How can businesses plan for a world in which threats like erratic hurricane seasons, brutal heat waves, devastating floods, and wildfires are increasingly becoming the norm?
That’s the question that Steve Bochanski, US climate risk modeling leader at PwC, is trying to help the consulting firm’s clients tackle. As an actuary by training, Bochanski oversees a platform that takes the same type of risk modeling used by the insurance industry and applies it to questions of how the climate crisis will affect the business operations of multinational companies.
These types of long-term planning services are attracting more interest as investors and regulators alike demand greater transparency from companies in terms of how they are preparing for a changing environment, Bochanski said.
“We’re making a big bet on this because we think we’re providing a valuable service,” Bochanski said.
“One or two things are going to happen. We’re going to have a faster energy transition, which is going to increase the cost of transitioning your business model to account for a different energy environment,” he said. “Or you’re going to have increased frequency and impact of these physical events. It’s more likely going to be a combination of the two.”
With PwC’s geospatial climate intelligence program, companies can plot their physical assets, workforce, and supply chain across a map of the world. They can then zoom in on particular areas to gauge factors like heat stress, sea-level rise, and storm, drought, or wildfire risk. Users can also run scenarios and assess potential costs given those conditions. The tool pulls data from 60 different climate models developed by the UN’s Intergovernmental Panel on Climate Change.
“Fundamentally, what we’re trying to do is build these long-term projections of the income statement and then identify which of those line items are impacted by climate,” Bochanski said. “[We then] run stresses to see how those costs would go up or down and revenues for climate opportunities would go up and down in those different scenarios.”
PwC
While PwC declined to name any companies using this tool, Bochanski mentioned examples like transportation companies planning the gradual rollout of air conditioning to their trucks, businesses deciding at which thresholds to heat or chill warehouses, and companies using water to cool data centers.
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“You can imagine how, if you’ve got a data center in an area that is subject to water stress, not only your actual costs of securing water, but the reputational impact and regulatory risk, as local governments might cut off or deprioritize your water usage,” Bochanski said. “There’s a lot that’s come up lately around water stress.”
Climate modeling is just one area of risk modeling that PwC is investing in as it aims to give businesses broader access to actuarial science tools. Cybersecurity and AI are two other fields that many clients are attempting to navigate, but the firm decided to start with the climate practice because of growing demand and alignment with values around corporate responsibility, Bochanski said.
A PwC survey earlier this year found that a majority of more than 4,000 CEOs expected the climate crisis to impact their business within in the next year, mostly in the form of higher prices (50% said they expect a moderate to very large increase), supply chains (42%), and climate-related damage to physical assets (24%).
“I think of this as expressing climate risk and opportunity in business terms,” Bochanski said. “And it’s sort of like using capitalism to drive climate action, as opposed to really trying to fight the system all the time.”