INSIGHTS

 

 

What grade does the finance industry deserve in terms of pricing climate risk? Listen to Jason Mitchell discuss with National Oceanic and Atmospheric Administration (NOAA) Chief Scientist Dr. Sarah Kapnick, about the scope of NOAA’s mission; NOAA’s billion-dollar Weather and Climate Disasters dataset and what it means for weather attribution; and why NOAA itself represents a remarkable value to the US people as an argument against dismantling or privatising it.

Recording date: 9 September 2024
Note: that this episode was recorded prior to Dr. Kapnick’s resignation from NOAA.

Dr. Sarah Kapnick

Dr. Sarah Kapnick is Chief Scientist at NOAA, which plays a critical role in understanding and predicting changes in climate, weather, oceans, and coasts. Bringing a unique mix of science and finance to NOAA, Dr. Kapnick’s background includes serving as a senior climate scientist at JP Morgan Chase, a leadership role at NOAA’s Geophysical Fluid Dynamics Laboratory, and an early career in investment banking.

 

Episode Transcript

Note: This transcription was generated using a combination of speech recognition software and human transcribers and may contain errors. As a part of this process, this transcript has also been edited for clarity.

 

Jason Mitchell

Welcome to the podcast, Dr. Sarah Kapnick. It’s great to have you here and thank you for taking the time today.

Sarah Kapnick

Thank you so much for having me. I’m really looking forward to this conversation.

Jason Mitchell

As am I, definitely. So, Dr. Kapnick, I’d like to start out with a little bit of scene setting. So first, what’s NOAA mission? And second, how does NOAA establish its scientific priorities and how does that track with the administration’s climate objectives and commitment to net zero?

Sarah Kapnick

So first, NOAA mission, in short, is science service and stewardship. The long form of it is to understand and predict changes in climate, weather, ocean and coasts to share that knowledge and information with others and conserve and manage coastal and marine ecosystems and resources. Not to flip this question completely, but it’s hard to think of users or consumers not impacted by NOAA’s work.

We often say that NOAA, our study is the surface of the sun and space weather all the way to the bottom of the ocean, where we map the ocean floor and understand ecosystems of the ocean. So it’s not an euphemism so that science, solar storms impact global health communications. They can damage satellites and undersea cables. We were really lucky when we just had the massive solar storms a couple months ago where we were able to put our alerts really early and so people were able to change their behavior to ensure that there weren’t economic damages to that solar storm.

They can also impact energy security without advance planning by utilities for resilient grid. We also see marine ecosystem impacts. NOAA manages fisheries. We have one of the most sustainable fisheries in the world. Due to that fisheries management that we have in place. We also understand the fisheries ecosystems in the ocean. We produce understanding of mammals and follow them and sea turtles and being able to understand everything from the tiniest plankton all the way up to those really big mammals.

We also have issues related to food security and aquaculture and being able to make sure that we have sustainable fisheries. You may not know this, but the majority of the world in developing nations also their main protein sources come from fish. We also produce weather and climate forecasts. So we produce the models to the forecast themselves operationally and with our science.

We also build climate adaptation. We have major efforts, particularly around coastal resilience, for how do you build a resilient coast due to storms and general climate and weather events. But also due to sea level rise and the challenges that we face due to climate change? And then we also have observations across our entire planet from all the way from that space weather to on the ground and the ocean majority of Earth’s ocean observations, over 50% of them for Earth are actually done by Noah.

So under our NOAA administrator, Dr. Rick Standards leadership, when he came in, he said NOAA has to start bolstering sustainable development, economic development goals. We have to build a climate ready nation and we have to broaden the dialog with nontraditional and traditional partners for NOAA as a key priority for our agency, as that’s why I came in as chief scientist with my background in science, as well as in finance and economics and in my role as chief Scientist, I produce a couple of reports that get to this question that you have of priority setting.

So I produced an annual report of the state of the science. It looks back at our previous year of science and technological contributions, summarizes the month in an annual report with a lot of graphics and information about all of the research, the products that we put out, our collaborations, the education, and it really summarizes it on an annual basis.

This allows us to also take stock of it and do some gap analysis of where we might need to focus our efforts going forward. And so I also produce an annual Strategic Research Guidance memorandum, the AIDS in our communication of where the science needs to go to also influence our budget process and our communications on the Hill to external partners of where the science needs to develop and where funding needs to go.

And so this includes both critical continue activities, those that really need sustained funding and are really important to our fundamental mission. But it also includes the emerging areas for funding in R&D to meet the growing societal challenges that we see due to, you know, our steady state climate, but also expectations for climate change and of various environmental stressors that we see on land and in the ocean.

Jason Mitchell

It sounds like a huge mission, which I’m going to come back to. But let’s move on to you for a second from past guests on this podcast. It seems like the turn towards policy and governance is an almost inevitable turn for scientists studying climate change and the environment. There’s obviously some selection bias in there, but how do you reflect back on your own arc, from theoretical research to finance and back to applied science at Noah?

Was it organic or does it reflect a larger frustration with, I guess, the constraints of the theoretical research side to drive real world change?

Sarah Kapnick

I’ve been really interested in climate risk and understanding how other climate impacts financial markets since college. So I didn’t know jobs like the one I have right now existed growing up. I’m actually from the Midwest originally. I grew up understanding weather and climate and also seen the impacts of extreme years or extreme seasons could have from closing schools and commerce due to extreme cold, but also extreme heat and variability and storms and rain.

I saw how it could ruin crops from severe storms, drought or really wet spring and I also witnessed firsthand growing up on Lake Michigan, how invasive species affect ecosystems by watching the spread of the zebra and then the quagga mussels in Lake Michigan. And also what happened with a mass die off. The bill lives in the ecosystem. So I was really interested in these issues and saw weather and climate as abstracts are on daily life.

But I didn’t know that jobs like this existed until I was in college. And I actually got to work with Noah when I was a student in college. And there wasn’t a frustration point between research or finance for me. It wasn’t ever picking one or over the other. Fundamentally, to me, they’re intertwined, and if I had any frustration, it was that I wanted a career spanning both finance and climate science.

But that didn’t exist 25 years ago. So as a result, my career has been dedicated to working at this nexus to figure out how do we bring about beneficial change. And so I’ve been lucky enough to be able pursue my curiosities in this space by working in many different places and each place I’ve been able to impact how it impacts, how I think about risk, how I think about climate and finance.

And I really just followed my curiosity at different times. So I oscillate between these roles to gain experience and insight about science, but also how one implements it to build risk products around catastrophe risk insurance. Understanding carbon markets and understanding how forecasts and projections of climate information can be used in energy markets. So I’ve done these various different types of roles following where my interests were to build the experience.

And sitting here as Noah, chief Scientist right now, it is the accumulation of all those experiences which allows me to help the agency implement its science towards all the applications that we need to be focused on and producing the science, the products that are needed by commerce and by society at large.

Jason Mitchell

That’s super interesting. Was there an moment? I’m thinking of events like Hurricane Katrina and the drought in the West, which at least from what I’ve read, seem to have had a direct bearing on your own finance experience and research that essentially ultimately determine your commitment to climate science over climate finance, or at least bridging the two.

Sarah Kapnick

Yeah. When I was working at Goldman Sachs, I was debating if I wanted to get a C in climate, in economics, environmental economics, or I wanted to get a Ph.D. and the science in it was actually structuring catastrophe bonds while Katrina was in the Gulf and trying to talk about climate risk in the context of the insurance market and hurricanes and then seeing Katrina go through, which led to me deciding that I really wanted to get my Ph.D. on the science side and be an expert in the science.

I’d rather than being an expert on the finance side for my graduate studies. And I chose to go to California and do my teaching at UCLA with Dr. AX Hall because I wanted to really understand a stressor issue that I thought climate change would affect. That’s what I wanted to spend my five years of my PHC on. And so I spent it on water and snowpack in the American West.

And it was from that experience of doing that research and then the drought unfolding in the American West that led to my working with state water managers, with the state of California, with the mayor of Los Angeles, to be able understand how do you deal with water issues, not just in the theoretical understanding it from a science side, but then also how to implement that, to build resilience and to adapt to those changes that you’re seeing.

And that’s what drove me ultimately to go to NOLA and spend most of my career at NOAA’s event, scientists was wanting to better understand how do we build the science and then how do we build the products and how do we do outreach to state and local governments and to industry to be able to use that information and to build resilience?

And so those events were ones when I was a key decision points that led me to take my next job and then commit to what I was working on for the next couple of years.

Jason Mitchell

From what I’ve been told, NOAA’s Geophysical Fluid Dynamics Lab at Princeton has a reputation for being super technical and mathy, where scientists kind of tend to sit in quiet offices, modeling and writing academic journal articles. How are you able to cross from an environment like this to an investment bank and now a management role at NOA? How did you get comfortable cross that?

The mission description that you gave all the users and consumers of what NOA has, which seems to run across the commercial and ag sectors to government agencies like Nasser and the CDC, not to mention projects like Coastal resilience.

Sarah Kapnick

My interests are fundamentally interdisciplinary across all of those and wanting to make an impact on all of them. And so I got into the door of NOA first to FDL because I had an undergraduate in theoretical mathematics from Princeton, and then I had the necessary degrees in atmospheric and oceanic sciences, and I could do the most fundamental of dynamics and modeling that is required in the field.

But for me, that was my gateway to understanding climate science and understanding how do we build the data and information that we need at a really technical level. But ultimately my goal is to apply it, and that’s what drove me to Noa to is that the mission is to apply that science not only to generate it, but it is also to figure out how to apply it.

And so with my background and my interests, I have an interest in developing the fundamental science and technology. But that’s not enough for me. I need to figure out how are we going to apply it, what are we missing, and then also have gaps in society and societal needs for that science of technology to be able to identify those.

Then feedback on the science, to build the fundamental science to get us to where we need to be as a society. So for me, my movement across all of it has been through those interests. I would say not everyone with technical expertise can or should do that. But if you have an interest in that, I think that we need a lot more of these people that can do this.

They’ve been called climate translators by others. We need people that are able to take the information and figure out how to use it. But we also need that feedback loop back on the fundamental science for its production.

Jason Mitchell

That’s a great term. We’ve talked about the priorities, but how does NOA balance these priorities from fundamental research to model development to developing usable products for stakeholders across the US economy? And I think also what are some of the biggest challenges involved in managing both fundamental and applied research?

Sarah Kapnick

Our former head of NOAA’s research wing, Craig McLean, had this to say that I think is perfect for our agency. He used to always say that NOAA’s a $12 billion agency trapped in a five and a half billion dollar budget. So for us, balancing this act across all of these things is second nature. The science that NOA produces so fundamental to protecting lives, livelihoods and property.

And we need to develop the science to be able to make it usable to ensure that we are doing that. So going back to our mission of science, service and stewardship, it’s not enough for us to do science should us do the fundamental science. Our science and our work really has to provide the necessary information services to our users, which is fundamentally also global in nature, particularly for developing the forecasts or understanding the ocean.

We have to have that information globally and we have to collaborate across various organizations to be able to collect that information and develop that science. And it’s also cross-sector by its nature as well. We have to have partnerships across economic sectors and across different areas of science. This requires a balance then, as you mentioned, between the funding, that foundational research that we need to develop and then all the applied products that we need for decision making.

I find that to be one of my biggest challenges on the Hill actually is explaining why we need that end to end funding to do all of our work. Because if we just focus on our operations and small incremental improvements in our operations and our operational product delivery, we will never make the leaps that we need to make.

And so we need to continue funding the foundational research. And part of that is what I was explaining in my earlier philosophy is we need to know what the user needs are at the end so we can feedback on the fundamental research and inform. This is where the fundamental research needs to go or where the leaps are needed.

So we can meet the needs that are developing. So from all of this, we need to transition that fundamental research that occurs into operational products and then we need to continuously improve that. And under this administration in the last four years, and for the work that I’ve been doing as Chief Scientist, I am working really closely with our social scientists and my chief economist at NOA.

And part of that has been doing more analysis around the economic and social value of improvements or of products. And this is help us understand if we invest in certain areas, what are the outcomes of those investments. We’re doing that also with our investments in IRA and by funding to be able, particularly around adaptation and coastal resilience, because I see a need for understanding.

Where do you get the biggest impacts from the investments that you make So we can make smart investment decisions going forward because the demand for them exceeds the current funding that we have.

Jason Mitchell

I guess along these lines, climate scientists and finance professionals have very different disciplinary expertise, specialized languages and career incentives, and they often think importantly on different time scales. From your experience in your role now, how can we foster more productive collaboration across these fields?

Sarah Kapnick

Well, first, I have to thank you for inviting me on this podcast. Podcasts like this had a tremendous impact. I every time I speak with groups like yours, I get calls and notes from people both in the financial industry as well as in the scientific community. We need to build better engagement between these two communities. As noted, scientists have been working in this space trying to improve our outreach and our work with industry, and we’ve been really strategic on working with different industry groups.

For example, we signed earlier this year and MRU with the reinsurer Association of America to address risk communication of climate risk and how that’s use and how that needs to be implemented. Creating those dialogs and figuring out the risk communications but also developing new products will help us foster deeper understanding, but also is really needed for NOA to produce and improve our products and our dissemination of critical information.

Jason Mitchell

Noah tracks weather and climate disasters on its billion dollar weather and climate disasters website, which is incredibly helpful. And according to it, there have been 19 confirmed weather and climate disasters, with losses each exceeding $1 billion impact in the U.S. through August just of this year. What does this data set reveal to us about the severity, frequency, intensity and probability of events that can be attributed to climate change?

Sarah Kapnick

So first, I see this dataset as a really important macroeconomic indicator for the US. It pulls together all the information to understand what the damages are of those large disasters, and we’ve been collecting this information since 1980. Also, add that other countries are trying to replicate this to start creating these datasets and tracking this type of information. The U.S. has been first in trying to do this really holistically.

What this isn’t is a focus study, though, on individual events. So climate attribution, which you’re alluding to, is a science that’s really developed over the last about eight years or so. And that’s where we actually can understand how has climate change and how have events changed over time. The way I like to see it is thinking about simply what was the probability of events in the past, what are they in the present and what do we expect them to be in the future?

And with that we use observations. We can use modeling studies to be able to try and quantify what those changes and probabilities are. It’s much more straightforward when you’re just looking at physical event climate and weather events such as precipitation events or a heat wave or a drought. When you start looking at events that are a combination of both those physical climate characteristics of apparel plus the damages that they cause.

So financially that is caused by the combination of the weather climate event and the vulnerability of the built environment, but also of commerce to bounce back host an event too, is a little harder to make direct quantification about how these events are changing due to climate change when you’re looking at those damages numbers. We have a lot of understanding and certainty now that to those physical perils, many of them are increasing in both magnitude and in severity and probability.

When we look at the damages, it’s this combination of what that vulnerability is. And there’s many different hazards that we’re seeing at frequency and that are having those costs at a level that we haven’t seen previously. And an example of that is wildfires. So there’s vulnerability where people are building in the urban wildland interface. And so they’re they’re exposed now.

And so you have these damages, you have the wildfire, but you also have people moving into them. We also are starting to see things like compound events where you have one event followed by another that compounds the damages that we’re seeing. Events like this recently have been as a storm went through Houston and then after the worse, there was a massive heat wave.

And so you had the storm take out electricity and buildings and then you had the heat wave, which created continued problems with energy availability and the resumption of commerce. So these types of events are changing in their characteristics. We now have a choice of how do we respond with the built environment and with our business or our community.

Resilience plans to enable us to bounce back after those events and those choices on how we structure the built environment and resiliency will determine whether we continue to see an increase and billion dollar disaster frequency or not into the future.

Jason Mitchell

Beyond tracking these events. To what degree does Noah commit resources to understanding the financial impacts of extreme weather and climate change? And I guess also how is know a plane or if it is kind of a central role bringing together different parties? We’ve talked about agriculture, investors, insurers and others together to better understand and ultimately price climate risk.

Sarah Kapnick

So particularly in understanding climate risk, we have, as I mentioned, that among you with Reinsurance Association of America to address risk communication. And part of that is improving the availability and applicability of know products for their insurance and reinsurance industry and allowing it as a way that we can get feedback on what we need to be producing. We also are spending over $80 million under our Inflation Reduction Act funding on something called the industry, proving Ground, which is focused on key sectors to be able to understand what is the information that is needed in those sectors.

And those sectors include insurance, reinsurance, architecture and the built environment as well as retail. And that those engagements we held a series of roundtables with the secretary, the Deputy Secretary of Commerce early in the administration to hear issues that were coming up in there. And that has led to funding the development of some new products. One of those new products is a Hill product.

Now there will be a National Hill products that we are funding because increases, particularly last summer with more severe storms and severe storm damages than there has been historically. There’s been a call for more information on this so that can be used for understanding risk. So with these engagements, we are able to think through an advance, certain types of products that we know are needed.

We also enter into various agreements with the private sector when we know that we need innovation to take place that we can’t do alone as DA. So we either do that through among user employees or we do that through credit agreements which are development research agreements that we can enter into with private sector entities towards common goals to be able to innovate in a specific area like examples of this that are really partners.

We have one with Google where we are doing it on AI and understanding the ocean and tracking of marine mammals and we are using their expertise in AI and our expertise in data in the ocean, and we’re combining it to create new products, to innovate in a space that we really need innovation.

Jason Mitchell

In your time at JPMorgan, and I don’t mean about them specifically, I mean the industry as a whole. Did you notice any blind spots or areas of particular weakness when it comes to integrating climate risk in finance? How fast is finance adapting, in other words, to the pressures in the world that climate change is potentially producing?

Sarah Kapnick

I want to be clear that I’m saying this is across industry notes that I’ve seen over the last three years. There has been a fundamental change in understanding of how physical risk and information needs to be integrated into finance. There hasn’t been sufficient academic research at this intersection a couple of years ago to understand how do you build a model, how do you build a budget model or a macroeconomic model that includes climate change in it?

And we’re seeing that being developed out now. I also think that a couple of years ago there was also the assumption and I saw this when I was on Wall Street 20 years ago as well, there was this assumption that climate change was an issue that you would have to deal with decades from now, and that any products or any exposure that you had in your investment now, you could get out of it and you wouldn’t have to worry about climate changes and impacts.

I think the advancement of climate attribution, science, the ability to understand the climate is changing and has changed the probabilities and magnitudes of events today. I think the types of extremes that we are seeing around the world that are so far out of the normal expectations for those types of events is also surprising people and making them realize that they need to start considering how climate change may affect finance, may affect businesses, may affect probabilities.

Profitability is fundamentally changing. I also wrote a paper that came out. I wrote it when I was a bench scientist at Google that is only came out earlier this year where we also took a financial market data. We took equity options information, and we were actually able to show that seasonal outlooks of El Nino and of the winter outlook of do you expect to be wet?

And one of the temperatures across the United States, those outlooks actually move financial markets. They alter the equities options market and so we’re starting to see these papers come out or people have been studying what is the effects of finance on seasonal climate, on climate variability and expectations for climate change. We’re actually able to start quantifying with real dollar movements how climate change and variability is or is not affecting finance, and that’s leading to a greater understanding of it and a push to include that information into existing financial models.

Jason Mitchell

Beyond strategic asset allocation models that integrate. Yes. AMS. Are there any innovations you think that would be particularly transformative or is it about new frameworks or different asset classes or in markets like you said, carbon markets?

Sarah Kapnick

I think it will be a combination of the science or technology that can enable the unlocking of capital to be able to know what the impacts of your investments are in specific space, be it in carbon or greenhouse gases or in nature and biodiversity. And it will also be changes in regulation locally, globally, regionally, that will also put stressors on how these markets adjust and respond.

So it’s a a push pull of the technology and science and innovation, but also the regulations that get put in place.

Jason Mitchell

I realize this is a blunt question, but what grade would you give to finance in understanding actually pricing in climate risk right now?

Sarah Kapnick

I would say that it is emerging, and so we’re at more of a C and below range, but that’s only because people are only now realizing that they need to bring the information in. And I would say that the information, the models, the work that is needed to do to understand the financial impacts is growing rapidly and we are pushing to be the most improved as we possibly can in the coming years.

Jason Mitchell

Just to push you a little bit more, what do you think investors need to focus on now, given the increase in Billion-Dollar Weather and climate disasters thus far? It feels like it’s been a lot about managing tail risk exposure or it’s been about insurance oriented innovations like cat bonds.

Sarah Kapnick

I would say that we’ve seen a lot of work, as you’re mentioning, around the edges of what can be done. So is the extension of products or innovation were they were previously related to weather and it’s just plugging in new statistics. Climate change is going to fundamentally change all of society, and we need to start thinking in that way as we’re thinking about what do we need to do to respond to our demands of the built environment to withstand physical climate change.

For example, changes like heat, storms, droughts, floods, sea level rise. Those demands in the built environment are going to fundamentally change due to the changes of those types of events. There’s also going to be fundamental changes to financial services that are necessary for survival. If you think about water, energy delivery, food, climate change is altering all of those.

It may be a stressor on them that, you know, there’s other management or technological issues that are the predominant players but is becoming an increasing stressor on those issues that we will see and we need to think about how climate is going to affect them as we think about how the world is going to change in the service delivery of those fundamental services.

And I’ll also say that there is a changing geopolitics factor from climate change, especially. We’ve been doing a lot of work. There’s been some meetings that we’ve held with the National Academy of Sciences, we being all of U.S. government and climate science for climate migration and response to those physical and biological changes, which, you know, is a fundamental investment driver demographics and where people are and where people are spending their money.

That’s a fundamental investment driver. And so if you get migration either regionally within a country or across countries, that fundamentally changes what your investment profile is going to be. For me, personally, serving as chief scientist has also been really transformative in my thinking as a climate scientist who’s also steeped in finance. I’ve always worried about emerging financial risks and I studied and focused all my efforts to when I was a bench scientist at Noah, to understand how to quantify climate risk, how do we build models?

How do we build data to understand it? I did this fundamental research, but I also, as I mentioned earlier, have started working with water managers and clarify economists to understand how climate variability and change could be used for managing resources or impacting financial markets. So I was taking what I knew and trying to apply it to resource or financial markets to be able to understand what those outcomes will be.

However, now, as no chief Scientist and having this much water larger view, I also see how climate change is really going to affect all of society. Every single agency across the U.S. government right now is considering how climate change is going to have some many are doing the types of analysis of the financial and social impacts for the first time under this administration.

And with that, I realize I should have said this earlier in May of 2021, there was an executive order that President Biden issued. That was the executive order on climate related financial risk. It it’s important to note this because it developed the plan to try and improve creativity, courage and the United States to think through How do you bolster the resilience of rural and urban communities, states, tribes, territories, but also institutions in the face of climate change to be able to allow the US to lead in the global economy?

And the specific statements that were exactly where the goal is to lead to a more prosperous and sustainable future. So it won’t quiet agencies for the first time to start looking at the macroeconomic risks, the financial risks, the societal risks of climate change, and start quantifying them. And this work, there’s been a number of studies that have come out every single year since then, looking at specific programs, understanding the financial impacts of climate change on those programs to enable either of how those programs are run, to be able to reduce those risks or where investments need to be taken place to be able to reduce the impacts of climate change.

And this type of analysis is really needed across all sectors to ensure that we know what is coming and that we take the measures necessary to improve business resilience and the resilience of lives and livelihoods and property.

Jason Mitchell

Absolutely. Speaking from the UK, the investor community has increasingly faced criticism regarding their long run assumptions around the impacts of climate change on portfolio valuations, and its even the traditionally conservative institute and faculty of Actuaries in the UK published a report called The Emperor’s New Climate Scenarios, which makes a case that investors are underestimating the economic impacts of climate change.

So my question to you is if there’s an increasing push to integrate things like climate tipping points in non-linear feedback loops that could potentially produce economic losses as large as 50% or more to the global economy, why do you think the climate impacts to portfolio returns generally minimize the climate scenarios? Some would point to the problem of discount rates over long periods of time, i.e. 3 to 7 year time periods.

Sarah Kapnick

I would say that we haven’t been doing that research to understand that it’s only now that there’s a really active academic research community that is doing that work and also the government in the US and the UK and Europe especially, and Australia has also been leading on this, on trying to develop those quantification of what are the impacts on finance.

We have not historically had robust tools around this. There is a explosion of research and work, as I said, in the academic phase, but also in the emerging private sector to be able to do these qualifications and understand it. And that information will continue to develop and be integrated into how we think about investment decisions. And it will change how we quantify what those risks are.

Because of my background, I’m inclined personally to think that the risks are higher than what they’ve been priced at or what we think right now, but we don’t have those. They’re really robust qualifications. And so those are going to emerge in the coming years. There’s uncertainty about what the answers will be and be it higher, lower than what the current expectations are.

I will also say there’s always been this assumption that the risks are something of the future versus the present. So the question I always think about is when is there a shift in our thinking of when the future becomes the present and what is the social to that, be it in buildings or general operations, but also in the investor community?

When that shift of thinking about the problem is to future problem versus a present problem, one that shifts occurs is when you have a change in how behavior unfolds.

Jason Mitchell

In a Harvard Business Review last month that you did, you talk about NOAA’s role in answering the question, How do we measure nature? Can you talk more about that? The notion of natural capital is still pretty nascent in financial markets, in my view, and it does feel like there’s some degree of or a bit of a divide between the science community and the finance community in areas like biodiversity, for instance, when it comes to data methodology and use cases.

Sarah Kapnick

Markets can develop with information. And so I see no as being able to provide the science, the standards, lower cost technology and understanding of marine biodiversity to help support the development of that market so that we have a choice of how, you know. On the financial side, there is a choice of how much science and what level of science supports the future of that market.

And the science that comes out of Noah can support that. Noah actually sits under the Department of Commerce. So I see the science and technology that we developed, but Noah is also having to serve commerce. It has to come up and out of Noah into the private sector. We have to ensure that there’s commercialization and scaling of new technologies, new science, new understanding, and that is to build new markets, to build new sectors of the economy.

And with this, we focus on biodiversity, emerging technologies and biodiversity that are really critical in the marine environment for being able to track marine biodiversity. From this work, one of the most important things that I’ve been able to undertake as chief scientist has been pushing for this and also doing so with really critical partners. And so one of the ones I want to mention is we are working really closely with the Sony, an institution really with Ellen Stofan, who’s the undersecretary for science and research at the Smithsonian.

She and I worked towards MSU between our agencies to be able to work together on how do you bring the science and technologies and catalogs of data historically between our two agencies together to be able to support emergence in this understanding of marine biodiversity coming out of that and work then also across the Federal Government? In June we led the development of for the US of a National Ocean biodiversity strategy, a national aquatic DNA strategy and aquatic where you take water samples and you can look at the DNA in those water samples to know what’s in that water.

And then we also paired an ocean sustainability strategy. So with those strategies guiding, there is technology that needs to develop their standards, that needs to take place. There’s also regularity for measurement of biodiversity and how we will do that in our water as an across the ocean. So my goal is that we scale this and we have regularity of observation of marine biodiversity to know what is in the waters, to know its health and be able to respond to that, to be able to try and continue to conserve and manage and provide stewardship of the ocean.

But then also from the financial market side, that information can underpin future private sector investments in nature. And I’m seeing an increase in work that is happening and new financial products either out of insurance industry or out of the World Bank and development organizations that are trying to structure new products around monitoring biodiversity, being able to have standards of understanding what is the baseline of biodiversity and then is it improving or not over time and making sure that those are also really low costs so they can be implemented anywhere in the world is critical to be able to scale that type of funding.

And I see us playing a role in ensuring that that science and technology that is needed for that takes place.

Jason Mitchell

Innovation here makes a lot of sense, but as a scientist, to what degree do you worry about the financialization of of nature? There’s been a lot of talk recently in areas like nature credits, much like carbon credits or debt for nature swaps.

Sarah Kapnick

As know. And as a part of Department of Commerce, I see a need for standards to be rooted in science and proof of impact. And we have a role to ensuring that we support that development.

Jason Mitchell

Got it. Noah’s Gradle Lab focuses obviously on long lead time research, like modeling the relationship between the Earth system and climate change. Generally speaking. And as far as I know, weather and climate models are often treated discreetly. Can you talk about the advancements to make them more continuous and I guess unified using the same dynamical core which I’ve read about?

Jason Mitchell

How is Noah thinking about the relationship between weather and climate across different timescales, days to decades? I ask this because beyond scientific motivations, could combined operational weather and climate models help insulate Noah and Noah science from political all external pressures?

Sarah Kapnick

So you are bridging both my subject matter expertise from my time at Google as also my role as Chief Scientist about thinking about how we bridge across all of these scales. So building models across those timescales is actually scientifically how you you can improve understanding, accuracy and the testing of skill. You have to make weather forecasts sub hourly, you make seasonal forecasts every month and then they run out for a year or so.

And then you have to make decadal forecasts at the beginning of every year and you do them out five to 10 to 20 years. By its nature. You get to test your models more frequently at those shorter timescales, so gives you more data and information to be able to see if you’re doing well or not. And then it allows to integrate when you’re when you’re using models that are seamless across all these timescales, you can then also integrate across all those processes at those different time periods that lead to skill.

So explaining that part of weather modeling how you get weather a couple of hours later or a day later, it comes from those initial conditions which those forward, particularly in the atmosphere like do use the cloud system. And so our system moves from one point to the next. Can you get that correctly as you move to seasonal timescales?

It’s not just those initial conditions really in the atmosphere. It also increasingly requires conditions at the land surface, particularly snow and ice and surface drought or what conditions and how those impacts the atmosphere. And then it’s also the evolution of ocean conditions become more important because the ocean slowly evolves and that affects weather and climate. So models are built across those timescales and then tested across those timescales forces you to make sure that you get right the right answers for the right reasons.

That integrates physics, chemistry and biology of earth to be able to have that evolution. And as we move also to higher resolution, particularly with the advancements and high performance computing and the ability to get more climate models, start bridging that gap of the resolution scale of the climate models to what it’s done to weather models. So traditionally climate models, since you had to run many, many years or decades, were much coarser, you cut the earth up into boxes on 100 kilometers or more per side to be able to model out climate.

Increasingly, our climate models, like we have climate models running GFC L at 25 kilometer resolution. But then we also, through some of our new systems, are at the ten kilometer scale and even lower. We’ve even developed some datasets of the one kilometer scale. So now you’re bridging the gap between the climate scale and the weather scale. So they’re also starting to become seamless by nature to be able to model what we need to model for climate.

And so this is actually done in a seamless way. It is the best of science. It is the advancement of science to to high performance computing, and it’s also unlocking new areas of science that we need to advance to, be able to get to those higher resolution scales in our climate models. And I see this as a fundamental need to as we need to prepare for extreme events that we have in our forecasts and our weather forecasts.

We need to prepare for those extreme events, but we also need to have similar capabilities to understand changes in variability and expectations for those extreme events at similar weather timescales so that we can actually build resiliency plans at the local scale with communities, cities, states, regional groups to be able to know what is coming and then prepare when those events unfold.

Jason Mitchell

You’ve talked about how, quote, NOAA is getting science into the hands of decision makers for the decisions that need to be made around weather, climate, fisheries, the ocean, and quote, At the same time, some academics have cautioned about the emergence of a climate industrial complex. I’d highlight Professor Madison Condon, a legal scholar at Boston University, who’s been on this podcast.

There’s concern that the private sector is developing proprietary climate models that have the power to drive asset prices, insurance premiums, etc., and provide little transparency in doing so. Can you talk about the tension between research, innovation and this emerging climate industrial complex?

Sarah Kapnick

So as I said, no one needs to produce science and information technology that comes up and out. Now and is able to support the private sector and commercialization and commerce. So with that, we produce fundamental information as we always have, that then supports the emergence of these new new sectors. And it is a new and emerging sector and is going through the growing pains that any new sector goes through as new technologies are developing.

And Felicia, really importantly, it’s not a competition for us against these third party climate companies, but it’s working together and then also making sure that we’re developing from our government agency, science and information to make sure that the science is right, and then also that we are communicating how we make our information. We have full transparency of what we’re doing, and then we are accurately communicating those risks externally.

We have partnered with many different companies to try and develop innovation across us, and we are actually working on how we develop new observations and models to make sure that we can understand and quantify risk. And as a fundamental component of know all, we’ve also put out our equitable service delivery strategy recently, and part of that is ensuring that we put out the fundamental information that people need to understand and their risks exposures and have access to the data that they need to make decisions as the private sector emerges, which I expected to continue to grow, we need to make sure that the data that we’re putting out is also accessible to everyone because there

will not be the ability of everyone to pay for such information. And we need to ensure that we have fundamental information that we have out there that people can have access to. And one to. One of the products that I want to highlight towards this has been the camera product that was released two years ago, which is a interface on resilience to a climate cycle and where people can access climate information and to be able to understand how climate is changing in their region.

Download information and also gives examples of adaptation plans that people have done in their communities and how they’ve used information to be able to respond to climate change.

Jason Mitchell

It’s no secret that climate science has unfortunately, but increasingly been politicized. Project 2025 describes Noah as one of the main drivers of the climate change alarm industry, unquote. Quote And in fact recommends dismantling it. They’re also forces pushing to privatize NOAA’s National Weather Service data. From my understanding, private forecasts are all based on NOAA’s data and resources, which I think date back to John F Kennedy war effort to create a global weather forecasting system that relies on scientific change.

So what’s the argument to maintain this global public good? And second, what’s at stake in attempts to commercialize and privatize weather forecasting?

Sarah Kapnick

Noah remains a remarkable bargain to the American taxpayers. For just cents on the dollar, the U.S. taxpayer gets world class environmental information and predictions every single day. 24 seven Coverage of weather by experts at the top of their field, issuing key watches and warnings. All of this goes back to NOAA’s mission of science, service and stewardship. We’re credibly proud to serve the American people, protect their lives and livelihoods with no facilities in every state and net national weather forecast offices scattered throughout the country and territories, the employees who make up know our forecasting for their own communities, their parts, their own communities, and they are regularly in conversation, particularly before events occur, but also before

seasons of events occur. Like we have a whole preparation before hurricane season to make sure the communities are prepared for hurricane season in the Gulf Coast, East Coast states so early, the research that we do and the products that we are putting out there for this very low cost is a fundamental public good and we are going to continue to be doing that and being a part of our communities to ensuring people get the information that they need.

Why can’t speak to the plans for Noah and other administrations? I also want to acknowledge my bias. Having grown up in my career in this agency. But Noah is truly a shining gem in the U.S. government for the products and services that we are providing.

Jason Mitchell

And I guess to look at the climate modeling side, how is that emerged and how do you see that evolving going forward?

Sarah Kapnick

Early fundamental research to develop weather forecasts and understand climate and develop the models to do so. Those happened at NOAH and for historical context, it really happened in the 1960s. So the program and the Geophysical Fluid Dynamics was approved in the Memorandum of Understanding between Princeton University and the Environmental Science Service Administration, which was the precursor to Noah under the Department of Commerce in June of 1967.

So in the fall of 1968, GSD L was formed. It was moved from Washington DC to the formal campus of Princeton’s campus for 50 laboratory personnel and two state of the art large UNIVAC computers. In context back then that had half a megabyte of memory less than a song. Today, and it had less horsepower than your cell phone right now.

But from those computers and from the early scientists we built out weather forecasting. We built out the very first climate model. One of those really early scientists, Suki Manabe, actually won the Nobel Peace Nobel Prize in physics for this effort. So since then, we’ve been building out the climate models. We’ve developed an understanding of climate. We’ve also been able to develop seasonal predictions of climate, which we can know months in advance.

And El Nino developing. Will the winter be hot or cold, wet or dry? What will Hurricane season look like? They will develop out those seasonal predictions. We’ve been able to develop out decadal predictions of understanding years in advance. What is the climate roughly going to look like? And it’s also allowed us to create all its projection information going forward, particularly with societal challenges.

These models, those are going to tell us to be able to answer the problems that we we have emerging. They will be used to forecast those extreme events or series of extreme events expected on a seasonal climate time scale. So do you have a higher, less likelihood of certain types of events to occur so you can then implement your strategies to be able to reduce the impacts of them or to be able to take advantage of them?

For example, in the American West, they are trying to use seasonal forecasts and outlooks to be able to understand if you’re going to have a lot of water, how do you transfer that water so you can replenish your aquifers underground so you’re not just using the surface water when you had it, but you’re also ensuring that you have a replenishment of underground water.

So these models in the data and information are going to continue to evolve. They’re going to move to higher resolutions and they’re going to change in response to the questions that we need to ask of them to be able to have the society that we want functioning based off of science, that the future.

Jason Mitchell

Great, great. So last last question. You’ve stated that quote, As the climate evolves and as people see the changes and experience the changes, finance and other parts of society are going to transform in response to it and quote, given experience across finance, science and policy, what does that transformation look like? Are we headed for a minsky moment or not?

Sarah Kapnick

So you’re looking deep into my soul right now with this question. That’s what keeps me up at night, and it’s why I left. No, I’m 22. I want to go work in finance was to understand why climate information isn’t being taken out faster, why capital isn’t moving to climate solutions as fast as I would hope. And it’s also what brought me back to being Noah, chief Scientist, when I was asked to serve as a presidential appointee in the Biden-Harris administration.

So we need to better understand what is happening in the future of climate. We need to understand what that means for society, what that means for finance. We need to do that hard work. We need to then also respond to that work, and we need to respond to that so that across all of society it is a policy problem.

It is a science and technology development problem, and then it’s a fundamental investment problem. Power, again, best for the world that we want and how are we going to create the environment for that to take place? And how special is my role in Noah as know actually scientists, how am I making sure that we are have the science and technology innovation to answer those questions and also to provide those solutions that can scale to really make it disappearance class logically?

Jason Mitchell

Great. That’s that’s a great way to end. So it’s been fascinating to discuss what Noah’s mission entails, how your own experiences across climate science and climate finance have evolved, and why it’s vital to maintain a weather forecasting and climate modeling. Public good. So I’d like to really thank you for your time and insights. I’m Jason Mitchell, head of Responsible Investment Research at Mann Group here today with Dr. Sarah Kepner, chief scientist at the U.S. National Oceanic and Atmospheric Administration.

Jason Mitchell

Many thanks for joining us on a sustainable future, and I hope you’ll join us on our next podcast episode. Thank you so much, Dr. Karp. Nick, I really appreciate it. This was incredibly insightful.

Sarah Kapnick

Thank you so much for a wonderful conversation.

Jason Mitchell

I’m Jason Mitchell. Thanks for joining. Special thanks to our guests and, of course, everyone that helped produce this show. To check out more episodes of this podcast, please visit us at MANKOFF Forward Slash. All right, Dash podcast.

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