Welcome to Nasdaq trade talks,
where we meet with the top thought leaders and strategists in emerging technologies,
digital assets, the regulatory landscape and capital markets.
I'm your host, Jill Malandrino,
and joining us this afternoon, we have Matt Fontanesi,
structural engineer and senior director of
quantitative risk at Resilience Insurance Analytics.
We have Michelle Thadani,
co-founder and CEO of rhizome,
as well as Nicole Richards, CEO of Valonia.
We're here to discuss how the integration of advanced risk modeling,
AI simulations and biotechnology can help to reduce costs,
improve infrastructure, and support sustainable resource management.
It is great to have everyone with us.
Welcome to trade talks. Certainly we have a lot to unpack today.
Matt, let's kick it off with you.
Give us a brief overview of where you sit within the climate ecosystem.
Thanks, Joe. Well, climate change is something that is absolutely affecting us.
It's affecting us. Um, one of the primary ways is through insurance.
Insurers believe that climate change is real and their models reflect this.
And because of this,
because of inflation, construction costs,
the general trend for property insurance will go up.
And Michelle, tell us about rhizome where you are within the climate space.
Yeah, absolutely Joe.
And thanks for the invitation for being here.
So where we sit at rhizome is really on
the analytical front on quantifying climate risk for the power grid.
Now, the power grid has seen a battering of quite a few different climate hazards.
And that includes wildfires,
where multiple utilities are now on the brink of
bankruptcy because of wildfires that were ignited by their assets,
as well as other utilities,
say Prepa in Puerto Rico that faced bankruptcy from hurricanes.
Um, so multitude of hazards across geographies that
are really acutely affecting communities because of these failures.
Um, and so we're here to address how those failures are anticipated to increase over
time and help utilities really
invest in the areas that are going to be affected the most.
Right. And Nicole, bring this all together for us.
Explain to us where it is.
Absolutely. Thank you for having me on.
So Alaunia is a biotech company and we transform waste into value using biotechnology.
Our tagline is actually waste is a failure of the imagination.
And so what we're doing is we're using selective separations technologies to
leverage better our natural resources so that we can extract more things like metals,
uh, and do less of the virgin mining and use our waste streams more effectively.
Yeah. Which is interesting because our climate tech coverage,
particularly for the month of September,
has centered around that,
looking for ways to work with
the existing technology and the existing resources that we have.
Now. That seems to be a theme that's emerging more and more.
So as far as I'm hearing it, is that Nicole?
Absolutely. And I think now is a great time to be thinking of this.
Because of the demand in things like metals and
thinking about where are we going to get those raw materials from?
And really, the new technologies that are available to make these, uh, possible.
Right. And speaking of technology, Matt,
explain to us how technology is helping assess risk and understand what your exposure is.
Yeah, insurance models are incredibly sophisticated.
And included in this ecosphere are enormous risk models.
And these models take into effect,
uh, for commercial property.
They're taking into effect cope data construction, occupancy protection exposure.
And as we apply, um,
advanced uh, understanding machine learning, um,
better technologies to these models,
we can parse data and figure out which of
these little subset elements are driving losses.
So our insurers are getting smarter.
And that means the rest of the lending ecosphere needs to match.
We need to identify which of these,
um, which perils, which exposures and which um,
parameters are driving losses and the insurance costs for those,
uh, those ideas, those practical realities are going to increase.
Yeah. And what's interesting, Michel, is whether.
Right, and leveraging technology to be able to understand those patterns and be able to
predict the risk is really to me what what the end goal sounds like here.
Yeah, that's exactly right.
And not too dissimilar from how Matthew
described the risk modeling that goes into insurance.
We apply very similar risk modeling for the utility sector and modeling
extreme weather impacts on the grid and then leveraging global climate models,
uh, that are put together by scientists all over
the world that can help understand at a high resolution,
how are these extreme weather events going to change?
Uh, and that's not where the modeling starts.
Stops is we don't want to just quantify risk for the sake of quantifying risk.
The next stage of that modeling is,
as utilities are funneling $45 billion
annually into hardening the system for adaptation and resilience purposes.
Um, it's actually helping model where the benefits of
those individual investments on the system
so that you can actually get the most bang for your buck,
uh, from an adaptive capacity perspective,
as we rebuild the grid over time.
Yeah. And, Nicole, I want to talk about policy for a moment and
include public private partnerships and academia into that as well,
because we're talking about grids,
we're talking about weather,
which at the end of the day is unpredictable as it is,
and trying to figure out how we can leverage our existing resources.
It could require the incubators at academia produces,
and then achieving that at scale with public and private partnerships.
I think it's absolutely critical to
advance the investment thesis behind these types of projects.
Absolutely. And one great example of this is in the rare earth segment.
So rare earths are used in a lot of, um,
critical applications for NASA,
natural national security and others.
And we get more than 90% of the rare earths are processed in China.
So for us, we need to domesticate that supply. We haven't done that.
There's no processing today.
So it is going to take those partnerships that you mentioned to bring those together.
We need government support with policies and funding.
We need R&D partners to develop new technology,
and then we need manufacturing to pull this all together.
So these public private partnerships are really critical as we
are developing brand new technology in manufacturing in the US.
Yeah, I think, Michelle, it's interesting to take it from the perspective of
national security and also to maintain,
you know, innovation and US leadership there as well.
I think that's exactly right.
And critical infrastructure is core to national security.
So many of our customers,
utilities across the Pacific Northwest or Texas or even in
the northeast area in order to preserve infrastructure,
the availability of services, and of course,
the active resources required to ensure communities thrive in our nation stays safe.
Um, that is one of the major reasons
why many folks are leveraging this type of new technology.
Uh, the Defense Department is a perfect example of a stakeholder
that is typically involved in grid resilience issues, uh,
and very active in making sure that all of the investments
that are being made for reducing power grid failures, uh,
are actually helping increase
national security as well as just availability of services broadly.
Right. Matt, I would imagine that you can also make
the same argument when it comes to insurance as well,
where you need cooperation across all of these,
um, different groups here, right?
I mean, so that we can understand and then continue continued to
build infrastructure that is more sustainable,
with the intention of reducing that cost up front.
Should natural disasters continue to evolve and occur?
Absolutely. And and part of what we're seeing,
um, parallel to what Michelle is talking about,
is that as we identify where risks are driving losses,
we are going to find that insurance costs go up.
And so this is pushing the private sector to adapt.
It's going to start with lenders.
It's going to move to asset owners and borrowers where you cannot
control the cost of your insurance if you are not also controlling your risk management.
And so that means understanding what is driving the risk,
whether that's an individual, uh,
aspects of your structure or your site.
So you're getting increased rainfall,
which increases your risk of flood.
Um, can you adapt a building?
Yes. You can move your critical infrastructure out of
the basement and onto the second floor or onto the roof,
and understanding where your risk lies
within your asset allows you to make modifications,
retrofits, hardening measures that feed back into
your costs and that actually drives value in addition to resilience.
Yeah, well, it eventually generate cost savings for the end consumer,
whether it's a business or a household.
As an example, I mean, we've seen what has happened
in California and Florida as an example,
where insurers are pulling out or it's just becoming too
expensive to afford insurance is the end goal to make it
more cost effective and affordable for business and personal use?
I think the cost driver is going to incentivize people to find savings.
And right now, all that happens is people talk about one side of the equation.
Insurance is too expensive,
insurance is too expensive.
But they never talk about the risk side.
And we will see articles several times a year about
people having to replace their roof because of hail damage,
but then they rebuild the same thing.
And what we're talking about on the infrastructure side.
Oh, it keeps this neighborhood, keeps flooding.
Well, we're not doing anything about it.
And so we have to change the risk side of that equation.
And by changing the risk side of the equation,
that actually gives the borrower the ability to change, uh,
their insurance structure so they can capture the risk at the low end, the,
the 100 year event and say,
I'm willing to cover that because I've hardened my building,
I've made my structure different.
And I think we're going to see that pass through as, um,
that will pass through as savings because they're adopting more of the,
uh, time weighted risk,
but they've actually used CapEx and risk management,
asset management skills to,
um, remove the risk from their books.
Yeah. Well, Michelle, it's interesting because Matt had
used the term storms every 100 years.
Um, well, that timeline has certainly shortened.
I mean, we've just seen over the past couple of years where where I live in new Jersey,
essentially, seasons don't really exist anymore.
In July we had flood, you know,
flash flood rains at least once,
twice a week for five, six weeks straight.
I mean, these these types of events are occurring.
We hear about wildfires in Canada and and California.
That should be, you know,
generational type of climate events.
And they just happen doesn't even,
you know, make a blip in the news cycle anymore.
Yeah, absolutely. Joe. And risk profiles are certainly moving fast.
And I think a really good example of this is wildfires in California.
Um, and how we've seen,
um, you know, the utilities,
the ones who are on the front lines have actually adapted to
changing wildfire risk profiles going into the middle of the country.
So five years ago,
if you were to tell anyone that wildfires would start breaking out in Texas,
um, I think I think that would be quite a bit of a surprise.
Um, so now you're seeing,
uh, states such as Utah,
Arizona, Idaho, Wyoming, as well as Texas, uh,
start creating new rules and insurance policies,
especially for utilities who are liable to igniting these fires, uh,
and having to draw new practices on how to potentially quantify and reduce those risks.
Um, and so that's just wildfires.
But you see similar activity happening, uh,
with, uh, increasing storm frequencies in the northeast,
where it's anticipated that a one inch ten year storm
by 2040 is going to become a one inch two year storm.
Um, and so that was from a new climate report that just came out.
Um, so, yeah, needing to address the current and future risk profiles through
proactive investments to help address the risks on
the other end is a huge exercise that the industry is going through right now.
Yeah, it certainly is. And Nicole,
when we tie it back to biotechnology, um,
another consistent theme that we're hearing as it relates to
adoption is the economics just have to make sense.
So that's that's part of the equation as well.
Yeah. And I think that is such a key part of the sustainability story.
And so we've heard, you know,
different shifts in investors interest in sustainability.
But I think the way to think about it is it has to provide a value to the customer.
And like in our case, the customers are the mining industry.
So if you can provide something that's of value to the mining industry
and it is sustainable and has a lower environmental footprint,
that is how you're going to get these industries more sustainable.
You have to pair the two together.
Otherwise it's not a solution that will stick.
Yeah. And as we wrap up here,
I want to hear from the three of you.
Nicole, we'll start with you.
Your outlook. Do we have the opportunity?
Do we have the buy in to make this energy transition successful?
It seems to be the narrative is moving away from
one particular type of energy is is the X.
And this is what's going to drive us forward.
I'm starting to hear more of okay,
we've we've come to terms with this,
and it's going to take a number of types of
energies to fulfill the demand, quite frankly.
Yeah, and I'm definitely on that page.
I think there are a number of sources of energy,
and I think we're going to need to leverage all of them.
And I think we need to take the legacy energy producers,
make them more sustainable while we're implementing
the the more sustainable solutions as well.
And it's possible. It's possible today more than it has been in
the past because we have all these technology advances to make that happen.
Yeah. And ask the same question of you,
um, Michelle as well.
Um, I think the industry and I think the buy in,
you just it's just a more effective response, right?
When you're not being told to do something.
But how can we work together?
How can we integrate all these initiatives that we're working on
to have long term sustainable outcome?
I think what the entire ecosystem is grappling with right now is, um,
due to a variety of factors such as demand growth from large loads,
such as data centers in evolution of the actual infrastructure that serves electricity,
as well as the extreme weather impacts.
Energy costs are rising,
but they're rising more dramatically on the transmission and distribution lines.
And so where we think we can unlock the energy transition at the same time,
while keeping the system reliable,
is to get much more precise about where you're making
investments that help achieve the outcomes that are coming.
This is really the application of
artificial intelligence and machine learning that we're going after here.
Right. And that we'll wrap up with you with your perspective from insurance.
Yeah, I'm going to tie to these two ideas together.
So this public private partnership we
are and I'm going to tie California and I'm going to tie new Jersey.
So in California with these wildfires,
the city next to the Eaton Fire is Pasadena.
Pasadena has a city program to underground their overhead power lines,
but this is only moving at less than one mile of power lines per year.
That makes it almost a 200 year project.
That doesn't reduce the risk they're going to have to actively change their risk profile.
Otherwise, residents in Pasadena will pay significantly higher fire insurance costs.
The city will as well.
The other side of this coin is Hoboken,
new Jersey, flooded terribly during hurricane Sandy.
They've undergone enormous public works projects with cisterns, drainage systems, um,
and and water collection programs so that
their residents are not suffering the burden of this climate change exposure.
So proactive risk management benefits everybody.
Well, actually, Matt, let's go back for a second here.
The point that you had made that it will take almost 200 years to
finish that underground project near Pasadena.
What's the rationale behind that?
Uh, I just I don't understand.
I assume it's money. I assume they just haven't allocated the money yet.
But having a fire next door will change their perspective.
And look, maybe I can help provide some context here.
I worked in and out in the power sector every day,
and it is a real challenge for people who are burdened with energy costs, right?
As rates are rising, people are already struggling with their energy bills.
And so getting the right balance of investments to make today
versus the risk risk profile that you experience in the future is,
is extremely important to get right.
But it's not just undergrounding that utilities have in their toolbox,
it's covering their conductors.
It's making sure to trim trees in the high risk areas.
So there are a variety of solutions that are at play over here.
And finding the right mix to limit the burden, um,
on on individual customers of energy
is is really what I think we're trying to get at at the end of the day.
All right. Appreciate all of your insights.
Thanks for joining us on trade talks.
I'm Joe Malandrino, global markets reporter at Nasdaq.