Hear from Ron Dembo, Founder and CEO of riskthinking.ai, as we apply stochastic thinking to the challenge of climate scenario analysis.

One of the most difficult aspects of managing climate risk is its inherent uncertainty. Because we can’t know with absolute confidence what our future climate, economy or society will look like, we therefore can’t know exactly when, where, or how intensely climate risks will manifest.

A technique commonly applied to this problem is scenario analysis. By building a picture of what the future might look like, firms can formulate risk management strategies appropriate for that scenario.

However, today’s guest believes we’re only scratching the surface of what scenario analysis can do for our financial institutions. In today’s episode, we’ll home in on the idea of stochastic scenario analysis; what it is, how it works, and what makes it different to the traditional approach to scenario analysis. We’ll explore:

·       The difference between deterministic and stochastic scenario analysis;

·       The advantages of using large sets of scenarios generated by expert judgment; and

·       What stochastic scenario analysis means for risk professionals.

To find out more about the Sustainability and Climate Risk (SCR®) Certificate, follow this link: https://www.garp.org/scr

For more information on climate risk, visit GARP’s Global Sustainability and Climate Risk Resource Center: https://www.garp.org/sustainability-climate

If you have any questions, thoughts, or feedback regarding this podcast series, we would love to hear from you at: climateriskpodcast@garp.com

Links from today’s discussion:

·       https://riskthinking.ai/

Speaker’s Bio

Ron Dembo, Founder and CEO, riskthinking.ai

Ron is an academic, author, entrepreneur, and consultant to the some of the world’s largest corporations and banks. He has had a distinguished academic career as a professor at Yale University and as visiting professor at MIT. He is a Lifetime Fellow of The Fields Institute for Research in Mathematical Sciences, and has received numerous awards for his work in mathematical optimization, finance, and climate change.

Ron was previously the Founder and CEO of Algorithmics, an enterprise risk management software provider with over 70% of the world’s top 100 banks as clients. After Algorithmics was acquired by Fitch Group, Ron later founded riskthinking.ai, a company pioneering the use of stochastic analysis to accurately price climate risk into the financial markets.

In this latest instalment of the Climate Risk Podcast, we will be exploring the issue of pricing the risks from climate change.

During the course of this inaugural series of the climate risk podcast, we have explored numerous perspectives on the pressing issue of climate change. That has included hearing from the insurance sector, boards, academia and more. But to round off this first series of climate interviews we are returning to what GARP is best known for, financial risk management.

That’s why in today’s episode we are speaking with Bob Litterman, a celebrated risk manager who has been actively involved with climate change issues for more than a decade.

Today’s episode covers:

• Understanding emissions as a negative externality and the failure to appropriately price carbon
• Aligning financial incentives with the transition to a low-carbon economy
• The CFTC’s report on Managing Climate Risk in the U.S. Financial System
• The value and limitations of scenario analysis as a tool for assessing climate risk

If you have any questions, thoughts or feedback regarding this podcast series, we would love to hear from you. Please email us at: climateriskpodcast@garp.com

Links from today’s discussion:

CFTC Report - Managing Climate Risk in the U.S. Financial System

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Bob Litterman – Founding Partner, Kepos Capital

Bob is Chairman of the Risk Committee and a founding partner of Kepos Capital, a New York City based investment management fund.

Prior to joining Kepos Capital in 2010, Bob enjoyed a 23-year career at Goldman Sachs, where he held roles in research, risk management, investment and thought leadership. In 1994, Bob was named a partner and became head of the firm-wide risk function.

During his tenure at Goldman, Bob researched and published a number of ground-breaking papers in asset allocation and risk management. He is the co-developer of the Black-Litterman Global Asset Allocation Model, a key tool in investment management, and has co-authored a number of influential books on Risk Management and Modern Investment Management.

In addition to his work at Kepos Capital, Bob serves on a number of boards, including the World Wildlife Fund, and as the chair of the Climate-Related Market Risk Subcommittee for the Commodity Futures Trading Commission.

Through the course of Bob’s illustrious career, he has also earnt numerous accolades including entrance into Risk Magazine’s Risk Management Hall of Fame and being named as GARP’s Risk Manager of the Year in 2013.