Geopolitical Risk in a Changing Climate
Alan Leung is SVP of Threat Intelligence on the Global Security team at Macquarie Group, a global financial services firm. They're one of the world's largest infrastructure asset managers.
Alan is an active MCJ community member who a year or so ago started writing his own personal newsletter on climate and geopolitical risk at securingclimate.substack.com. The conversation in this episode is inspired by much of what Alan has written and shared there. Cody and Alan cover a range of topics, starting with a framework for how to think about systemic climate risk, to climate change-influenced conflict, to national responses to the energy transition, and lastly to how Alan thinks adaptation and resiliency responses will evolve.
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Episode recorded on Jul 28, 2023 (Published on Aug 8, 2023)
In this episode, we cover:
[02:01]: Alan’s framework for defining “hazard” and “risk”
[04:23]: Examples of climate hazards and impacts
[06:19]: Understanding climate's nuanced impact on security and conflicts
[09:18]: Early warning signs and triggers for conflict; climate's role in exacerbating risks
[10:25]: Water scarcity's role in conflicts in different regions (e.g., Kyrgyzstan, Tajikistan, Uruguay, India, South Africa)
[14:52]: The need to accommodate for more extreme swings in weather
[18:01]: Rebuilding with resilience and new tech after conflict
[21:10]: Global cooperation vs. local protectionism and “geopolitical realities” in the energy transition
[27:03]: The need for more investment in resilience and adaptation strategies
[30:03]: How insurance companies are reacting to increasing climate risks
[33:56]: How organizations can connect risks with opportunities
[37:43]: Advice for other risk professionals looking to develop knowledge in the climate space
[40:25]: COVID-19's impact on risk thinking, agility, and value of actionable insights
[42:50]: An overview of Macquarie Group and Alan’s role in the firm
[44:47]: Areas where Alan sees opportunities for risk analysis and security in climate solutions
[46:39]: How traditional ecological practices especially among indigenous cultures may offer the most resilient solutions
[48:41]: Water security and innovation in cooling systems
Resources mentioned:
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Cody Simms (00:00):
Today's guest on My Climate Journey is Alan Leung, SVP of Geopolitical Risk and Global Security at Macquarie Group. Macquarie is a global financial services firm. They're one of the world's largest infrastructure asset managers. Alan is an active MCJ community member who a year or so ago started writing his own personal newsletter on climate and geopolitical risk at securingclimate.substack.com.
(00:24):
Today's conversation is inspired by much of what he's written and shared there. We cover a range of topics, starting with a framework for how to think about systemic climate risk to climate change-influenced conflict, to national responses to the energy transition, and lastly to how he thinks adaptation and resiliency responses will evolve.
(00:44):
But before we start, I'm Cody Simms.
Yin Lu (00:47):
I'm Yin Lu.
Jason Jacobs (00:48):
And I'm Jason Jacobs, and welcome to My Climate Journey.
Yin Lu (00:54):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (01:00):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
(01:13):
With that, Alan, welcome to the show.
Alan Leung (01:15):
Thanks very much, Cody. Thanks for having me on.
Cody Simms (01:17):
You and I were chatting in the MCJ member Slack a while ago when I was asking for people's advice on different geographies that we should tour, and you said, "Hey, would you be interested in a conversation broadly on risk and how climate is affecting geopolitics generally?" I said, "Yes, please." Excited to have you on here as a true global expert in this space.
Alan Leung (01:41):
Pleasure to be on here. I think the MCJ group has already taught me so much around what everybody else is doing and just seeing how people come together and connect from so many different perspectives to tackle the climate problem. I just have found the network really helpful to me to help me understand how what I look at connects back with the different parts of the bigger picture. So, yeah.
Cody Simms (02:01):
Well, I'm going to touch on to start some of the writing you've been doing lately on your own newsletter on Substack called, "Securing Our Climate". I believe the URL for folks who want to look it up is securingclimate.substack.com. In particular, one of your earlier pieces from late last year, you broke down some definitions and some frameworks when it comes to climate security. In particular, you talk about the difference between a climate hazard, a climate change impact and a climate change response. I want to jump right into the wonky stuff and have you establish this framework for us that we can use to some extent as the baseline for our conversation today.
Alan Leung (02:38):
Absolutely. Before I start, I'll preface that with the newsletter, as with everything that I will chat through today from my side, just my own personal views only, and they don't represent those necessarily of my employer.
(02:49):
Diving right into it, the way that I've approached climate security is really looking through a bigger picture where it ties back into broader climate science and how climate science understands climate change. My point of reference, as I refer to in the newsletter, is Chatham House's environmental risk outlook back in 2021, which I thought was an excellent paper that really encapsulates both the science side, but really ties it back into the socioeconomic and the political impacts and really does a nice blend of those things.
(03:20):
I really like one of the frameworks that they put around climate security, which the starting point is the climate hazard. It's defined in the same way that the IPCC does. The hazard is actually the physical phenomena that we see. Whether that is a rainstorm, a flood, a drought, a typhoon, a hurricane, that's the hazard. That's the physical manifestation, if you will, in the first instance of something that could be interpreted by climate scientists and experts as maybe an event that is driven or exacerbated most likely by climate change. I think that's got to be where we have to start.
Cody Simms (03:58):
The real-world experiences that we're all having, right?
Alan Leung (04:01):
Absolutely. It's got to start from that, the actual hazard. The impact, the physical impact of that is obviously floods. Typhoon brings high levels of wind and water onto impacting shorelines and inland areas. That's your physical impact. You have rain. Then what's next? Depending on what that looks like-
Cody Simms (04:23):
Let's break it down in another one. Wildfire, wildfire would be the hazard. The impact would be barren land and an environment that's now ripe for mudslides and lack of shade and lack of biodiversity. Is that correct?
Alan Leung (04:35):
Yeah, that, poor air quality, those are the physical impacts of it. Then when it meets something, that built environment, if you will, whether that's homes, infrastructure, farms and things like that, then we have the human impact of that climate hazard. Then from there, you can see where the ripple effects and the different positive and negative feedback loops start to come in.
(05:01):
Once you start to trickle down that path, then you lead to there's a wildfire. That triggers outbound migration or extended drought leads to the wells being dry in a particular environment. That may trigger or exacerbate existing sociopolitical economic situations, whatever those are in that particular locality, and that may be an interceding variable to cause conflict, let's say.
(05:29):
For example, in Northern Nigeria you have pastoralists and you have farmers. They compete over land and water because of grazing rights versus land that can be used for farming. You may have a long-term drought that comes in.
Cody Simms (05:41):
That's your hazard.
Alan Leung (05:42):
Your impact is your wells running dry and there's a lack of precipitation. That's the physical side. But then you have then the human and the social side of things. That starts to come into play and then you start to have these ripple effects.
(05:57):
It's hard to say that this conflict was caused by climate or this fighting was caused by climate change and whatnot. It's not necessarily true when you think about that in the taking the systems approach rather than a linear approach because I think a number of folks on your podcast have highlighted that, things like tipping points and so forth are great example that this stuff does not happen on a linear scale. It can be very loopy. They're non-linear.
(06:19):
When we talk about climate and how that may lead to conflict, we have to think about this chain of events and how that fits into a broader system and whether or not climate can be one cause amongst several. Can it be a potential exacerbator of that underlying risk as well? If a community was already fighting over who owns the water and who has access to the water, then an exceptional drought, a century-level drought could be that tipping point, but it doesn't necessarily have to be.
Cody Simms (06:50):
It's like the bullet in World War I that shot the Archduke or whatever and was the trigger event that turned an already brewing area of tension into a World War, right?
Alan Leung (06:59):
In as many words. In some places it may look a lot more, let's say, obvious to people. In other places, these kinds of effects and impacts may build up gradually over time. Sometimes that may complicate the analysis or that may complicate the conversation that you have, whether something was caused by A, B, C, because we as people like simplicity. Complexity is tough.
(07:21):
But I think when we are talking about how to properly understand how climate change impacts security outcomes, peoples' safety outcomes, we do need to go a little bit into the nuance. We better unpack that so we can, A, actually appreciate and address that issue properly, and second, prescribe or think about the right solutions. Really third, underline all that, it's having the right people at the table to really have those conversations rather than speaking from afar.
Cody Simms (07:50):
It almost feels like as these events happen in the daily news, 24-hour news cycle, likely you're going to focus on the specific event that triggered a conflict. But maybe once the history books are written and they are able to take more of a hundred-thousand-foot view on how something happened is where you might start to look at the longer-term climate change impacts that ultimately drove insecurity in the first place.
Alan Leung (08:12):
World War I's a great example where your media at the time would talk about things like the Archduke being shot and then the war began. But even to this day, and when I was in grad school, people were still writing about what triggered World War I. There's this a huge amount of international relations literature that talks about the different causes and drivers and what may have done. This stuff can be debated almost ad nauseum, if you will. Quite often if it walks like a duck and talks like a duck, you really have to think and just say, "Do we have enough evidence to take action?"
(08:43):
I think from the security context, the answer is absolutely yes. It really points to that. When we think about taking climate out of the equation altogether, when we think about what triggers people to fight beyond ideology and power, it's going to be things like access to water, access to food, access to energy, those kind of sources. In the past, communities, kingdoms, empires, soldiers have fought and have collapsed because of those issues before. What's to say that people are not going to come into conflict again on those things in the future?
Cody Simms (09:18):
My guess is you'll see those show up first as things like rise of extremist groups, rise of political protest before you move full on into conflict. You're going to start to see some early warning signs in different geographies, mass migration, obviously, potentially one of those triggering events that creates potentially anti-immigrant sentiments and whatnot in different societies. Are those the kinds of things we should all be on the lookout for as precursors to conflict?
Alan Leung (09:46):
I think so. I think we're already seeing examples of that. I think there's a US institute, I think it's called The Pacific Institute, they have a really great database around water-based conflicts and things like that, going all the way back to I think the Mesopotamian time. I think some of the things that I found very interesting is where you have some kind of, let's say, local mismanagement of issues over a period of time where you have maybe a water issue, for instance, that already intersects with something like a border issue, a political issue, an environmental stimulus, the hazard comes in and can tip things off balance and then can throw things off the apple cart.
(10:25):
One example would be, for instance, again people fighting over water. I talk about it in my newsletter a little bit as well, is the border between Kyrgyzstan and Tajikistan. There's a certain section of that border where there is an ongoing, decades-long dispute about who gets to use reservoirs and how much and also to irrigate their land. It's flared up a couple times, most recently back in the spring. The Tajik troops were going across the border as a result of the conflict, but ultimately the root cause of it, or one of the root causes was about this water dispute. Now, the proximate cause may not be saying there's a huge drought and then now we're going to fight. Actually, there the proximate because was I think some monitoring sensors that were monitoring the reservoir levels were broken or sabotaged, or depending on who you talk to and what sources you have, you may hear different things.
(11:12):
But Central Asia is one of those regions that is highly sensitive to the impacts of climate change. They're looking at accelerated de-certification. There's already a water table problem there dating from the Soviet times where the water table has been just drawn down severely, not too unlike California and the Central Valley, really. As the world gets hotter, they're not far north enough where you're in Siberia and actually in the near term a warming world may actually benefit parts of that far north in terms of opening new land for agriculture. They're not that far north. This area may become more climate impacted over the future, drier, hotter, more erratic rainfall patterns. When you think about that in a context, that could potentially be something that would become intensified over the future.
(12:00):
In other parts of the world, you have things like Uruguay is a really great instance recently where you have massive nationwide protests over water use. Everyone is rationing water, people are going to streets because they're just out of water. But at the same time, there is still water in the country. They're just used by large companies. You have people going on the streets and marching very angrily about water. There's also an exceptional drought across the border in Argentina.
(12:23):
A few years ago, you had water protests and almost water riots in Chennai in Southern India because one perspective is that chronic mismanagement of water resources. Then you have a missed monsoon season, and the reservoirs dry up, and then people start protesting. It descends into almost like a bit of a mob mentality.
(12:43):
You're having these instances already popping up.
Cody Simms (12:46):
South Africa, I believe, had a big water issue a few years ago too, right?
Alan Leung (12:50):
Yep, massively so. In 2018, they were rationing water for several months. I actually went there a few months after that and they still had a lot of signs out saying, "Is that a view of the future in many cities of the world," quite possibly.
Cody Simms (13:02):
As I understand it, it's hard for us sitting in North America or the UK or whatever to fully appreciate that, but when you're rationing water, you still have to drink, you still have to water your crops, you still have to take care of things. Often that means the water that you can get access to is unsanitary. It causes disease because you're rationing the clean water supply. Just the downstream impacts of that are incredibly dramatic in terms of the toll it takes on human lives.
Alan Leung (13:29):
Yeah, absolutely. I think those are the practicalities about where the rubber hits the road. You can talk to signs all the time, but at the end of the day it's if you're rationing water, if you need to use water two, three times between drinking, eating, using it for a toilet, do individuals, families, communities, companies and corporations know how to be resilient and keep their people safe and healthy in that?
(13:52):
Water issues, as you alluded to, we can have waterborne diseases and so forth. That's a major public health crises, unintended consequences that can spill over and have major, not just social impacts or political impacts and ...
PART 1 OF 4 ENDS [00:14:04]
Alan Leung (14:00):
[inaudible 00:14:00] over and have major, not just social impacts or political impacts and security impacts, not everything has to descend into riots and violence for it to be a major conflict problem. I think from my day job, corporate security risk professional, is really starting to think hard about those issues and how do we understand, back to that point around system of hazards and impacts and second and third order impacts and say, "How does that impact what I need to care about? Where are those kind of risks coming from? Can they trigger anything from protests to the safety and health of the people that I need to care for and have a care of duty to? And what is safe and what is secure and what is resilient in that space?" And I think understanding where that climate and the security nexus is very important for us. And it already is now, and it'll be more important going down the line.
Cody Simms (14:52):
I mean, just thinking about the different types of hazards. We talked about flood, we talked about drought, we talked about heat wave, we've talked about wildfires, we've talked about storms. At the end of the day, it either sounds like it's extreme heat rolling in which causes lack of water, which causes droughts. It's too much water, which causes flood, which causes issues. Water seems incredibly important in this dynamic. Do you see this as being the primary face of how people will experience climate change, either too much or too little water at the end of the day?
Alan Leung (15:23):
I wonder if it's too much or too little of a bit of everything really. We have too little heat, too much heat, too much water, too little water, too little humidity, too much humidity. And it's those extreme swings that we're seeing that I think our bodies, our systems, the frameworks which we've built to make sure things work properly within certain boundaries are already being tested, challenged and broken in some places. And we also need to take action in our own ways before those break further and have greater impacts. So extreme heat right now, very topical in the Northern Hemisphere, it will be topical for the Southern Hemisphere in a few months time. Once again, I think that Chatham House study cited that by 2040 we may have almost 4 billion people who will experience some kind of major heat wave in any given 12 month period.
(16:11):
That's 12 times more than your historical average dating back to the early mid 1900s. And maybe around 15% of those people may be exposed to temperatures exceeding workability, if not almost survivability threshold. There was a thing that went viral on Twitter a couple weeks ago around how the surface temperature of, I think an airport in Iran was like 65 degrees Celsius or something insane like that. That was a heat index.
(16:36):
I think it was around 40 degrees Celsius, but the humidity was like 90 something, a 100% percent. So basically if you walk out, you're not going to make it out there very long. How many more of those kind of instances are we going to see? How long will those last and will they become increasingly in places where we have built environments we have in major economic producing areas, would that force radical shifts in what we do or would that just require some kind of upheaval and unrest and shock to the system to trigger the change where we're not going to get ahead of that change, we'll be kicked by these hazards and impacts and then we will change once we're kicked in the wrong place long enough around those things.
Cody Simms (17:18):
You wrote a separate piece on conflict, right? So as these feedback loops continue to generate negativity to where you get to the point of having a consequence that drives conflict, then conflict itself has a... I mean, war is not good, no matter what, right? Pretty much. But conflict itself drives a number of additional negative feedback loops you talked about. War itself is dirty. It generates a significant amount of emissions, land use, fossil fuel waste. There's increased food insecurity due to war, commodity price spikes, et cetera. And then continued migrants and refugees drive additional conflict that spills out from the center of conflict. Anything more you want to share there about how that happens? And then ultimately how do places recover from that after it has already begun?
Alan Leung (18:01):
The recovery side, I think look back at other major conflicts like World War II for instance, right? We've spent decades de-mining land that were battlefields. And it took major reconstruction efforts in a concerted multi-year way to do that. And you're seeing that in Ukraine, right? There's a reconstruction fund, there are a number of conferences around that. Ukraine is undergoing a huge data collection exercise to highlight loss and damages so that among other things potentially, and now speaking with somebody in the insurance industry very recently and he highlighted, that is exactly what they're doing, is that if they want people to come in and rebuild, then they need to tell them exactly how much it's going to cost. And exactly where and what kind of damage has been done and what kind of rebuild is needed. So I think we have the benefit of just a lot more tools these days to be much more precise around what are we trying to recover for and what are we trying to solve.
(18:52):
And it's not just recovery around building it back to what it was. You want to build it in a way that becomes more resilient towards future conflicts. Ukraine probably would make sense for them, and I read little rumblings on this, is that they probably may not want to build the power grid like they did before. They may want to focus on micro grids or regional grids, maybe greater use of that emerging technology that we're talking about. Battery storage and things like that. Much greater use of solar and wind so that the power supply in the country would be more resilient. The grid wouldn't just [inaudible 00:19:23] over itself when it gets hit by missiles again in the future. So I think there's one element there if you're thinking from a security and defense perspective, how do you rebuild that infrastructure so that a bit of damage [inaudible 00:19:34] isn't going to bring down the entire ship, if you will.
(19:37):
Another element of it is, obviously as you say, war is dirty. Not just from emissions perspective, but the damage to the environment, right? All the pollutants in the soil, in the water, who's going to pay for all that? And that's an open question around that. And is that going to be a private sector role? Is that going to be government? I think government will have to lead on that probably. So any kind of conflict is going to be devastating from that perspective. And then you touched on food security, I'll touch on it briefly. I think Ukraine is a very tragic and unfortunate instance of where you see conflict being a driver, because I think some of the grain prices were already on the rise before the war started, but you see how if in the future, if we had a crop failure in one of the big bread baskets in the world. Ukraine, the Great Plains, India, China, if we see something like that happen, then we may already have an impact that's already like a Ukraine, maybe some times over.
(20:33):
If we had both happening at the same time, if we have another Ukraine and then a crop failure somewhere else, if we are still at that point in a largely globalized economy with flow of commodities and goods like we have today, then maybe the impact could be reduced because the system can learn to rebalance itself to a degree. But if we are more fragmented geopolitically for whatever reason, by 2030, 2040, then these impacts could be quite devastating. And I think that's the danger there. Where a climate hazard comes in and exacerbates and just makes something much worse than it may be otherwise.
Cody Simms (21:10):
You wrote another piece on the notion of climate geopolitics. That as the energy transition accelerates, we may see somewhat local protectionism around energy acceleration. I think many in Europe would already argue that the Inflation Reduction Act is a bit of that from the US perspective. And you argue in one of your pieces that this competition may make the transition more expensive, but ultimately may actually make it more locally or nationally resilient. Do you want to explain a little bit more what you mean by that? That sounds a little bit different than what you just said about the grain security issue.
Alan Leung (21:44):
Yeah, and I think there's a big caveat about if, right? I mean, we're still in a very globalized society today, and I do feel that we are gradually, and this is my personal view obviously, gradually de-globalizing. I don't think we're all going back to our country and our borders and then putting in moats and drawing up the drawbridge, but it's quite possible it may not look quite as globalized as the Bretton Woods folks dreamed up many, many years ago. Pax Americana or the WTO vision of what a globalized society looks like. Where the full impacts of gains of trade really come in. I think you had Dr. Scott Moore on, somewhat recently. And he's a friend of mine. We go way back actually. So I really enjoy listening to his podcast as well.
Cody Simms (22:21):
Fun episode all about China. For folks who wanted to dive in there.
Alan Leung (22:24):
Yeah, really great episode. And he's definitely one of the best in the business when it comes to China and climate. I agree with his point that where competition is already a reality when it comes to the energy transition, like with any other key thematic, just generally trade. So climate broadly speaking isn't going to be immune from those kinds of political, economic and really geopolitical realities. There will be competition and cooperation. And I think it's important to continue to understand where those dynamics are shifting over time. So if the underlying assumption around the IPCC reports around net 0, 2050 targets is that the world largely comes together and works together to achieve those goals, and leveraging, again, global efficiencies where you would produce solar panels, batteries in the cheapest place possible and you get them optimal outcomes, well, I wonder if that is an implicit assumption and that I may be completely off track on that.
(23:23):
But when I look at those studies, I can't help but feel that there is an implicit assumption that there will be broad- based cooperation in a sustained way between at least the key players, China, the United States, India, the EU, among them. That's going to hit up against some geopolitical realities because these blocks and countries also compete on a number of other issues and disagree on a number of other issues. And we're already seeing things like IRA being political footballs back and forth. Whether or not the EU is eligible under FTAs and those kind of clauses under the IRA is causing a lot of consternation in the European Union. And that remains broadly unresolved. And that would be a light touch impact as we potentially go along in time. So the energy transition is going to be, I think highly political. It's quite possible we may end up seeing corridors, if you will, where the economies of scale are not going to be necessarily as global as we may want to envision.
(24:19):
But maybe focused on trading corridors, economic blocks, trading partnerships or amalgamations thereof. Mainly because of the realities of politics, but also very clear national strategies now that most major emitters have put out around, how do we build local and national resilience in our supply chains. I think you had Narendra Taneja on your podcast also not too long ago. And he highlighted that India's strategy... And India has an energy strategy. India also has a critical minerals strategy as well. The US has maybe organically. The other major countries do. The EU is drafting one right now. And those are about building supply chains and then also where domestically possible build up that resilience to a degree. It may not matter so much whether or not there is a cheap refining or processing plant for something out there.
(25:12):
I need one domestically for national security and defense reasons and for kind of key strategic sectors of the economy. So that will increase costs. So the inner transition, I think we talked about it some months ago, Cody, it will get expensive. But when you have these outcomes, there may still be opportunities for innovation in that space as well. So I think as countries start to look at this from a, A, economic security perspective first and foremost, and then the second one is, a national security perspective, if you put that lens onto Paris and energy transition, then you start to see things like what Joe Biden's national security strategy looks. Which is, most of the climate section is talking about energy security. And for very, very obvious reasons. It's because those things matter the most and a lot of policy is likely going to be continued to be influenced by that significantly.
Yin Lu (26:02):
Hey everyone, I'm yin a partner at MCJ Collective. Here to take a quick minute to tell you about our MCJ Membership community. Which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week we're inspired by people who join with different backgrounds and points of view.
(26:23):
What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out of the community. A number of founding teams have met, several non-profits have been established, and a bunch of hiring has been done. Many early stage investments have been made as well as ongoing events and programming. Like monthly Women in Climate meetups, idea jam sessions for early stage founders, climate book club, art workshops and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to MCJcollective.com and click on the members tab at the top. Thanks and enjoy the rest of the show.
Cody Simms (27:03):
Frankly, I think that's where many of us in the Global North spend a lot of our time thinking about climate is, how do we make this transition? What are the policies we need to put in place to enable ultimately the clean energy transition? But going back to where we started the conversation on the actual human consequences and the impact, the notion of investing in adaptation and investing in resiliency and investing in a world that is facing extreme human consequences feels like it doesn't get as much attention.
(27:36):
And I know this is an area you spend a lot of time on. I'm curious how you think the investment in adaptation, and in dealing with food insecurity, and in dealing with drought, and in dealing with floods globally, and in dealing with extreme heat waves, where is that money going to come from compared to what we just talked about, the proactive transition. Which is going to be national policy. It's going to be focused around national security and whatnot. We've seen a...
Cody Simms (28:03):
... to be focused around national security and whatnot. We've seen a little bit of the loss and damage fund coming out of COP 27. I think there's been a lot written about this adaptation gap, but I haven't seen a lot of solutions coming to the fore yet. And I'm curious how you view that shifting and changing in the next years ahead.
PART 2 OF 4 ENDS [00:28:04]
Alan Leung (28:19):
As a segue to what we're talking about just now and your current question, I would say there also needs to be a lot of investment by government and probably the private sector play a key role in encouraging that and also implementing that. Someone's got to invest in making resilient supply chains. The IRA, one of the key objectives is to do precisely that. You see a number of countries, Chile, Bolivia, Namibia among others, they're not just simply happy to have lithium and copper and so forth extracted. They're asking for more, right? They're asking that, "Hey, if you're going to take it out of ground, we need to have a seat at the table. We need to take a cut out of it." And they want to move up the value chain as well. They want to be able to refine and process it, if not more. So I think from a resilience perspective, you could think of it in that way as well as that the opportunities are absolutely there. But if we flip it on its head and say, "Okay, I think the studies go from anywhere two to maybe 20 to 40X amount of lithium, rare earth minerals, and a number of other creative minerals." So I think just with lithium alone, I think benchmark intelligence came out some months ago saying about 300 plus lithium mines need to be open by 2050 using at least known reserves that we know about to implicitly hit those net-zero goals. And there's not enough active reserves that are active things in production right now to hit those targets. So it means that holes need to be dug out of the ground and where will that happen? Who will that impact? And are we thinking about how to ensure those kinds of very necessary investments are going to not be resilience negative on impact communities, whether they're in the United States, Canada, Chile, or in the global south. So I think that's another element of that too.
Cody Simms (30:03):
On Benchmark Mineral Intelligence, that's another episode for listeners to go back into the archives for. We had Simon Moores, who's the head of Benchmark Mineral Intelligence on the show relatively recently and had a good deep discussion about a lot of those topics, which was great.
Alan Leung (30:15):
And I think if we take that and say, what else from an investment perspective, and I'm going to raise my hand and say, "I am a risk professional." I'm obviously not a venture capital, I'm not private equity, but I've seen a view of venture capital and also impact investing folks out there. So we got, I think Mazarine, Pegasus, Lightman, you got Burnt Island and Convective playing in different places like that in the VC space, and they're finding great new ideas. I think you got Pano AI on not too long ago as well. And so there's a lot of folks tackling different bits of that. So if we look at the hazards within the broader framework that we had discussed earlier on this conversation, you take different chunks of that and say, "Which bits can I tackle and reduce the harms and mitigate the impacts of that?"
(30:56):
So if it's about detection of a hazard or a disaster, is it about speed to alerting, speed to response? Is it about helping impact the communities and people and businesses recover from that and innovating around those spaces? Obviously leveraging things like AI applications and so forth. I think there is a lot of opportunity to still scale that and that adaptation gap is absolutely massive. I don't have the number in front of me, but it's, I mean in the tens of billions of dollars every year. And I think there's still a lot of things that need to probably be done to unlock that. There's innovative stuff happening in the insurance space.
(31:37):
Talk about things like blended finance or resilience bonds and so forth that happen, but we're not seeing that at scale. We're not seeing that happening yet. And that's because I think that a lot of these, remains quite difficult to find the right projects also remains difficult when we think about just maybe unit economics and project economics and makes it challenging for those things to be deployed. Finally, there's also a question about the people with the capital, the investors, what are they asking for. Are they demanding resilient investment? I think if they start seeing those kinds of things, a resilient dividend to all their investments, if you will, then maybe the tides will start turning.
Cody Simms (32:18):
You mentioned insurance, and that's a good point to touch on with respect to what you just said around where are investors demanding to see investment happen? I read an article recently, I can't remember, it might've been in the New York Times, and it talked about insurance in particular and insurers, homeowners insurance pulling out of both Florida and California, Florida for flooding, southern Florida in particular, and California due to wildfire risk. And it struck me as funny because yes, there is more risk in those areas, but ultimately isn't that the job of insurance is to calculate the risk and underwrite it. And even if that means the policies are more expensive, they figure out the right way on the actuarial tables to where they could make money. So is it just they don't have the tools yet to be able to properly predict, because everything is changing so rapidly to be able to predict so in a way that's profitable to them generally. I'm curious to understand that space and ultimately how do we solve that? You can't have population centers like Southern Florida and California with the inability to secure homeowner's insurance.
Alan Leung (33:21):
Yeah, I think it'll be fascinating for you to have somebody in the insurance industry to come on your podcast to talk a lot more detail about that because I definitely clocked on that as well. But at the end of the day, if the risks are too high, then they're just simply going to pull out of these markets. So there's a lot of implications of that. And that's quite telling, right? But again, if you look at it differently, it means there's an opportunity to understand what are the underlying issues with that particular kind of problem and what would it take to change that and bring that back? Is it technology, is it policy? Is it a bit more financial innovation or a combination of those things? Probably a little bit of everything.
Cody Simms (33:56):
And so how do you see big companies, for example, who often control a lot of dollars in different geographies, how are you seeing them react to all of this insecurity, not necessarily homeowners insurance, but just generally, are they increasing the amount of scenario planning they're doing? Are they increasing the ways they think about emergency response and management in these areas? What does that tend to look like?
Alan Leung (34:17):
At Macquarie, I think we're already heavily invested on the commercial side, investing in the air transition and net-zero. And there is a lot of really great stuff happening behind the backgrounds to better understand using climate science and using data where you can invest for the greatest impact. Taking that more broadly, I think what organizations do is really, I think to your point, understanding operationally first and foremost, how does this stuff hit you? How does stuff can hit you? And I think sometimes with the extreme weather we're seeing, that question starts to become a little more challenging because even our assumptions around worse in climate conditions are now already being challenged in real time. So what are we trying to be resilient against and at what level can we be resilient towards? Because there's no way to be resilient towards everything. There's only so much, right? So what are those acceptable levels? And I think that is a million-dollar question probably for any organization,
Cody Simms (35:15):
Probably more than a million-dollar question.
Alan Leung (35:17):
A million-dollar question. Sorry. It's proverbial. And I probably date myself by using that figure of speech.
Cody Simms (35:22):
You're full on Dr. Evil here.
Alan Leung (35:24):
Full on Dr. Evil. Exactly, exactly. I should say billion-dollar question. $10 billion question. So I think it goes back to basics. A lot of it is basic. I think good risk management practices I think is about having what I call actionable conversations to connect the dots, connect risks with opportunity. What are we doing now? Does that make sense? Will it stand the test of time so to speak? And if there's a gap, what do we need to do about it? And I think being able to understand how your organization works, know your business in other ways, understand where those vulnerabilities are is probably a good first step. Think most organizations probably do that to some degree, whether it is logistics, supply chain, things like that, cyber and so forth. But looking through how that looks from a climate risk perspective, physical and so forth is very important as well.
(36:12):
And when it comes to really zooming in on the security side of things and some conversations I've had with peers is price management is part and parcel of our corner of the map, and it quite often is going to be informed by not just the response base we have, whether or not it's keeping IT systems up and running and making sure if the power goes out, then we've got these measures in place. But also it is to understand what are the plausible scenarios we need to plan for against? Because you have to aim your resources at something. It can't just be fend all the barbarians off, and that's where good data and good science and analysis comes in. So I think that's one is bringing in that capability into organizations or at least finding it in organizations and then making sure that that is fed into security planning, physical security protocols, crisis management plans.
(36:59):
And also if you have your internal research analysis team direct them to say, "You need to look at this stuff now too." Not just war, terrorism, civil unrest, those sort of things. Those are classic risks. But now you need to look at environmental hazards, but take a step back and say really understand what those are and how those things... Again, back to that flow chart, how do those trickle down into real world impacts that mean lost productivity staff being harmed, staff not being able to come to work, people may not be being able to travel to certain place because the tarmac is so hot they can't land or take off. Those are some really real world impacts and those are material for your organization or parts of it, then you need to be able to kick the tires on your plans and do that.
Cody Simms (37:43):
It's been inspiring seeing you as a senior in your career, SVP of geopolitical risk and global security at a global asset manager doing things like participating actively in the MCJ Slack community and participating in being in the Terra. due course. Like you're obviously taking this very seriously as an area that you need to gain a significant amount of knowledge and understanding in. Any advice you have for peers of yours in the risk industries in terms of how they can bolster their knowledge in this space?
Alan Leung (38:12):
I think of two things. One is there's so much information out there, right? Whether that's MCJ, whether that's Terra.do, whether that's a number of other organizations and groups and movements. There's so much content out there and it's all free/easily accessible. It's almost as if there's too much information sometimes as where do you start? So the knowledge piece is absolutely important. If you don't want to develop it, then find people who have an interest and find people who have that subject matter expertise and bring them in the organization to be your environmental risk expert or be your climate person, if you will. I think the other bit, which is probably more familiar to my colleagues is thinking about risk management practices and leadership. Leading through crisis, understanding how to have risk driven conversations, how to brand our messaging. Because at the end of the day in most organizations, what we do is sometimes seen as a bit of a cost center. And in good times you're around and bad times people start asking questions around your value add.
(39:11):
And I think if doing horizon scanning A, I strongly believe that being able to bring in the climate conversation because this stuff leaves nothing unscathed, would be a significant long-term strategic value add if applied correctly. And second is also helping lead others to say, "If we're going to end up having more incidents, more crises, more extreme events, sometimes in close succession or happening multiple things at the same time, if you have to deal with multiple literally wildfires in different countries restrictions, that will put a massive strain on our organization." And also the specific people whose roles are to either monitor it, to respond to it, to plan for it, and to take action around it. So having effective risk leadership practices and being able to help influence and lead your organizations through those kinds of really challenging and sometimes could be short term, sometimes longer term situations, I think is also of tremendous value. So I think being able to really articulate that value, why that is going to be so important down the line or already is my strongly belief will pay dividends.
Cody Simms (40:25):
How did just living through Covid influence how organizations are thinking about risk?
Alan Leung (40:32):
I can only speak kind of from my own experience. I think there was a massive growth in the corporate security sector because of Covid. A lot of companies did not have the infrastructure and resources to respond to it. It's just a lot of companies were broadsided. I think what I've seen is agility, the ability to quickly learn and get smart on something for which you may not be prepared. I'm not saying that we all need to be epidemiologists and have MDs in them, but knowing enough and understanding, and again, back to kind of understand what information out there do you need to be actionable is I think a key asset of people in security, and also working in risk analysis is separating the wheat from the chaff and being able to look at the world of information out there and quickly condense that and assess this is actually something that I need to care about.
(41:18):
These are things I can maybe put to one side or it's not relevant or is actually wrong, or misleading and could be harmful. And being able to bring that into organization and translate that into, we need to do something and this is what we feel we need to do or not do. And I think that Covid experience really highlighted the value of that because a lot of senior folks in organizations, unless you maybe work for a medical firm, potentially senior leaders are also going off the news in what they're hearing. So who's leading whom? And I think the purpose of risk teams is to really help those senior folks make the right calls. And I think the companies that really shown through took that as a strategic opportunity amidst that tragedy to grab the bull by his horns and really deliver that value to say, "This is a risk problem. This is a-"
PART 3 OF 4 ENDS [00:42:04]
Alan Leung (42:00):
[inaudible 00:42:00] and really deliver that value and say, "This is a risk problem. This is a people safety and health problem. We have that capability. We have those skill sets to focus on this major problem and help navigate those very choppy waters for those two years." And when we apply that back to the climate conversation and the climate crisis conversation, you can see how that can graft over. Again, it takes that learning curve to understand what amongst the climate universe, and you don't need to be a climate expert to start actually applying it. You need to know some basic things about climate science, need to understand what you look at, connects back to the bigger world, what technologies are out there, but at some point, there's indefinitely enough out there to start to really bring it back, and I think there's no better time to now do that.
Cody Simms (42:50):
Lastly, just so people have the context of the basis of this whole conversation and how you got into this space, you set up front, "Hey, this is my point of view, not my employers," but maybe just describe briefly for people what Macquarie is and what the organization does and thus maybe why having someone in your role like an SVP of global risk, geopolitical risk and global security is an important role for them.
Alan Leung (43:13):
Macquarie is a globally diversified financial services firm. We invest in a wide range of asset classes ranging from all kinds of commodities to infrastructure. We're heavily focused on the energy transition, net-zero as well. And amongst many other things that our global security team does, what I do is really help my clients who are internal stakeholders connect the macro geopolitical and security threat issues that are out there and translate them back into hopefully actionable insights. Whether that's the consequences of the war in Ukraine, whether that's protests in Latin America, whether that is understanding the geopolitics of climate change and helping bring some of that high level conversation, which are hugely political and sometimes very security and defense driven and translating that for an internal audience to say, "This is maybe one prism that you could look at. Why are certain things happening?"
(44:13):
It's very much a work in progress from us. We're still building our capability and building our stakeholdership in this space, but I'm optimistic because we have a culture of entrepreneurship within the organization, and our organization is really founded on empowering the entrepreneurial enterprise. So it's a really exciting place to be able to not just develop this capacity, but also really apply it back to in a really value added way.
Cody Simms (44:40):
Well, Alan, before we wrap, is there anything that I should have asked? We covered a lot. Is there anything I should've asked you that we didn't cover?
Alan Leung (44:47):
There's a number of really cool things people are doing that I've seen out in the investment and technology space that I think are worth pointing out where they may be considered to be climate mitigation solutions or climate adaptation solutions and investments, but which also may really have a really good security or community resilience, community stability benefit as well. And I see four categories where that may show up.
Cody Simms (45:13):
Hit Mm with your framework. I love it. Bring it.
Alan Leung (45:15):
I think first is just better data and models and solutions that really can enhance that. I think we absolutely need better models that can tie up the science and with the social impacts, and especially from my side, conflict and geopolitics and using AI enabled technologies. That's fantastic. I think it'll be even better if they're underpinned by a firm understanding of the interplay between all those risks that we have talked about earlier.
Cody Simms (45:41):
Do you see most of these as being some form of earth observation technology using machine learning, using satellite imagery, geospatial recognition, et cetera?
Alan Leung (45:49):
A bit of all of the above, I think, is necessary. I think with the rapid acceleration of just AI applications, I feel like that's probably inevitably where a lot of this is going to go down. I really like the end road simulator as a really simple model of if you just move up and down, this is where the impacts are. And if we're able to incorporate socioeconomic and political factors into that, and unfortunately social sciences are notoriously fuzzy when it comes to trying to quantify this stuff, it'll be a great example of a piece that can strengthen that knowledge base around the nexus between science and security impacts.
Cody Simms (46:21):
We featured the inroads simulator in the MCJ newsletter recently, so if you don't subscribe to the newsletter, you should, and you can go back into the archives on our substack and read all about it.
Alan Leung (46:31):
Absolutely. And the second one is around food security because that really would drive conflict, out migration and so forth. And Ukraine, we've already seen that. So even just things like drought resistant crops, funding for permaculture practices, I think the Global South has so much to offer. C cultures have been doing this for hundreds, if not thousands of years around permaculture practices and sometimes low tech could be the best tech, but it just needs investment. And I particularly like Andrew Millison at Oregon State University. He's got a great video series around permaculture in places like India. And I was blown away when I saw just low technology with focus and a little bit of funding and patients can do to turn what is essentially a wasteland into agricultural productive areas that potentially, if it was left to its own devices, may be abandoned. And you can see already keeping a community together is so important for social stability and also just people's livelihoods, which has a direct impact on safety.
Cody Simms (47:30):
The best man in my wedding lived for the last, gosh, almost 10 years on a permaculture farm in the high desert in southern California. And going out to visit him was so inspiring to see all the work that they've done to reclaim that land and be able to grow crops and be able to live sustainably on it is just incredibly fascinating.
Alan Leung (47:49):
When it comes to things like food security and water security. I think there's a lot of folks obviously in say the western world talking about this stuff, but I think we owe ourselves to tap into the wisdom of people in the global south. They've been doing this for years and we should ask them what they want. Touching a little point from to Asia, we should be asking them what they want and what they are looking at this climate reality, what do they see as solutions? And I think we should listen to them, support them and back them because, often, they know best.
Cody Simms (48:18):
Indigenous practices in general, not just for crop growing, but for forestry, land managements and whatnot, often, in retrospect, have turned out to be some of the most resilient practices available.
Alan Leung (48:28):
Yeah, absolutely. And I think we don't always need to create a new technology or a new gadget in order to solve a problem. Sometimes the problem is already solved. We just need to tap into that and make it work for us to face this crisis.
(48:41):
Two more things. Water security, I touched on it quite a bit already, especially where I think it can aid transboundary cooperation or cross-community cooperation where water resources have to be shared by different folks, if you will. So whether it's sensors, equipment, infrastructure upgrades and repairs, doing that holistically maybe at a watershed or basin level, removing nitrates and other pollutants, even just simple things like improving the hygiene can be massive for local outcomes such as that. And I think some of those things need to be wrapped around trust and confidence building exercises because there are so many transboundary disputes over water, and when there are disputes, whether it's your home and your neighbor over a fence, you need trust and a breakdown of trust. The best technology isn't really going to help you if you don't compliment that with just, again, that resilient leadership and cooperation.
(49:32):
And then, finally, cooling systems. There's so much, I think, innovation happening in that built environment space. How do you deploy cheap mobile air conditioner and cooling systems that can be easily integrated? Maybe they don't contribute to more emissions and so forth. Also, dehumidifiers as well, and there's just... That whole space around cooling and keeping people within workability and survivability boundaries, I think is also going to be another big way to keep people safe and secure as we've obviously already baked in so much of the warming already.
Cody Simms (50:03):
You see there eventually being either government or even international funding to deliver cooling to different parts of the world?
Alan Leung (50:11):
I'm not so familiar with that. Again, I would love to hear more from folks who are really working on the solutions or at policy level or at the local and tech level. And I think overarching all this is is that the solutions are quite often always hyperlocal in nature because problems that arise, many of the ones I cited are hyperlocal in nature. So I think we should always center that in mind when we're designing something, whether that's a financing solution or whether it's deploying a bit of technology. It's always local first because it has to work at a local level in order to go anywhere else.
Cody Simms (50:44):
Well, Alan, I just want to thank you for joining us today and not just for joining us on the podcast, but for all the work you've done contributing inside the MCJ member community, writing your own substack to share your knowledge of geopolitical risk and global security with everyone who is interested in learning more about that and just helping all of us get smarter and hopefully help all of us make better choices and make the world more resilient as part of it.
Alan Leung (51:11):
It's been a pleasure talking to you, Cody. Thanks for having me on.
Jason Jacobs (51:14):
Thanks again for joining us on My Climate Journey podcast.
Cody Simms (51:18):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem solving capacity.
Jason Jacobs (51:27):
If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter @mcjpod.
Yin Lu (51:40):
For weekly climate op-eds jobs, community events, and investment announcements from our MCJ venture funds. Be sure to subscribe to our newsletter on our website.
Jason Jacobs (51:50):
Thanks, and see you next episode.
