Jay L. Koh, Managing Director, The Lightsmith Group
Please give us some background information on yourself and how your organisation plays a leading role in the climate risk agenda?
The Lightsmith Group is the first private investment firm focused on climate resilience and adaptation – accelerating the growth of companies with technologies and solutions that address the effects of climate change. My partner Sanjay Wagle and I each have over 20 years of experience in direct growth investing at Carlyle and VantagePoint Capital as well as US OPIC, IFC, the US Department of Energy, the NY Green Bank and the UN Green Climate Fund. We believe investing in assessing and managing the risk of climate change presents an opportunity for attractive returns for investors and a measurable impact on climate change, the Sustainable Development Goals and gender. I am also the founder and chair of the Global Adaptation and Resilience Investment working group (GARI), a partner of the UN Secretary General’s A2R Climate Resilience Initiative that convenes private investors and other stakeholders to discuss the intersection of investment and climate resilience and adaptation.
How do you see climate change affecting your organisation/the organisations you work with?
Climate change is unfortunately already underway, causing humanitarian disaster and impact to the real economy. Every asset and organization that has not assessed and managed its climate risk is naked long that risk. Climate change is here. The Wall Street Journal called Pacific Gas & Electric the first corporate casualty of climate change in January 2019, and BlackRock recently released a report identifying underpriced risk in coastal real estate, the $2.3 trillion US municipal bond market and 269 listed utilities. Investors, managers, government and community leaders, and individuals are all waking up to the reality of the effects of climate change.
How should companies manage climate-related risks?
Companies should first embrace the need to assess climate-related risks. Climate risk is not X-Files risk – it is not “aliens landing on the Earth” risk that we have never seen before. Climate change will increase, shift and make more complex existing kinds of risks that we have assessed and managed before. Companies should begin to examine the existing physical risks they face in operations, investments, employees, customers and communities and systematically evaluate how they will change as climate change unfolds. Companies can look to the recommendations of the Task Force on Climate-Related Financial Disclosure to develop a process for evaluating and disclosing climate risk – both transition risk and, increasingly importantly, physical risk.
What will you be discussing at The Economist’s Climate Risk Summit?
I believe that investing in climate resilience technologies and solutions presents the chance for differentiated, attractive financial returns and meaningful, measurable impact on the effects of climate change. I will discuss the opportunities we are seeing to invest in great companies that have existing, profitable and scalable approaches to understanding and addressing the risks of climate change. We have mapped over 800 companies so far across 20 sectors of the economy representing $130 billion of current spending, already growing 20-30% CAGR. We believe that attractive investments can and must be made to scale up the technologies and solutions we will increasingly need to meet the challenge and particularly to bring them to vulnerable populations and emerging markets.
What’s the one thought you would like attendees to take away with them from the Climate Risk Summit?
Climate resilience is a great investment opportunity – both for financial returns and measurable impact on one of the greatest challenges of our time – the risk and impact of climate change.
What are the biggest risks facing businesses when it comes to facing/dealing with climate change?
The biggest risks for businesses facing and dealing with climate change are uncertainty and a lack of actionable information. Uncertainty both about the rate, pace and pattern of physical change and about the political, economic and physical environment create great challenges for businesses trying to grow and manage in an increasingly complex world. Without practical, concrete approaches to assessing the risks increased by climate change, businesses have few ways of overcoming that uncertainty. Without actionable information to guide strategy, operations and tactics, businesses are feeling around in the dark. Investing in and growing companies that can provide that information and evaluate the risk provides companies with the ability to begin to act and partner with governments, communities and other stakeholders in addressing the effects of climate change.
How have businesses' attitudes towards the management of climate risks changed in the last 3 years?
The storms and wildfires of 2017 and 2018 have increased everyone’s awareness that climate change is already underway. The PG&E bankruptcy, as well as ongoing volatility and damage in the corporate sector and the economy, have reinforced with management that climate change is both a humanitarian disaster and a real, measurable and material financial and operational risk.
How can diverse stakeholders, governments, the private sector, academics and nonprofits more effectively collaborate to reach climate-related goals?
We need to speak a common language of risk, starting with evaluating common future scenarios, using common metrics, before coming together to plan for a new set of conditions. The GARI working group brings together private investors, governments, credit agencies, entrepreneurs, corporates, investment managers and advisors, civil society and climate experts to focus on the impact of physical climate risks on investments and the opportunities to invest in climate resilience and adaptation. Similar discussions among people from different backgrounds can help exchange practical information and develop joint approaches to the increasingly complex problem of the effects of climate change.