A systems response

Business Problems?  How about a $1bn dollar insurance loss.  

I was approached by an insurance company to help them think about sustainability.  They had just paid out a $1bn insurance claim, and this was just the latest in a growing line of 100-year events now happening annually.  How they calculated, reduced and managed their risk exposure was proving an existential business threat.  

The $1bn payout was for the decimation of almost 90% of a country’s aquaculture industry.  Fish were dying out rapidly due to an algal bloom. However, understanding the root causes of the algae required a systems approach.

Working with their senior management team, we discovered that due to deforestation across the area, rain was rushing down the mountains and flooding farms, which in turn were using nitrogen fertiliser due to soil erosion. As the river has been artificially straightened, and biodiversity levels had plummeted, nitrogen was flooding out quickly into the sea prompting the algal bloom, which was decimating fish stocks, devastating the local fishing industry, and reducing food for the region.

From the system analysis, we identified seven interventions for reducing risk. The costs associated with each intervention and the potential return impacts were harder to estimate but not impossible.

The interventions entailed nature-based solutions including: 1. Provide investment and insurance for the local community and authority river management upstream from the aquaculture sites, specifically aiming to rewild river beds to slow the flow of water. 

2.  Offer farm insurance with conditions for improved practice for restoring natural flood defences and lower chemical fertilisers.  3. Encourage investment and insurance for restoration industries, particularly those focused on planting trees on uplands. 

4. Improve aquaculture standards 

5. Convene local and national stakeholders to evolve system governance, and shared system insurance products - a critical step as risks will continue to rise and all economic activity – farming, energy, transport infrastructure - will become individually unaffordable and uninsurable.

6. Move away from linear risk models to systemic risk modelling, informed by increasing system vulnerabilities set against escalating atmospheric volatility. 

7. Introduce a stronger corporate position on climate change, supporting governments and business to act and reduce risk.

We discovered that the biggest return was from intervention 3 - reforesting the uplands.