Private sector resilience: The case for solving far-reaching problems
Arup engineers discuss the private sector’s resilience-related risks and opportunities, including those posed by COVID-19, and how they interact with their ecosystems at large.
Climate change is expensive. The United Nations estimates as much as $54 trillion in climate change impacts as early as 2040. Whether or not they are aware, cities, countries, and companies alike are already self-selecting as winners or losers in this new economy — resilience to the impacts of climate change will underpin the overall economic welfare of both the public and private sector.
Alongside this climate-crisis reality looms the newly exposed fragility of our modern globalized society. The recent impact of the COVID-19 pandemic teaches a painful lesson that resilience stretches far beyond the confines of the climate crisis alone. Many organizations are now endeavoring to better understand the fundamentals of risk and how they can build in the capacity to quickly adapt to shocking circumstances.
Arup’s San Francisco Resilience Leader, Ibbi Almufti; Boston Resilience Leader, Lisa (Dickson) Churchill; and Los Angeles Resilience Leader, Heather Rosenberg, together discussed the private sector’s resilience-related risks and opportunities, including those posed by COVID-19, and how they interact with their ecosystems at large.
Question: What unique challenges does the climate crisis present to investors, owners, and developers? And how can designers in the built environment help?
Lisa Churchill: For one thing, there’s no strong, easily recognizable market signal right now for climate. There’s a lot of uncertainty in terms of what climate change even means for portfolios or individual assets, let alone what it means in terms of the financial and economic impact. A lot of the traditional measures of fiscal health really aren’t picking up the implications of climate change, so people likely aren’t considering the right metrics.
We’re doing some interesting work with the Urban Land Institute and management consulting firm Milliman, collaborating on a report to better understand why those market signals aren’t setting up. What we’re finding is, one, the time horizons are just too short. Insurers and others typically think risk resets every year. So that one-in-a-hundred-year, 1% chance of flooding is reset each year. But if you consider the life expectancy of an infrastructure or building asset as far out as 30 years, it’s a 26% chance that asset will get flooded — and therefore, a much different risk profile.
Two, property owners and developers, despite what they do for their actual portfolios, are fundamentally dependent on the overall resilience underpinning our infrastructure and our communities themselves.
Heather Rosenberg: One thing we’re trying to do is take the temperature of the market. What are leaders in this space doing? We’re working with GRESB, an organization leading environmental, social, and governance benchmarking for real estate and infrastructure investments around the world, on their resilience module. We’re helping them determine what questions they should be asking and what good answers look like. What does it look like for companies and funds that are just getting started? What does it look like for those who have been making progress?
Ibbi Almufti: We’re also helping our clients understand what hazards they face, and then what risks they face due to those hazards. In commercial real estate, it might be what is the damage to my property? What are my business disruption outcomes? What are the financial implications?
We can offer that expert opinion, coupled with sophisticated risk modeling. We help investors understand not only their climate exposure but also their likelihood of physical and business impacts. Once identified, we can deploy resilient strategies that are either physical, like retrofits or design features, or operational, like business continuity planning. Cost-benefit analyses help portfolio managers understand where they should invest, not to mention report a business case for resilience to their leadership.
As companies look to understand their portfolios’ risks, what kinds of scenarios are being examined?
Ibbi: Most of the time when we’re working with clients on their portfolios — and these could be commercial real estate clients or others like data center owners or university campuses — we’re looking at which specific hazards pose the greatest risk.
On the East Coast, we’re quantifying and studying clients’ risks to hurricanes, thunderstorms, and extratropical cyclones, all of which create flooding on-site but also generate extensive losses from wind damage. In California and the Pacific Northwest, it’s earthquakes and wildfires. And it depends based on the client; a commercial real estate owner might primarily care about physical risk to their assets, while a city might care about the health of its population. For instance, extreme heat and water stress are much more important to cities than to commercial real estate owners. Currently, of course, risks associated with returning to the workplace and business continuity amidst reoccurring COVID-19 waves are top of mind for all our clients.
Heather: We work with organizations to understand how they deliver value across their full value chain. This includes financial value, as well as other types of value. We can map interdependencies, relationships, and connections across that value chain, and take the work that Ibbi’s team does around hazards and see where the organization is vulnerable. We can also look at the adaptive capacity of the organization, its ability to withstand, absorb, or transform from shocks and stresses. That helps them understand what hazards to focus on, and what range of scenarios to prepare for. The goal is to help organizations deliver value across a wider range of operating states, from normal times to times of disaster and recovery. Or, for example, from working normally to working remotely and then back again to some kind of “new normal.”
On top of the pandemic, we need to stay vigilant around climate impacts. Those challenges aren’t going to go away just because we are dealing with COVID-19 and responding to them will be extremely complicated. We need to be thinking about multiple challenges hitting at once. What happens when there are fires or hurricanes and people need to evacuate? How does that work with social distancing? We need whole networks of response systems to activate at once to keep people safe and healthy.
We also need to be mindful of power outages. In California, utilities can now proactively shut down the grid in high fire. So, the way clients are asking us about energy has changed — they want to know what services are most critical and which can stand being disrupted by loss of power. If you’re an airport and your power blips off, some of your security equipment may take three hours to reboot, so you’ve got to shut down entire terminals. That’s obviously very, very disruptive. So now the discussion around energy resilience is taking a new shape, focusing on backup systems like microgrids and operations continuity. Overall, we need to understand the potential impacts of individual hazards, and we need to understand how they might play out together in complex settings to do a better job of scenario planning.
Question: What gets overlooked when we don’t take a systemic approach to resilience?
Lisa: In the infrastructure world, I think we’re going to see a lot of slow degradation that doesn’t necessarily reveal itself in a year-to-year report. But if you were to look 10 years later, you’d see many of our assets have a shortened life expectancy. For example, the flooding of the New York transit system post Hurricane Sandy. The system got back up and running, but there’s a tremendous amount of corrosion in the conduits now, which has certainly shortened the life expectancy of those facilities. There are so many drivers beyond climate, it’s hard to disentangle them all.
Heather: With any investment we’re making, we have to think holistically. The Los Angeles River used to be a very dynamic river system that frequently jumped its banks. The Army Corps of Engineers came in and built a concrete channel to take all the precipitation that falls, funnel it into the river, and get it out of town as quickly as possible. But there’s no habitat, no recreation, no other value built into that river besides this one thing that it does very well, which is flood control. We have to do better than that.
We need to take any intervention that we’re putting in the ground, any investment in a program, or a building, or a piece of infrastructure, or an economic system, and solve as many issues as possible in a more integrated way. Especially now, in the pandemic, we’re seeing that institutions and companies don’t exist in a silo. They are dependent on public infrastructure, their ecosystems, and their communities.
Ibbi: Exactly. It’s all about how the community is prepared. How is the governance structured? Are the communities that the real estate asset owners are investing in prepared? Are there leaders there, and do they have a plan for how they’re going to recover quickly after some of these shock events? All of that matters just as much as the conversation around resilience of individual physical assets.
Question: Are there opportunities for us to incorporate climate change risk and resilience into the “new” business as usual?
Lisa: COVID has shocked all systems simultaneously, exposing underlying vulnerabilities and codependencies in stark and revealing ways. It has forced us to pause and question what we had formerly seen as “acceptable” contingencies. While there’s no silver lining with such a tragic event, it does offer us the chance to think more creatively and more humanely about how we might reorganize our priorities and definitions of success, sustainability, and resilience moving forward.
Ibbi: We’ve seen a similar pattern from other past hazards. People prefer to keep their heads in the sand until there’s a disaster. Now, all around the world people have been mobilized and engaged, and we’ve seen dramatic results. I’m hopeful that this could be a pivot point for us, a time to reimagine what’s possible. Sometimes it takes a pandemic to shake people out of their complacency.
Heather: I agree; we are in a time of significant flux on so many fronts it’s destabilizing. We’re in an acute crisis and all our attention is focused there. It’s going to be a challenge to bring people’s attention back to the threats that haven’t gone away, but this destabilization offers multifaceted opportunities.
As Ibbi mentioned, we see that we’re capable of mobilizing on a global scale. A response to climate change will require the same level of global action, but much less painfully. Additionally, resilience — and the thinking around our capacity to adapt — is gaining traction. Through that mobilization, we can create economic opportunities, connection, and community, and solve several problems at once.
The way we’re responding proactively and intelligently to COVID-19 opens the door to the way we organize, visualize, and respond to large-scale change. There’s real potential to overlay the ability to adapt to climate mitigation measures within that, and I see that as a source of hope.