Dr. Jesse Keenan, Associate Professor of Real Estate, Tulane University, speaks with Robert Lutton, Vice President, Sandhill Consultants, about what organizations should do today to understand and manage climate risk, organizational scorecards for setting benchmarks, climate gentrification, and the outcome of COP 26 conference.

Keenan affirms that companies, regardless of size, need to shift their focus toward understanding climate risk., “I think the first thing to do is to engage various business consultants to conduct vulnerability assessments to understand where your vulnerabilities and blind spots are,” he says.

After that, he adds, it is necessary to learn about sector-specific vulnerability. This is where a less affected company can learn from the experience of the more affected ones and their views on managing climate risk. He cites the example of a carbon tax impacting the type of plastics used in soles.

Keenan asserts that the public sector is more engrossed in organizational scorecards than the private sector. “I don’t think they’re well developed as a resource at this point,” he says. “Benchmarking is a management tool. Once you’ve understood your set of values and have an idea of transitional change, you use benchmarks to help understand where you’re going in a kind of backing methodology.”

Keenan adds that carbon disclosures or emission disclosures are the benchmarks related to organizational resilience, which hardly exist within sectors. “This is why the TCFD (Task Force for Climate Financial Disclosure) is critical. It is also essential to know where you are going to benchmark. Once you begin to participate in TCFD processes, you will learn your blind spots. You will figure out where your vulnerabilities are. And more importantly, you’re going to see where your peers are. Then, we’ll see more refined sector-specific benchmarking.”

Next, he briefly explains what climate gentrification means in today’s scenario. It’s a phenomenon involving a shift in capital along with a shift in consumer preferences, changing risk capitalization and value of assets. 

“One of the reasons I’m engaged in the broader economy of climate risk analysis and climate risk management is because, indeed, I had pioneered this field of thinking and study and evaluation in a more scholarly format public policy applies. I’ve spent a lot of time advising policymakers in this regard. Real estate and infrastructure are the physical assets on the front lines of climate change.”

He points out that the physical aspects endure the material degradation and impact of climate change. Climate gentrification demonstrates changing times, capital flows, and changes in consumer behavior  and preferences, thus revaluing a new economy, Keenan explains.

The biggest outcome from the COP26 summit in Glasgow last fall, he continues, “was the shift toward regulating and steering global financial capital in alignment with climate disclosure, carbon neutrality, and a greater fiduciary understanding of the role of capital deployment today in our future climate tomorrow.”

Keenan points out that climate finance used to focus on bilateral, multilateral sustainable development. Countries were expected to establish funds to spend on climate adaptation, primarily for developing countries. However, the model was not successful due to a lack of capital. 

Countries now promote the NGFS (Network for Green Financial System) through their central banks and regulatory bodies, with the financial stability board. “They are going to steer the flow of capital in ways that give admitted countries a competitive advantage in the deployment of that capital that serves both climate mitigation and adaptation goals,” he explains.

Keenan urges organizations to learn about the nature of change to understand better the risk and opportunities associated with it. Private and public enterprises need to fully understand the intent of the Task Force for Climate Financial Disclosure (TCFD) and the processes of climate measurement and disclosure. This, he concludes, will serve as the base for organizations benchmarking their future.