William BlairandEmilios Avgouleas

How spatial finance can boost the climate change fight through better environmental predictions

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Spatial finance can improve the quality of predictions about the impact of climate change, allowing a more accurate assessment of environmental risks

Improved evidence and monitoring will make it practical for investors and creditors to detect breaches of biodiversity covenants and enforce compliance

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Los Angeles County firefighters keep watch on the Bobcat Fire as it burns through the night in Juniper Hills, California, on September 19. Spatial finance can improve the quality of predictions about the impact of climate change, allowing the financial sector to conduct a more accurate assessment of environmental risks. Photo: Reuters

William BlairandEmilios Avgouleas

Published: 4:15pm, 21 Oct 2020Updated: 10:26pm, 21 Oct 2020

While the Covid-19 pandemic might be, in itself, the product of human interference with nature, it is not the only grave challenge society faces today. The environment is severely affected by man-made climate change, resulting in loss of biodiversity and emerging shortages in food production and availability of fresh water.

The UN Sustainable Development Goals, alongside the Paris Agreement on climate change, form the core of global strategies to promote sustainable development and social growth over time. Achieving sustainability requires vast sums to be invested in the green economy, and sustainable finance in the form of investing directly and through financial-sector lending and insurance has become critical.

Sustainable finance extends to such products and initiatives as green bonds and corporate investment that seek to promote societal and sustainability impacts. How can we identify and verify such impacts? This is an important question both in economic and legal terms.

It is necessary in building procurement systems to counter climate change. It is fundamental in assessing the performance of financial instruments in terms of sustainability impact. Assurances, however well-meant, are not enough. In a characteristic example of how technology can improve life under certain circumstances, an emerging scientific discipline known as spatial finance comes to close that gap.

Spatial finance combines Earth observation and remote sensing via aerial means – including satellite and drone imaging – with machine learning and financial analysis. Since spatial finance can improve the quality of predictions about the impact of climate change on land mass and habitats, coastal, rural and metropolitan areas as well as river and sea pollution levels, it allows the financial sector to conduct a more accurate assessment of environmental risks.

For example, damage to insurers and bank lenders because of floods, whether natural or man-made as in Brazil’s 2019 Brumadinho dam disaster, can now be quantified with accuracy. This way, periodic stress testing of bank lending portfolios against climate change risk can become more accurate and credible.