Kirsten Dunlop, CEO, EIT Climate-KIC
Please give us some background information on yourself and how your organisation plays a leading role in the climate risk agenda?
As CEO of EIT Climate-KIC, I head up Europe’s largest public-private innovation partnership addressing climate change through innovation. EIT Climate-KIC was established in 2009 by the European Institute of Innovation and Technology (EIT), a body of the EU.
Climate risk constitutes a very significant form of strategic risk and as such cannot be managed through standard risk analytics, disclosure and incremental adjustments, reserving or compensation. It must be addressed in terms of structural shifts – in economic models, in industry models and value chains, in business models and in life models.
EIT Climate-KIC addresses climate risk through systems innovation; by orchestrating the design and implementation of joined-up innovation across multiple fronts, including finance, citizen engagement, policy, education and technology, to enable industry and business model transformation.
How do you see climate change affecting your organisation/the organisations you work with?
Achieving a 1.5°C target requires a decarbonisation rate at least six times faster than what we have achieved globally. This has profoundly transformative implications for all businesses and governments, as well as cities, financiers, investors, rule-makers, educators, start-ups and communities. We see that penny beginning to drop – too slowly and too late – as the weight of responsibility sinks in of being the last generation in a position to act to avert catastrophic change.
Some of the organisations we work are already managing the impacts of extreme heat, water scarcity or crop failure. Most are increasingly aware of mounting public concern, in particular through the knock-on effect of movements like Fridays for Future. However, with the notable exception of a few standout industry leaders, like Daimler, Engie, IKEA and Aviva, we see most organisations still hesitating to commit publicly to comprehensive and disruptive change. As a society we are failing to comprehend the importance of social resilience in surviving and adapting to climate change and in successfully delivering on decarbonisation.
Industry leaders in businesses that are particularly problematic in terms of fossil carbon emissions are challenged by the fact that transformation takes time, market signals are not mature and are unlikely to be within the timeframes we have. Worse, subsidies are still abundant, which is likely to mean that these businesses will be in tension with regulatory overrides as climate emergency plans acquire momentum.
Of greatest concern is that we are witnessing political, economic and social systems still trapped in core assumptions, incentives and decision-making habits. We see an unwillingness to adapt to the heart of the challenge – which is that we face a world that will become uninsurable, unhealthy, unliveable and even more driven by conflict as long as climate innovation capital is viewed in purely monetary terms. Innovation and investment are important, but if we don’t identify the complex nature of problems, and build demand for system-wide solutions across industries and governments, we will fail to make impacts at the scales needed.
What are the biggest risks facing businesses when it comes to facing/dealing with climate change?
Acting too slowly and forfeiting the opportunity to learn how to operate successfully in a new economy and how to survive, including in potentially different geopolitical configurations linked to resources.
Businesses are exposed across so many fronts. They need to think about climate change not only in terms of impact on profits or returns or on solvency, but in terms of how it will reshape their customer base, interfere with supply chains and impact their role in society.
In the immediate to long term, the implications of climate change and biodiversity loss include the risk of stranded assets; the opportunity cost of not adapting fast enough to new markets, technologies and industrial models; costs of non-compliance with emerging regulation and investment concerns; reputational risks within larger value chains sensitive to public perception with respect to carbon footprint and perceived inaction or cynicism (this will impact the ability to attract and retain talent as well as customers and investors); and unpredictable and massively disruptive impacts on business as usual from accelerating climate change effects – particularly as a result of heat, volatile weather events, floods or water scarcity.
Incoming generations are also demonstrating more awareness about where their money goes and placing stock in environmental and social values in addition to price. Businesses will need to re-evaluate this evolving market demand and adapt accordingly.
We need to look at climate risk differently, as an extreme form of strategic risk that demands active management through a different approach to innovation. Climate risk is not simply a financial or a compliance risk. Strategic risk is a risk of incoherence with an emerging future context. Climate change introduces discontinuous, non-linear, volatile change that affects almost every aspect of business and life as usual. Businesses will face profound tensions and incompatibility between our current systems, our assumptions about the extended present of human life, and the limits of the life support system we have been taking for granted. Simply put, it is a question of evolve or die.
Innovation is the most prudent and effective means of managing this risk – but not ‘innovation-as-usual’, by which I mean we cannot continue to work through gradual, incremental changes. We have pivoted our approach towards innovation that can catalyse deep, systemic changes, and engage in redesign of whole industrial models, economic and social systems and the financial system.
How can diverse stakeholders, governments, the private sector, academics and nonprofits more effectively collaborate to reach climate-related goals?
We offer a framework for collaborative innovation and investment, which allows a diverse community of innovators to work together in a co-ordinated way across a wide set of levers, going beyond single-point, technocratic solutions. We use this broad-based model of innovation to generate options and scalable pathways for the profound systemic change cities and organisations will need to implement.
Globally, and in cities and industry sectors, we need to develop much stronger demand-side pull for bold climate action. We work with problem owners like corporates and cities and even in the case of Slovenia, whole nations to create this demand-side pull. We also need to acknowledge and address the uncertainty that is inherent in the complex adaptive challenge we face. To do this we use a portfolio approach, investing in multiple, parallel and diverse interventions, spreading bets and testing for leverage points and for systems dynamics. Combining these two elements, our Deep Demonstration projects serve the purpose of working with problem owners to build innovation portfolios of coordinated innovation interventions in different sectors to deliver large-scale change, such as urban environments, industry, coal regions, maritime hubs, regional landscapes and food systems.
At EIT Climate-KIC our message is simple: we will work with any organisation, public or private, that is prepared to step up and own the challenge of transformation. We stand ready to join up with all kinds of stakeholders – whether a city, region or sector – to deliver a zero-carbon and resilient future.