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How Bank of Montreal, Climate Engine and Google Cloud are connecting climate resilience to the world of finance

Derek du Preez Profile picture for user ddpreez July 11, 2022
Spatial finance aims to bring together economic and climate data together to better influence the impact organizations have on the environment.

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(Image by Gerd Altmann from Pixabay )

The Bank of Montreal is using data streams from satellites and sensors to better understand, in real time, how the world of finance could influence organizations and economies to potentially reduce the impact of climate change. The Bank is working with Climate Engine, a platform that collects geospatial data on wildfires, floods and other natural disasters, to try and connect economic decisions to how they could impact the earth. 

Speaking at Google Cloud’s recent Sustainability Summit, Jamie Herring, President at Climate Engine, said that in order to withstand the challenges the world is facing across institutions, infrastructure, transportation networks and supply chains, organizations need to build financial and operational resilience. 

The world is already seeing huge economic strain as a result of the impact of climate change on the economy, people and ecosystems across the world. Herring argued that we need to think more closely about how the world of economics and climate are related, in order to see the meaningful change that’s required. He said: 

One of the biggest myths of our time is that the economy is disconnected from the environment. And that's something that's borne out time and time again as we make decisions in terms of our development and our financing. The climate crisis, when we talk about it, really can't be resolved until we act like the economy exists within the planet that we live on.

Climate Engine’s core proposition centers around this concept of ‘spatial finance’, where it collects data (or observations) about how the planet is changing and connects those to changes in the economy. It does this through geospatial science and computing, where it collects data from satellites and sensors and analyzes it on Google Cloud Platform. Climate Engine offers organizations an ‘API for Earth insight’, which provides these earth-based insights. 

Herring said: 

Every risk and every planetary change happens somewhere. It's inherently location specific. Every economic activity itself is also inherently location specific. The idea of spatial finance is pulling these two worlds together, so that we can bring together the world of the environment with the world in the economy and start monitoring how these things intersect and how changes in one will affect changes in the other.

How we do that is we do that through computing. And really our partnership with Google is what allows us to do that.

Looking at the planet and looking at the world is a massive computing big data problem. It's one of the biggest big data challenges that we face today. With Google and Google Cloud, what that allows us to do is process all the earth system data in one location and map that to assets around the world in real time, so we can start monitoring and understanding the impacts of an event like a flood or wildfire on an asset, on a system, while it's happening. And sometimes before it happens. 

Connecting the dots at Bank of Montreal

Herring said that this concept of spatial finance could be one of the most important climate adaptation strategies that the world has. The ambition is to move away from assessing the impact of system changes and their impacts after they happen, to a world where we find out before they happen, in order to allow resources to be allocated in a way that adapts to climate change. 

The Bank of Montreal, the 8th largest bank in North America, and which has 12 million customers, is using data from Climate Engine to try and do exactly that. Michael Torrance, VP and Chief Sustainability Officer at the Bank, said that there is a “paradigm shift” in the financial sector, in terms of the integration of sustainability, climate considerations and finance. He said: 

This is manifesting in a few different ways, both around opportunity and risk management. On the opportunity side, banks like Bank of Montreal and financial system actors, are realizing that there's a lot of ways that capital can be deployed to help solve some of the biggest problems of our time, around decarbonization of the economy and management of biodiversity. 

We can actually create incentives for our clients to take steps to address their own operations and [make an] impact in these areas in ways that we never could before, through instruments like sustainable finance. 

But in order to have sustainable finance, or in order to manage the risks around things, like the risks to physical assets from physical climate hazards, or to manage the risks related to impacts on the environment, you have to have data. You have to know what's happening. You have to know where the physical assets of your clients are. 

Torrance said that by harnessing this data to understand the context in which the Bank’s clients are operating, finance can do some interesting things to influence change. For instance, the Bank is thinking about how Greenhouse Gas Emissions are related to the operations of its clients, and how it could build a sustainable finance product that could incentivize decarbonization, where the Bank tracks performance over time. Torrance said: 

We could rely on a company's own reporting or third party data sources, but it would be incredible if we could actually monitor through real time satellite information, the emissions of different facilities and how those are being better managed and changing over time when it comes to something like biodiversity. 

And it’s location-based data, both climate and finance, that’s important here. Torrance said: 

It's all place based in terms of the impacts on biodiversity. If we could understand where our clients’ physical assets, factories, mines operations exist, we'd be able to marry that up with information about sensitive biodiversity or red-listed species, and then be able to ensure that as we're diligencing relationships or creating risk management frameworks to understand the potential impacts that our clients are having on the environment in which they're operating. 

We can work with them to help inform their decision making and if possible, even again, integrate that into financial instruments. 

Also, think about flood risk, wildfire risk, these can have enormous impacts on financial systems, on the economics of a business, and so being better able to understand those risks and even to potentially take proactive steps to mitigate risk, is really the potential power of the geospatial modelling approach. Leveraging that kind of data and analytics for finance and risk management, I think this is a really untapped area of finance and of technology. And we're just beginning to unlock the potential of it. 

Torrance added that organizations need to recognize that the coming decades are not going to be like the last 10, 20 or 100 years, in terms of the effects of climate change. As a result, the conventional ways of thinking about these problems, in terms of looking at historical data and then extrapolating it out to say ‘this will be how things look in the future’, is not a good risk management approach. Torrance said: 

We need more real time forward looking approaches and I'm really excited by the opportunities that geospatial big data and modelling allow us to potentially capture now, in terms of Bank of Montreal’s own climate strategy. 

Using a platform like this [could] really potentially set us apart from the industry, we'd be able to advise our own work internally, as well as lead or advise our clients externally. And so it really unlocked a lot of potential and capabilities within our bank to better position ourselves to capture opportunities and manage risk in this area. 

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