consumers are all motivated to understand and reduce their risk exposure. Most of all, we believe that understanding the risks climate change poses is a catalyst for change. As institutions better understand and internalize the risks climate change poses, we expect to see more consensus around emissions reduction, regulation, and decarbonization.

While there is certainly a lot to do in making communities more resilient to climate risk through risk mitigation and adaptation efforts such as fire breaks placed in high risk communities and building codes to protect homes in floodplains, the first step is to deeply understand the physical risks of climate change. Today, climate risk is largely not understood, measured, or incorporated. Large financial institutions go to great lengths to understand borrower risk on a mortgage, asking for bank statements, tax returns, and credit histories. However, there is currently no process for evaluating the likelihood of catastrophic damage to the property itself. And these physical risks are becoming an increasingly important determinant of outcomes; for example, FutureProof found that in the months after significant hurricanes, residential mortgage delinquencies spike to 2–3 times their baseline level, with increases an order of magnitude larger from Hurricane Katrina. Looking at historical losses alone is no longer sufficient. In a changing climate, the past no longer predicts the future. FutureProof fills this gap in understanding by using data science and machine learning to bridge the gap between the best forward-looking climate science models we have with historical financial data and asset-level characteristics.

Financial institutions are beginning to feel the threat. In a series of McKinsey events, more than half of insurance executives said that the industry’s response to climate risk so far has been “underwhelming and inadequate.” They are looking for tools to help them manage climate risk in their core businesses. This is the backdrop against which we were impressed by FutureProof’s laser focus on the financial impact of climate change. We were thrilled to see the FutureProof team projecting average annual losses, default rates, and, ultimately, bps of difference to returns. FutureProof enables the financial consumers of their analytics to incorporate these critical quantitative metrics directly into their existing workflows and decision-making processes. FutureProof’s analytics will help asset managers, banks, REITs, and insurers and reinsurers understand and manage their exposure, especially as pressure mounts from shareholders. Additionally, we are likely to see regulation around corporations disclosing climate risks per Biden’s recent executive order; climate disclosures would require the type of analytics FutureProof can offer.

To understand the financial risk of climate change, you have to bring together expertise from a few key domains: climate science, data science & machine learning, and finance & economics. FutureProof’s founding team fits that bill to a T. Alisa Valderrama, FutureProof’s CEO, brings extensive experience in climate change and stakeholder incentives from her time at the Natural Resources Defense Counsel. Alex Gelber deeply understands the complexity of highly regulated economies after his time as Acting Chief Economist at the US Department of the Treasury, as well as the power of big data through his academic research career at UC San Diego, UC Berkeley, and Wharton. After receiving his bachelors and PhD in Physics (Stanford), Mark Allen honed his analytical leadership as Director of Business Analytics and Data Science at Chegg. Lastly, Ashby Monk, current Executive and Research Director of the Stanford Global Projects Center, regularly advises on the intersection of data and financial mechanisms like the data needs of pensions, sovereign wealth funds, and other financial entities.

There is a lot at stake here, from both a human and financial perspective. By measuring the physical risk that climate change poses, FutureProof will help instigate decarbonization efforts and make our economy more resilient in the meantime. We will share more on our work in climate change in the coming weeks and are thrilled to kick off this dialogue with our announcement of our investment in FutureProof.