The rising volatility in financial markets, with respect to natural disasters and extreme weather events such as floods, wildfires and droughts, is linked to the accelerated pace of climate change. In the past few decades, such eventualities were rarely factored into financial models in long-term asset portfolios, as the relevant data to make key decisions was either sparse or simply unavailable.
The predictability of our natural environment, which we once took for granted in our personal, social, financial, and business decisions, no longer remains valid. Across the globe, we earlier operated under the assumption that there has been consistent access to energy and natural resources for the last-mile consumer, but recent events have shaken these assumptions. For example, during the summer of 2022, industrial production in China’s Sichuan province suffered due to reduced water levels in the Yangtze River. Furthermore, in July 2023, floods devastated various regions in India, causing significant damage. Key rivers such as the Beas, Yamuna, and Brahmaputra reached record-high levels, and Himachal Pradesh alone suffered losses exceeding US$1 billion, with several bridges, highways, and homes damaged. Similar flood, heatwave, and wildfire effects were observed in July 2023 in Northeastern United States (US), South Korea, Türkiyé, Canada, and Greece.
The financial and human costs incurred due to the myriad impacts of the environmental crisis far outweigh any short-term benefits of long-standing practices.
These large-scale catastrophes provide a glimpse of the alarming outcomes of climate change on urban and rural infrastructure, investor confidence in real estate portfolios, climate risk for insurance companies and the stability of communities. For operating businesses, climate change-related risks are forecasted to cause supply chain disruptions, increase operational expenses, and lead to loss of capital, penalties and more. Companies will also have to grapple with the devastating impacts that climate change has on workforce health and safety. The financial and human costs incurred due to the myriad impacts of the environmental crisis far outweigh any short-term benefits of long-standing practices. There is therefore a need for solutions that predict and analyse the likelihood and intensity of a natural disaster before it unfolds, through data intelligence and quantitative modelling.
Blue Sky Analytics has developed a platform, technology, and infrastructure to offer consistent, reliable and accessible climate intelligence to global clients in the financial, insurance, real estate, government and non-profit sectors. Our business model focuses on three main areas: i) Asset Monitoring, ii) Carbon Markets and iii) Climate Risk Analytics, supported by digital public goods and technology infrastructure. Our journey has involved collaborating with various stakeholders to enhance user experiences and decision-making processes.
The Asset Management System provides relevant intelligence for specific assets, such as power infrastructure, transmission lines, oil pipelines, or degraded land for carbon credits.
During our first year, we focused on gathering satellite data and utilising Artificial Intelligence (AI) to build prediction models through algorithms, such as our products SpaceTime™ and Climate Data Hub. Our solution enables users to visualise various environmental and climate data, including forest carbon stock, river water levels, and seven-day wildfire forecasts. The Asset Management System provides relevant intelligence for specific assets, such as power infrastructure, transmission lines, oil pipelines, or degraded land for carbon credits. Clients can access this data via Application Programming Interface (APIs) at their preferred frequency and resolution.
One of the key challenges that we have faced is the issue of monetisation, in other words, securing clients who are willing to pay for this climate risk intelligence. For instance, our technology is equipped to predict floods, simulate rainfall, estimate water levels in rivers and provide advance warning for potential disasters. While this technology can prevent accidents, support timely evacuations, and offer valuable information to lenders and insurers, the question arises as to who should bear the cost of this critical intelligence. Banks require specific data subsets for underwriting loans and insurance companies seek one-year-out probabilities. Governments tend to have a long and protracted process to administer public infrastructure projects, which limits swift implementation. Achieving the requisite monetisable parameters necessitates an elaborate model generating multiple additional parameters, all of which, if accessible to the public, could save countless lives.
In contrast, we’ve developed another product concurrently, with the same engineers and input cost, which has already been adopted by multiple customers and is experiencing consistently high growth. It has the potential to generate sustainable revenue, allowing us to enhance its performance, quality, and reliability year after year. What is clear is the impact on climate, society, and human lives these datasets can have, but these products are often underfunded and underutilised behind paywalls.
Governments tend to have a long and protracted process to administer public infrastructure projects, which limits swift implementation.
Many such innovations are often funded through grants, yet the continuity of such endeavours without repeatable and assured sources of revenues remain challenging. The outcome is numerous abandoned and outdated projects by various governments, space agencies, non-profits, consulting companies and CSR teams—which are all siloed and underutilised. Developing technology for the planet is crucial, but the pathway, scale, and potential for achieving sustainable revenue for climate risk providers remains unclear.
Therefore, the importance of flexible grants for various climate innovations is evident, whether within nonprofits, for-profit organisations, Small or Medium Enterprises, or solopreneurs. However, grants often come with obligations like open-source or CC-BY licenses. Furthermore, to ensure the longevity of these products, projects, and services, maintenance is crucial. This includes user engagement and asset improvement, necessitating the exploration of sustainable revenue streams. Therefore, flexible grant funding becomes crucial and should be allocated to climate tech startups for early innovation and R&D, allowing for technology experimentation and the establishment of product-market fit. Also, increased support in the Seed to Series A/B stages can go a long way in addressing these constraints.
Additional challenges encompass educating customers to navigate their needs, preferences, and biases, which can be time intensive. Scaling up satellite data acquisition is another hurdle; smaller acquisitions yield costly products with subpar service, while larger ones demand superior customer service, pricing, and faster turnaround times. Moreover, ensuring data and intelligence credibility is a complex task, given ongoing debates about data accuracy and model reliability, alongside controversies in climate risk, carbon markets, and ESG metrics. It’s worth noting that these challenges aren’t exclusive to our organisation but are shared across the sector.
Adequate government support can provide the right policy signal and demonstrate a commitment to climate intelligence, ultimately driving the private sector’s transition to adopting these critical solutions.
To encourage proliferation of such climate tech enterprises, showcasing examples of climate tech companies that have achieved sustainable growth and revenue will inspire and guide other startups and founders as well. Adequate government support can provide the right policy signal and demonstrate a commitment to climate intelligence, ultimately driving the private sector’s transition to adopting these critical solutions. While the final buyer with the right paying capacity is this industry is the Banking, Financial Services, and Insurance sector (BFSI) sector, the government can act as the logical first buyer to induce trust, establish credibility, educate the private sector, and accelerate its adoption. Policies or compulsory reporting guidelines for banks and insurers can significantly help drive adoption and impact.
Developing climate risk intelligence to combat climate change and environmental degradation is a large challenge that demands diverse capital sources—public, private, grant, equity, and debt—and human expertise at a massive scale, to transform existing systems and create new ones globally. Collaboration between nonprofit and for-profit entities is vital. Flexible grants for early R&D and prototyping are crucial, enabling monetisation in the case of for-profit models. If executed well, innovative funding mechanisms for companies building climate risk analytics and intelligence can drive long-term value creation and lead us to a low-carbon future.
Abhilasha Purwar is the Founder and CEO of Blue Sky Analytics.
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