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Welcome to Nasdaq trade talks,

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where we meet with the top thought leaders and strategists in emerging technologies,

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digital assets, the regulatory landscape and capital markets.

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I'm your host, Jill Malandrino,

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and joining us this afternoon, we have Matt Fontanesi,

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structural engineer and senior director of

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quantitative risk at Resilience Insurance Analytics.

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We have Michelle Thadani,

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co-founder and CEO of rhizome,

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as well as Nicole Richards, CEO of Valonia.

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We're here to discuss how the integration of advanced risk modeling,

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AI simulations and biotechnology can help to reduce costs,

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improve infrastructure, and support sustainable resource management.

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It is great to have everyone with us.

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Welcome to trade talks. Certainly we have a lot to unpack today.

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Matt, let's kick it off with you.

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Give us a brief overview of where you sit within the climate ecosystem.

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Thanks, Joe. Well, climate change is something that is absolutely affecting us.

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It's affecting us. Um, one of the primary ways is through insurance.

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Insurers believe that climate change is real and their models reflect this.

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And because of this,

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because of inflation, construction costs,

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the general trend for property insurance will go up.

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And Michelle, tell us about rhizome where you are within the climate space.

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Yeah, absolutely Joe.

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And thanks for the invitation for being here.

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So where we sit at rhizome is really on

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the analytical front on quantifying climate risk for the power grid.

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Now, the power grid has seen a battering of quite a few different climate hazards.

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And that includes wildfires,

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where multiple utilities are now on the brink of

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bankruptcy because of wildfires that were ignited by their assets,

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as well as other utilities,

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say Prepa in Puerto Rico that faced bankruptcy from hurricanes.

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Um, so multitude of hazards across geographies that

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are really acutely affecting communities because of these failures.

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Um, and so we're here to address how those failures are anticipated to increase over

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time and help utilities really

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invest in the areas that are going to be affected the most.

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Right. And Nicole, bring this all together for us.

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Explain to us where it is.

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Absolutely. Thank you for having me on.

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So Alaunia is a biotech company and we transform waste into value using biotechnology.

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Our tagline is actually waste is a failure of the imagination.

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And so what we're doing is we're using selective separations technologies to

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leverage better our natural resources so that we can extract more things like metals,

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uh, and do less of the virgin mining and use our waste streams more effectively.

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Yeah. Which is interesting because our climate tech coverage,

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particularly for the month of September,

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has centered around that,

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looking for ways to work with

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the existing technology and the existing resources that we have.

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Now. That seems to be a theme that's emerging more and more.

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So as far as I'm hearing it, is that Nicole?

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Absolutely. And I think now is a great time to be thinking of this.

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Because of the demand in things like metals and

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thinking about where are we going to get those raw materials from?

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And really, the new technologies that are available to make these, uh, possible.

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Right. And speaking of technology, Matt,

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explain to us how technology is helping assess risk and understand what your exposure is.

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Yeah, insurance models are incredibly sophisticated.

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And included in this ecosphere are enormous risk models.

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And these models take into effect,

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uh, for commercial property.

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They're taking into effect cope data construction, occupancy protection exposure.

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And as we apply, um,

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advanced uh, understanding machine learning, um,

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better technologies to these models,

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we can parse data and figure out which of

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these little subset elements are driving losses.

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So our insurers are getting smarter.

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And that means the rest of the lending ecosphere needs to match.

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We need to identify which of these,

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um, which perils, which exposures and which um,

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parameters are driving losses and the insurance costs for those,

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uh, those ideas, those practical realities are going to increase.

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Yeah. And what's interesting, Michel, is whether.

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Right, and leveraging technology to be able to understand those patterns and be able to

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predict the risk is really to me what what the end goal sounds like here.

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Yeah, that's exactly right.

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And not too dissimilar from how Matthew

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described the risk modeling that goes into insurance.

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We apply very similar risk modeling for the utility sector and modeling

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extreme weather impacts on the grid and then leveraging global climate models,

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uh, that are put together by scientists all over

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the world that can help understand at a high resolution,

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how are these extreme weather events going to change?

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Uh, and that's not where the modeling starts.

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Stops is we don't want to just quantify risk for the sake of quantifying risk.

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The next stage of that modeling is,

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as utilities are funneling $45 billion

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annually into hardening the system for adaptation and resilience purposes.

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Um, it's actually helping model where the benefits of

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those individual investments on the system

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so that you can actually get the most bang for your buck,

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uh, from an adaptive capacity perspective,

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as we rebuild the grid over time.

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Yeah. And, Nicole, I want to talk about policy for a moment and

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include public private partnerships and academia into that as well,

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because we're talking about grids,

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we're talking about weather,

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which at the end of the day is unpredictable as it is,

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and trying to figure out how we can leverage our existing resources.

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It could require the incubators at academia produces,

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and then achieving that at scale with public and private partnerships.

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I think it's absolutely critical to

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advance the investment thesis behind these types of projects.

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Absolutely. And one great example of this is in the rare earth segment.

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So rare earths are used in a lot of, um,

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critical applications for NASA,

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natural national security and others.

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And we get more than 90% of the rare earths are processed in China.

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So for us, we need to domesticate that supply. We haven't done that.

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There's no processing today.

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So it is going to take those partnerships that you mentioned to bring those together.

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We need government support with policies and funding.

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We need R&D partners to develop new technology,

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and then we need manufacturing to pull this all together.

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So these public private partnerships are really critical as we

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are developing brand new technology in manufacturing in the US.

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Yeah, I think, Michelle, it's interesting to take it from the perspective of

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national security and also to maintain,

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you know, innovation and US leadership there as well.

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I think that's exactly right.

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And critical infrastructure is core to national security.

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So many of our customers,

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utilities across the Pacific Northwest or Texas or even in

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the northeast area in order to preserve infrastructure,

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the availability of services, and of course,

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the active resources required to ensure communities thrive in our nation stays safe.

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Um, that is one of the major reasons

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why many folks are leveraging this type of new technology.

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Uh, the Defense Department is a perfect example of a stakeholder

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that is typically involved in grid resilience issues, uh,

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and very active in making sure that all of the investments

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that are being made for reducing power grid failures, uh,

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are actually helping increase

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national security as well as just availability of services broadly.

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Right. Matt, I would imagine that you can also make

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the same argument when it comes to insurance as well,

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where you need cooperation across all of these,

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um, different groups here, right?

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I mean, so that we can understand and then continue continued to

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build infrastructure that is more sustainable,

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with the intention of reducing that cost up front.

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Should natural disasters continue to evolve and occur?

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Absolutely. And and part of what we're seeing,

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um, parallel to what Michelle is talking about,

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is that as we identify where risks are driving losses,

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we are going to find that insurance costs go up.

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And so this is pushing the private sector to adapt.

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It's going to start with lenders.

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It's going to move to asset owners and borrowers where you cannot

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control the cost of your insurance if you are not also controlling your risk management.

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And so that means understanding what is driving the risk,

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whether that's an individual, uh,

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aspects of your structure or your site.

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So you're getting increased rainfall,

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which increases your risk of flood.

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Um, can you adapt a building?

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Yes. You can move your critical infrastructure out of

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the basement and onto the second floor or onto the roof,

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and understanding where your risk lies

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within your asset allows you to make modifications,

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retrofits, hardening measures that feed back into

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your costs and that actually drives value in addition to resilience.

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Yeah, well, it eventually generate cost savings for the end consumer,

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whether it's a business or a household.

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As an example, I mean, we've seen what has happened

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in California and Florida as an example,

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where insurers are pulling out or it's just becoming too

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expensive to afford insurance is the end goal to make it

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more cost effective and affordable for business and personal use?

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I think the cost driver is going to incentivize people to find savings.

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And right now, all that happens is people talk about one side of the equation.

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Insurance is too expensive,

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insurance is too expensive.

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But they never talk about the risk side.

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And we will see articles several times a year about

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people having to replace their roof because of hail damage,

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but then they rebuild the same thing.

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And what we're talking about on the infrastructure side.

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Oh, it keeps this neighborhood, keeps flooding.

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Well, we're not doing anything about it.

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And so we have to change the risk side of that equation.

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And by changing the risk side of the equation,

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that actually gives the borrower the ability to change, uh,

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their insurance structure so they can capture the risk at the low end, the,

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the 100 year event and say,

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I'm willing to cover that because I've hardened my building,

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I've made my structure different.

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And I think we're going to see that pass through as, um,

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that will pass through as savings because they're adopting more of the,

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uh, time weighted risk,

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but they've actually used CapEx and risk management,

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asset management skills to,

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um, remove the risk from their books.

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Yeah. Well, Michelle, it's interesting because Matt had

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used the term storms every 100 years.

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Um, well, that timeline has certainly shortened.

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I mean, we've just seen over the past couple of years where where I live in new Jersey,

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essentially, seasons don't really exist anymore.

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In July we had flood, you know,

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flash flood rains at least once,

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twice a week for five, six weeks straight.

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I mean, these these types of events are occurring.

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We hear about wildfires in Canada and and California.

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That should be, you know,

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generational type of climate events.

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And they just happen doesn't even,

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you know, make a blip in the news cycle anymore.

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Yeah, absolutely. Joe. And risk profiles are certainly moving fast.

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And I think a really good example of this is wildfires in California.

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Um, and how we've seen,

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um, you know, the utilities,

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the ones who are on the front lines have actually adapted to

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changing wildfire risk profiles going into the middle of the country.

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So five years ago,

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if you were to tell anyone that wildfires would start breaking out in Texas,

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um, I think I think that would be quite a bit of a surprise.

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Um, so now you're seeing,

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uh, states such as Utah,

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Arizona, Idaho, Wyoming, as well as Texas, uh,

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start creating new rules and insurance policies,

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especially for utilities who are liable to igniting these fires, uh,

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and having to draw new practices on how to potentially quantify and reduce those risks.

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Um, and so that's just wildfires.

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But you see similar activity happening, uh,

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with, uh, increasing storm frequencies in the northeast,

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where it's anticipated that a one inch ten year storm

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by 2040 is going to become a one inch two year storm.

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Um, and so that was from a new climate report that just came out.

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Um, so, yeah, needing to address the current and future risk profiles through

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proactive investments to help address the risks on

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the other end is a huge exercise that the industry is going through right now.

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Yeah, it certainly is. And Nicole,

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when we tie it back to biotechnology, um,

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another consistent theme that we're hearing as it relates to

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adoption is the economics just have to make sense.

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So that's that's part of the equation as well.

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Yeah. And I think that is such a key part of the sustainability story.

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And so we've heard, you know,

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different shifts in investors interest in sustainability.

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But I think the way to think about it is it has to provide a value to the customer.

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And like in our case, the customers are the mining industry.

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So if you can provide something that's of value to the mining industry

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and it is sustainable and has a lower environmental footprint,

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that is how you're going to get these industries more sustainable.

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You have to pair the two together.

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Otherwise it's not a solution that will stick.

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Yeah. And as we wrap up here,

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I want to hear from the three of you.

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Nicole, we'll start with you.

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Your outlook. Do we have the opportunity?

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Do we have the buy in to make this energy transition successful?

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It seems to be the narrative is moving away from

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one particular type of energy is is the X.

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And this is what's going to drive us forward.

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I'm starting to hear more of okay,

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we've we've come to terms with this,

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and it's going to take a number of types of

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energies to fulfill the demand, quite frankly.

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Yeah, and I'm definitely on that page.

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I think there are a number of sources of energy,

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and I think we're going to need to leverage all of them.

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And I think we need to take the legacy energy producers,

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make them more sustainable while we're implementing

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the the more sustainable solutions as well.

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And it's possible. It's possible today more than it has been in

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the past because we have all these technology advances to make that happen.

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Yeah. And ask the same question of you,

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um, Michelle as well.

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Um, I think the industry and I think the buy in,

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you just it's just a more effective response, right?

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When you're not being told to do something.

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But how can we work together?

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How can we integrate all these initiatives that we're working on

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to have long term sustainable outcome?

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I think what the entire ecosystem is grappling with right now is, um,

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due to a variety of factors such as demand growth from large loads,

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such as data centers in evolution of the actual infrastructure that serves electricity,

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as well as the extreme weather impacts.

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Energy costs are rising,

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but they're rising more dramatically on the transmission and distribution lines.

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And so where we think we can unlock the energy transition at the same time,

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while keeping the system reliable,

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is to get much more precise about where you're making

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investments that help achieve the outcomes that are coming.

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This is really the application of

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artificial intelligence and machine learning that we're going after here.

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Right. And that we'll wrap up with you with your perspective from insurance.

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Yeah, I'm going to tie to these two ideas together.

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So this public private partnership we

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are and I'm going to tie California and I'm going to tie new Jersey.

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So in California with these wildfires,

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the city next to the Eaton Fire is Pasadena.

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Pasadena has a city program to underground their overhead power lines,

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but this is only moving at less than one mile of power lines per year.

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That makes it almost a 200 year project.

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That doesn't reduce the risk they're going to have to actively change their risk profile.

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Otherwise, residents in Pasadena will pay significantly higher fire insurance costs.

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The city will as well.

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The other side of this coin is Hoboken,

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new Jersey, flooded terribly during hurricane Sandy.

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They've undergone enormous public works projects with cisterns, drainage systems, um,

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and and water collection programs so that

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their residents are not suffering the burden of this climate change exposure.

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So proactive risk management benefits everybody.

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Well, actually, Matt, let's go back for a second here.

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The point that you had made that it will take almost 200 years to

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finish that underground project near Pasadena.

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What's the rationale behind that?

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Uh, I just I don't understand.

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I assume it's money. I assume they just haven't allocated the money yet.

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But having a fire next door will change their perspective.

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And look, maybe I can help provide some context here.

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I worked in and out in the power sector every day,

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and it is a real challenge for people who are burdened with energy costs, right?

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As rates are rising, people are already struggling with their energy bills.

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And so getting the right balance of investments to make today

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versus the risk risk profile that you experience in the future is,

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is extremely important to get right.

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But it's not just undergrounding that utilities have in their toolbox,

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it's covering their conductors.

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It's making sure to trim trees in the high risk areas.

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So there are a variety of solutions that are at play over here.

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And finding the right mix to limit the burden, um,

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on on individual customers of energy

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is is really what I think we're trying to get at at the end of the day.

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All right. Appreciate all of your insights.

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Thanks for joining us on trade talks.

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I'm Joe Malandrino, global markets reporter at Nasdaq.