Climate Risks Reshaping Investment and Demographics
Jay Lipman, Co-Founder Ethic and Nature2
Keynote Highlights from Climate Scale-Up's Deal Day
Davos – January 22, 2025 – Climate Scale-Up's recent Deal Day convened stakeholders focused on accelerating investment in climate solutions. A central theme emerged from the keynote address, which underscored the escalating impact of climate-fueled disasters and their profound implications for capital allocation, insurance markets, and demographic shifts.
The keynote speaker, drawing on both professional expertise in sustainable asset management and recent personal experience, highlighted the increasing immediacy of climate impacts. An opening anecdote about discovering a burn hole in a favorite shirt while preparing to speak on wildfires at Davos served as a potent symbol of the issue's growing proximity. This was followed by a powerful thought experiment, asking the audience to consider responding to a sudden evacuation warning, mirroring the reality faced by the speaker's own family and friends just weeks prior.
The speaker detailed the human scale of recent events in California, where 180,000 people received evacuation messages due to wildfires. Sharing the distressing experience of a family member who had minutes to flee their home and still doesn't know if it survived, the address brought the human cost into sharp focus.
Having worked extensively on climate change, wildfires, and climate migration, and recently relocating to California, the speaker acknowledged moving into a known "high-risk zone" despite their professional background. The scientific basis for this risk was explained: a warming atmosphere becomes "thirstier," pulling water from soil and plants through evapotranspiration, creating tinderbox conditions. This, combined with recent heavy rains leading to increased vegetation and subsequent drought conditions and winds, created a "perfect storm". The tangible results were seven fires covering an area the size of two and a half Manhattans, deemed the most expensive disaster in US history.
The critical question posed was: "What happens next?" Drawing parallels to migration patterns following Hurricanes Katrina and Maria, the speaker emphasized that while disasters trigger immediate movement, a significant driver of future migration will be financial.
This financial migration is inextricably linked to insurance markets beginning to reflect climate risk. In regions like Florida and California, insurance rates are already becoming as expensive as mortgage payments. Numerous insurance companies have withdrawn from California, pushing residents onto a potentially vulnerable state plan. The critical consequence is that the inability to secure insurance—whether private or state-provided—prevents individuals from obtaining mortgages or rebuilding homes.
This directly impacts the real estate market. If potential buyers cannot access mortgages due to lack of insurance, real estate values will inevitably be affected, creating financial pressure that compels people to move, irrespective of their climate awareness.
These demographic shifts are already underway, with populations moving from what were considered high-risk "flood belt" and "fire belt" areas to what is now being termed the "safe belt". This movement is driven less by climate consciousness and more by the practical reality of lower insurance and home costs in these safer regions. Cities like Buffalo and Detroit are experiencing population growth for the first time in decades, representing what the speaker called the "quietest and most important shift in demographics that we have seen in a lifetime".
This presents a crucial tipping point for how capital must be allocated. Currently, a significant 80% of new homes in the U.S. are being built in the South and West (the flood and fire belts), while only 12% are being built in climatically safer regions. This concentration of capital in high-risk areas constitutes a huge systemic risk and necessitates a strategic shift.
The speaker identified this as a significant opportunity to create more resilient investments and redirect capital towards building resilient communities in geographies better insulated from future risks. Initiatives focused on understanding how to develop resilient communities in such regions, like the speaker's company's work with Resilience Equity, were highlighted as essential steps.
Furthermore, building resilience extends beyond development and into the fundamental role of nature. Accelerating investment into nature and nature-based solutions was presented not just as a climate necessity but as a crucial infrastructure solution. Regenerative agriculture, for example, was cited as a highly scalable solution for sequestering water back into the water table, addressing the "thirsty atmosphere" phenomenon. Planting trees post-fire was also noted as a nature-based solution to prevent secondary disasters like floods and landslides.
The speaker concluded by reiterating that climate migration is no longer a theoretical concept but an immediate reality for many, driving people to seek safety in different geographies, often due to trauma as much as economic factors. This reality, previously read about in news reports concerning international conflicts exacerbated by drought, is now affecting friends and family directly.
This conversation, the speaker argued, is one everyone will soon need to have. Platforms like Climate Scale-Up's Deal Day are vital for facilitating these discussions and mobilizing the capital required for the necessary resilient investments and nature-based solutions to navigate this changing landscape.
