Carbon Commerce: Climate Intelligence

A few days ago, a year's worth of rainfall fell in less than a day in Valencia, a region known as a tourist and agricultural hub in southern Spain. Nearly 100 lives were lost, and many more were injured.?

The rains were unprecedented, and while the exact cause remains unknown, meteorologists attribute the event to climatic changes leading to a "cold drop"—a phenomenon where cold air moves over the warm Mediterranean Sea, causing the warmer air below to form massive rain clouds.

As per a recent study at the Indian Institute of Tropical Meteorology (IITM), an interplay of climatic factors, strikingly similar to those affecting modern-day monsoons, likely led to the collapse of the Indus Valley Civilization — one of the most advanced urban civilizations in history.

Shifts in climatic patterns and extreme weather events have impacted the growth and development of civilizations in the past and continue to affect how cities and towns behave today.

In 2023, India witnessed extreme climate events on 318 out of 365 days.?

If the last few years have taught us anything, it's that the climate is unpredictable, and the new normal is not knowing which extreme climate event will occur next.

In October, Bangalore saw unprecedented rains of 186 cm in one week, paralyzing the city on certain days. Imagine if the rains intensified to 300 cm, what would we do?

Is our infrastructure resilient against climate change?

While we can blame poor urban planning, it raises questions about the dynamics of planning itself.?

Urban planning relies on certain core assumptions, including land use and zoning needs, expected population growth and density, resilience against natural disasters, and climatic conditions.?

The goal is to balance density with livability factors such as air quality, green spaces, and access to infrastructure.

However, climate change is altering our perception of what is "normal"—whether it’s rain, heat, drought, or fire.?

These elements of nature are swinging to extremes that we have not accounted for in planning our built environment. For instance, only a minority of apartments in Paris were built to support air conditioning, but with rising temperatures, this has become a source of angst for many.

Climate change will inevitably require us to plan for the dual pillars of adaptation and mitigation.?

There is a need for advancements in climate intelligence solutions, particularly in climate risk intelligence to inform our decision-making and ensure that our strategies are both proactive and resilient.

But, what is climate intelligence?

Just as we measure and track core health metrics like BMI, BMR, and bone mass to make better lifestyle choices, we need to measure and track climate parameters. This will help us better forecast the changing climate landscape and plan more effectively for our lives and livelihoods.

How we arrive at this climate intelligence is critical—there is a need to analyze historical data, geospatial data, thermal data, climate science parameters, and gain insights from the built environment.?

Leveraging this intelligence will be key to building infrastructure that can adapt to a world of dynamic weather patterns and mitigate damage to property and people.

To fully appreciate the utility of climate intelligence, consumers need to double down on physical and transition risks impacting the natural and built environment today:

• Physical Risk: These include acute risks due to floods, cyclones, heat waves, fires, droughts, landslides, and other climate events and chronic risks due to longer-term climate shifts like rising temperature, sea level rise, and changing precipitation patterns.
• Transition Risk: These involve financial and economic risks associated with the shift towards a low-carbon economy, driven by changes in policy, technology, market dynamics, and consumer preferences.

Climate intelligence models can help quantify the propensity of the built and natural environment to physical and transition risks, by computing climate risk scores and ratings. This will enable end users to gauge the impact of climate risks across various locations and timeframes, serving industries ranging from agriculture, energy, transport, and industry to BFSI.

There is a dire need for Climate Intelligence Models today

• Built Environment: It is estimated that roughly 148M people in India will be living in climate hotspots by 2050. There is a need for climate intelligence models to provide predictive insights into how climate risks affect people, properties, and the planet. These models will enable us to make our built environment more resilient, guiding us on how best to optimize energy and water use, manage waste, and build greener spaces with sustainable materials.
• BFSI: In 2023, India suffered economic losses of $4.2B due to extreme weather events and climate disasters. A climate protection gap exists —that is, the difference between actual economic losses caused by climate-related events and the amount of losses that are insured—greater than 90% in India and, more broadly, in the Asia-Pacific region. Climate risk analytics can help financial institutions assess potential climate-related risks to their assets and investments, guiding investment decisions and risk management strategies to reduce the protection gap. It can also support the development of innovative insurance products to cover assets against physical risks.
• Agriculture: As of 2023, nearly 200M people in India suffer from food scarcity—a concern exacerbated by the impact of climate change. The agriculture sector is susceptible to shifts in weather patterns. Climate change affects the types of pests farmers must manage, influences resource usage like water and fertilizers, and alters crop planting and harvesting schedules. Studies indicate that a 1°C rise in temperature can lead to a 6% decline in rice production and a 9% decline in maize production in the short term. We need climate intelligence models that can accurately predict the impact of climate change at micro-locations. We have been fortunate that the Green Revolution has brought global food security. However, with climate change, this security could be at risk unless we are prepared. The days of relying on an almanac for agriculture are behind us; climate intelligence is required to develop adaptation strategies for effective crop management, thereby building more resilient agricultural systems to feed a world of 8 billion people.

Market Today

In the last few years, startups solving for climate intelligence have raised $2B.

Global plays like Watershed have made significant strides in aggregating climate data from various sources, while companies like Previsico and ClimateX are building rigorous tools to accurately determine the impact of climate events.?

There are also players like Arbol, Jupiter, and MITIGA that are trying to offer "Resilience-as-a-Service" to help businesses assess vulnerabilities, undertake scenario modelling to explore climate scenarios and price climate risks.

At Kalaari, we believe that the next decade will bring innovative solutions within the domain of climate intelligence—from how we collect data to how we process it, and ultimately, the types of applications we can develop.?

These solutions will help us better prepare for the impacts of climate change.

Kalaari Capital Videhi Shah

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