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

(Image by Gerd Altmann from Pixabay)

The Bank of Montreal uses 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 to connect economic decisions to how they might impact the earth.

Speaking at the recent Google Cloud Sustainability Summit, Jamie Herring, President of Climate Engine, said that to address the challenges facing the world in institutions, infrastructure, transportation networks and supply chains procurement, organizations need to strengthen their financial and operational resilience.

The world is already experiencing enormous economic pressure due to the impact of climate change on the economy, people and ecosystems across the globe. Herring argued that we need to think more closely about how the worlds of economics and climate are linked, in order to see the meaningful change that is needed. He said:

One of the biggest myths of our time is that the economy is disconnected from the environment. And this is something that is confirmed time and time again when we make development and funding decisions. The climate crisis, when it comes to it, really cannot be solved until we act as if the economy exists on the planet we live on.

Climate Engine’s central proposition revolves around this concept of “space finance”, where it collects data (or observations) on how the planet is changing and links it to changes in the economy. To do this, it uses 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 this Earth-based information.

herring said:

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

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

Watching the planet and watching the world is a huge big data computing problem. This is one of the biggest big data challenges we face today. Together with Google and Google Cloud, this allows us to process all Earth system data in one place and map it in real time with assets around the world, so that we can begin to monitor and understand the impacts of a event such as a flood or forest fire on an asset, on a system, while it is occurring. And sometimes before it happens.

Connect the dots at Bank of Montreal

Herring said this concept of space finance could be one of the most important climate adaptation strategies 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, to enable a allocation of resources in a way that adapts to climate change.

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

This manifests itself in different ways, both around opportunity and risk management. On the opportunity side, banks like the Bank of Montreal and players in the financial system are realizing that there are many ways to deploy capital to help solve some of the biggest problems of our time, around the decarbonization of economics and management of biodiversity.

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

But to have sustainable finance, or to manage the risks of things, like the risks to physical assets from physical weather hazards, or to manage the risks of environmental impacts, you need to have data. You need to know what’s going on. You need to know where your customers’ physical assets are.

Torrance said that by leveraging this data to understand the context in which the Bank’s customers operate, finance can do some interesting things to influence change. For example, the Bank is thinking about how greenhouse gas emissions are linked to its clients’ operations and how it could create a sustainable financial product that could encourage decarbonization, where the Bank tracks performance at over time. torance said:

We could rely on a company’s own reports or third-party data sources, but it would be amazing if we could actually monitor, through real-time satellite information, emissions from different facilities and how those are better managed and change over time in terms of something like biodiversity.

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

It’s all location-based in terms of biodiversity impacts. If we could understand where our customers’ physical assets, factories, mining operations are located, we would be able to combine that with information on sensitive biodiversity or red-listed species, and then ensure that, as we verify relationships or create risk management frameworks to understand the potential impacts our clients have on the environment in which they operate.

We can work with them to help them inform their decision-making and where possible, again, build that into the financial instruments.

Also think about the risk of flooding, the risk of forest fire, these can have huge impacts on the financial systems, on the economics of a company, and therefore being better able to understand these risks and even to potentially take proactive steps to mitigate risk, is truly the potential power of the geospatial modeling approach. Leveraging this kind of data and analytics for finance and risk management, I think is a really untapped area of ​​finance and technology. And we are just beginning to unlock its potential.

Torrance added that organizations must recognize that the next few decades will not be like the last 10, 20 or 100 years, in terms of the effects of climate change. Therefore, the conventional ways of approaching these issues, in terms of looking at historical data and then extrapolating to say “this will be the way things will be in the future”, is not a good approach to managing risks. torance said:

We need more real-time foresight approaches and I’m really excited about the opportunities that geospatial big data and modeling potentially allow us to seize now, in terms of the Bank of Montreal’s climate strategy.

Use a platform like this [could] really potentially set ourselves apart from the industry, we would be able to advise our own work internally, as well as direct or advise our clients externally. And so it really freed up a lot of potential and capability within our bank to better position us to seize opportunities and manage risk in this area.

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