As a futurist, I monitor a broad spectrum of trends, from demographic to technological to social and geopolitical. When it comes to climatological trends, I rely on forward thinking researchers like Rich Sorkin, who is helping institutions prepare for what the UN Intergovernmental Panel on Climate Change (IPCC) calls the "irreversible" impacts of climate disasters ahead.

Sorkin is chairman, CEO, and co-founder of Silicon Valley-based Jupiter Intelligence, a "climate risk startup" thatJupiter diverged from the "how-do-we-mitigate-climate-change" debate and recognized that climate change would almost certainly get much worse before it gets better. Sorkin and his team of scientists and experts began thinking about preparedness. They focused on how organizations, governments and businesses could better understand, and then manage the risks that climate change was increasingly going to deliver.

Rich Sorkin is a serial company founder, investor, and one-time research assistant to Yale economist William Nordhaus, who won a Nobel prize for his work on climate change. Sorkin's previous companies pioneered the use of satellite data and scalable cloud computing to predict weather events for commodity traders. He was CEO of Zip2, a pioneering internet company purchased by HP that made him a multi-millionaire in his 30s. Jupiter uses its proprietary, model-driven projections of future temperature, rainfall, wildfires, and other risks to assist governments, banks, insurance companies, and investment firms in making better decisions about adapting to climate change.

In a recent interview, I asked Sorkin about the UN IPCC's (United Nations' Intergovernmental Panel on Climate Change) recently released report on how the climate crisis may be approaching a tipping point much sooner than expected even five years ago. He also discusses what businesses and governments can and must do to become "future-ready." Here are edited excerpts from our conversation:

Tucker: Nice to be speaking with you, Rich. Your company, Jupiter Intelligence, is experiencing a 10-fold increase in business as the threat from extreme weather seems to grow almost by the day. You were quoted in the Washington Post saying that, because of the Pandemic, people are asking about what else is out there coming at us that we're not worrying about that we should be worrying about? With all the flooding, wildfires and environmental disasters happening now, doing a startup that addresses the issue of climate change preparedness seems like a no-brainer. But back in 2016, perhaps not so much. What drove the founding of Jupiter?

Sorkin: The key insight was that climate change had already started to impact assets such as factories, power plants, buildings, and water supply. Climate change was already affecting continuity of operations and health and safety. At that time, the people that were thinking about climate change were focused on the extremely important, but vastly different topic of how to slow climate change. We decided to focus on how climate change was already having an impact that would continue to get worse. We expected many organizations to ask the question, "What is our organization going to do about that?" That led to Jupiter, and our focus on forward looking assumptions replacing the legacy backward looking assumptions that underpin so much of the banking, insurance, industrial and national security sectors.

Tucker: Let me ask you about this notion of a possible climate change tipping point. At least one insurance company declared bankruptcy as a result of the massive Paradise Fire in California; we saw a huge power utility - PG&E - declare bankruptcy after being blamed for starting fires, and we're seeing properties along the coast have stopped appreciating, according to a University of Pennsylvania study. And we're seeing the IPCC, BlackRock, McKinsey, and the Commodities Futures Trading Council, among others, issue alarming reports regarding the possibility of total collapse of the financial and insurance system if assets such as flood-prone factories and millions of dollars in coastal real estate become no longer insurable.

Sorkin: In a lot of ways, this is like the pandemic. If the world had done nothing – no vaccines, no emergency approvals, no advanced purchases, no mobility restrictions, no PPEs for health care workers, no education - things would have been vastly worse. But in the case of the pandemic, collectively, messily, often chaotically and in uncoordinated ways, the world did respond. Humanity faces the same choice with climate change. Simultaneously go after the root causes - mostly emissions from Chinese coal, Russia's, Iran's and Exxon's oil and gas, and other similarly well-known sources -- and adapt given that it is too late to avoid some severe consequences. The question now is simply how bad things will get, and how quickly.

Tucker: The IPCC report that just came out calling climate change "irreversible" makes your decision to start Jupiter back in 2016 seem prescient. How did you know there would be a market for your services?

Sorkin: When we started Jupiter, investors asked, "How will you know there's a real market" and we responded, "When McKinsey tells all their clients that this is important." That happened almost two years ago. Now the real drivers of change are the institutional shareholders behind the Task Force on Climate-related Financial Disclosure (TCFD), including Mike Bloomberg, Mark Carney, and Curtis Ravenal, the Bank of England, increasingly the U.S. Federal Reserve, and very quietly MITI in Japan. Change is definitely coming quickly - albeit not fast enough to avoid even more severe consequences than we are facing today. The world will see a Darwinian mix of adapters and laggards. Likely places such as Singapore, Israel, the UAE, and Japan will be world leaders in this area because each has their own combination of country size, technocratic leadership, well-understood vulnerabilities and strong central governments.

Tucker: Jupiter is a collection of "quants" (quantitative analysts) and scientists from NOAA and the National Science Foundation, combined with Fortune 100 business executives. You've got machine learning experts and even a Nobel Prize winner on the team. But what's in your black box? What makes your gauges better than what's available already?

Sorkin: Well, first of all, we are absolutely not a black box. Our customers receive whatever level of disclosure they request - including hundreds of pages of documentation for Model Risk Management functions that are fundamental parts of the banking and insurance businesses. But we do have a hundred trillion pre-calculated data points for climate risks all over the planet across different perils, time horizons, climate scenarios etc. And when I say all over the planet, I mean the entire land surface of the planet, not selective locations. Our customers basically get a subscription to a specific volume of data of their choice. And there’s a price that’s based on volume. The higher the volume, the lower the per unit price. And we have distribution channels; it’s a simple plain vanilla subscription business. There’s nothing unusual about our business model.

Tucker: Are businesses doing enough to prepare for climate risk? A headline in the Wall Street Journal this morning (July 22, 2021) was titled "Palm Beach Beachfront Homes are Booming." Prices and sales volumes are hitting record highs. Yet studies project that oceans will rise an average of two feet by 2045. What goes on in your mind when you read headlines like that? What do you sense will happen in South Florida?

Sorkin: We just completed some work on risks for that area, using a different approach than looking out at 2045 or 2050, which is historically the analytical timeframe. And when we saw the results, they were even worse than we thought they would be in terms of what it said about Florida real estate in the near term.The tipping point for Florida real estate is much closer than most people realize. We've discussed this with the city of Miami, Miami-Dade County, Broward County, and some of the United States' largest lenders and insurers. And yet, in the spirit of adapt or die, the destiny of Florida is up to the people of Florida and the United States. I think many people are short-sighted and it could lead to catastrophe. Jupiter's predictions on sea-level rise are consistent with mainstream science and best, worst and likely case climate scenarios.

Tucker: What did your report come up with that was so inflammatory?

Sorkin: Without planning and investment, a hellscape will be upon Florida - and much sooner than most people realize, 5, 10, 15 years from now. The big question is what investments will be made in Miami-Dade and Broward Counties. I'd give 250 billion dollars to Jennifer Jurado or Jim Murley in South Florida with total discretion on how to invest in resilience. That's probably enough. Without something like that, and quickly, South Florida faces vastly worse challenges much sooner than nearly everyone realizes.

Tucker: What businesses and industries are most vulnerable to climate change?

Sorkin: The initial impacts are directly on weather-vulnerable, mission-critical industries with concentrated assets. You mentioned the PG&E fire catastrophe. We saw something similar in February 2021 with the shut-down of the Texas power grid, and the impact on the petrochemical sector and health care system. In certain regions, like California, Texas, Florida, Spain, Italy, and Japan the power sector is incredibly vulnerable and must dramatically increase and accelerate their investment. Investors with concentrated risk in these or similar regions in real estate, lending and insurance are very exposed but likely have a bit longer. And the impacts can sometimes be subtle - cold took out the Texas grid, heat can take out a region, and some people believe that the Fukushima Diachi Nuclear Disaster was a result of the compound impacts of the tsunami, sea level rise, and insufficient planning and investment.

Tucker: What do all these threats do to the insurance industry?

Sorkin: The insurance industry is actually way more impacted by this than the banking sector because insurance markets will collapse if the risk is not covered. Most people think this should be an immediate issue for the insurance industry. Counterintuitively, it's not. Insurance is repriced every year. And when there’s a bad year for losses of insurance, they just raise prices. So, something that might happen in 10 years is not really a day-to-day concern in most of the insurance industry. However, if the risk is inaccurately conveyed in the signal insureds get from their insurance pricing, they make bad investment decisions, underinvesting in resilience for the duration of the asset by focusing on short term risk. In this sense, the insurance business model is literally breaking the world. This dynamic should be a medium-term existential issue for the insurance industry and the Chief Risk Officers of some of the world's largest primary insurance companies are aware of - and in some cases terrified - by this dirty little secret.

Tucker: Is the threat of future climate disaster as great for the banking sector?

Sorkin: In banking the typical mortgage is 30 years and the typical hold period of a mortgage is seven to 12 years. If the collateral is impaired because of weather related damage, it affects both repayment and the value of the collateral and therefore the riskiness of the loan. And it also impacts repayment where accelerated repayment is a bad consequence for banks in many instances. So, there’s a much more profound impact on banking on these longer-term risks than there is in the short term on insurance.

Tucker: Is the traditional actuarial model used by the insurance industry adequate when the climate of the future seems to be so uncertain?

Sorkin: The entire global insurance industry is using an out-of-date approach to modeling that is conceptually broken in a world where the climate is changing this rapidly. If you get people in the insurance industry to talk about it in terms of what they really think versus what they need to say to protect their reputations, there are people that will acknowledge this. It’s actually quite a hard problem because their risk models are kind of like the engine in the car. They’re not the whole car. But they’re a big piece of the car and they’ve got to replace the engine while driving. They don’t want to do it, and it’s going to take years to do it.

Tucker: What about the construction industry? How does a business know how resilient it will need to build a structure to withstand the weather 10 or 20 years from now?

Sorkin: Let's say you're building a power plant near the Gulf of Mexico. It's obviously going to be exposed to flooding and wind risks from hurricanes like we saw with Hurricane Harvey. But what about extreme cold, like we saw in Texas this past winter? And extreme heat and extreme drought and many other issues too, all of which are becoming more challenging for asset owners of all kinds. But here's the good news: this is actually a relatively straightforward issue to address. When designing a power plant or a hotel or a military base or a hospital or putting in new power lines – it doesn't matter what it is – what matters is how important, expensive, long-lived, and vulnerable that structure is. Traditionally, at the beginning of the design process, the engineers will ask: what should we design this to be resilient to? They might say one foot of flooding or a one in 10,000 chance of fire or that the temperature will be so cold that we'll have to shut the facility down. Those are straightforward assumptions. But if they only look backwards, in a world where the climate is changing this rapidly, the assumptions are going to be wrong. They must use what we the industry calls forward-looking assumptions.

Tucker: What exactly is a forward-looking assumption and how do you derive one?

Sorkin: Most weather-risks are calculated today based on statistical models from past impacts, or losses. Companies like RMS assume that the present and future look like the past. However, that's simply wrong, so their entire modeling infrastructures are based on fundamentally flawed assumptions. Forward looking assumptions recognize that in some places the wind is getting stronger, the rain and or temperature patterns are changing, and the sea level is rising. Jupiter's modeling approach is built from the foundation based on this fundamental assumption.

Tucker: I saw a fire chief in a helicopter on the NBC Nightly News the other evening who commented, 'All of our models are out the window. These fires are hotter than we've ever experienced and burn more acres than ever once they get going'. He might have added that storms are wetter and stronger and point to how many climate records have been smashed in the last few years. My question is, was that fire chief right? Are all models out the window? And why are Jupiter's models really any better than the old ones that rely on history? And don’t your models have to depend on history as well?

Sorkin: Instead of using backward looking, out of date assumptions, Jupiter uses forward looking assumptions that incorporate the best available science. So, as a bit of an oversimplification, there are two types of models: Historically, there are the risk models that are used in the insurance industry. And the second are the engineering models that are used in things like construction. As discussed in your earlier question, risk models in the insurance industry almost always look at past history and they say the future is going to look like the past - so in this sense the vast majority of models that people like the fire chief, and the Department of Defense, and most large banks use should indeed be thrown out the window. Replace those obsolete, misleading models with models that do the best job possible describing what risk looks like in the present and future. The future won't look like the past, the present doesn’t even look like the past.

Tucker: Jupiter helps organizations navigate in this era when predicting is obviously more difficult. Can you walk us through how you helped a particular client?

Sorkin: Sure. We have one customer that had a $300 million facility that they were finally about to break ground on that was designed about 10 years earlier. This is not uncommon because the whole process of designing and permitting takes a while. And they hadn’t looked at forward conditions in their original design. Now that they were going to break ground, they were already 10 years out of date with backward looking assumptions for an asset with a 30 to 50-year design life. Luckily somebody inside the company said, 'maybe that’s not such a good idea'. I say 'luckily' because they were going to have major resilience problems and not in 30 years but in five to 10 years. So they looked at a few scenarios. One was to move the facility outright to another location. And two others involved hardening the facility. And it turned out that was way better than moving the facility. There were so many costs associated with moving the facility that an extra $30 million in capex to harden the facility, which is essentially a 10% increase on the original cap ex budget, was the economically rational decision. And in that particular case, the subscription for that particular use case for this one location was about $300,000. So a $300,000 analytics investment drove a $30 million capex increase of 10 percent on a $300 million investment. And everyone’s happy. But if they hadn’t done that, they would’ve just built it the old way. And they would have had ongoing reputation risk and fines for lack of continuity of service.

Tucker: It would almost seem that the speed of climate change is exceeding all the assumptions we were making just a few years ago. And if we wait for governments or companies to slow it down, we will be in for a rude shock. Do you have some sort of metric that charts what we thought would happen and when it would happen with the acceleration of when it actually did happen, and what that does to strategic planning going forward?

Sorkin: The evidence shows that scientists' predictions of global warming have been accurate in the big picture, but perhaps conservative in predicting the rapidity and ferocity with which some of its consequences are unfolding. We're part of an ecosystem of experts and leaders who work in this field. Jesse Keenan, who’s an advisor to Jupiter, was co-editor of the CFTC report. There’s a lot of really great thinking on this issue and Jupiter is quite good at integrating the people that are in the ecosystem in related areas into what we’re doing. The CFTC report was in large part based on work that the Bank of England has been doing for five, 10 years, originally by Mark Carney. The economist, Nick Stern, author of the Stern report that’s the basis of much if not all of the Bank of England work, is a co-founder and one of Jupiter's investors. I was a research assistant in the 1980s at Yale to William Nordhaus who later won the Nobel prize in economics for his work on climate change. So, this is not a new topic for the economics or banking professions or for me personally.

Tucker: What kind of a grade would you give the scientific community overall for accuracy in predicting how this issue will unfold?

Sorkin: Generally speaking the scientific community has been at least as good and arguably vastly better on these issues than economists predicting central bank interest and GDP growth rates, or Moody's predicting default risk leading up to the Global Financial Crisis, or the insurance industry predicting earthquakes in Haiti or pandemics. The scientific community has been quite accurate for decades in predicting the concentration of CO2 in the atmosphere - a primary driver of the impacts of climate change. For the most part, the scientists have also been quite accurate in predicting the impacts of CO2 in the atmosphere - particularly with scenarios of what could occur. In the business community we think of these scenarios as best, worst, and likely case. And in the scientific community, they call these scenarios things like SSP5-8.5 (SSP shared socio-economic pathway, with little weighting of the likelihood of multiple plausible scenarios.

Tucker: So how likely is this notion of a sudden rude shock leading to a collapse?

Sorkin: Well, I have a slightly different way of thinking about this, which is: Darwin always wins, or more specifically adapt or die.

Tucker: Yet we don't seem to want to invest in preparation till after the crisis wreaks devastation. I wanted to get your take on what happened in Texas in February 2021. The winter storm plunged large swaths of Texas into subfreezing temperatures and overwhelmed the state’s electricity infrastructure, causing massive power outages. Nearly 4.5 million Texas homes and businesses in Texas went days without power. Fifty-seven people died. I read where Texas was advised to weatherize their infrastructure, but they never got around to it. What's your take? Was this a case of using history to build a faulty model or was it lack of will to weatherize their power grid?

Sorkin: Problems like the power grid failure in Texas don't come from a single issue. Jupiter did a post-mortem on the February Freeze and concluded that if ERCOT (Electrical Reliability Council of Texas) and the power companies had been using forward looking risk models and paying attention to the results, they would have made better investment decisions. The fact that the ERCOT Board resigned indicates that at least some people thought ERCOT was negligent in not doing so. However, the bigger question is why that happened. Many of the largest oil companies in the world are headquartered in Texas - and some have been promoting inaccurate views of climate change to consumers, voters, and elected officials in Texas and Washington. Texas is at the heart of institutional denial about climate change, and on top of that the approach to low regulation means that most of the actors were not accountable for their decisions until the problem was so big no one could ignore it. The U.S. may actually need more of the Japanese tradition of Seppuku to address these kinds of issues.

Tucker: Given the foot-dragging, do you think this thing could blow up at the extinction level?

Sorkin: I actually don’t think we’re going to have a mass failure at an extinction level. This is not like an asteroid that permanently changes the weather instantaneously for a million years. It’s not like that; it’s slow moving. It’s like cancer. If you catch most forms of cancer early enough with the current state of medical knowledge, most cancer patients will live a very good, long life. But if you wait until it’s stage four and it’s all over the body, well, all bets are off.

Tucker: So you're not seeing extinction, but what about economic collapse. That study we mentioned earlier, done by the Commodity Futures Trading Commission called "Managing Climate Risk in the Financial System" concluded that the costs of wildfires, storms, droughts and floods spread through insurance and mortgage markets, pension funds and other financial institutions, threatens to collapse U.S. financial markets. How probable is such a collapse? What would collapse look like if it were to happen?

Sorkin: The primary drivers of whether this planning and investment will occur are investors, governments and voter-consumers. Plenty of other people have discussed collapse in this scenario - most likely it will vary depending on physical vulnerability, willingness to invest, and government competence. In the best case, it will be very expensive - and in the worst case some countries will collapse.

Tucker: Your client base is global. What countries are doing the best job of adapting so far?

Sorkin: If I had to bet on the places that will be very successful in adapting, I would put Singapore, Japan, UAE and Israel at the top of the list. Now this isn’t saying anything about the relative vulnerability faced by any of those three nations. Singapore and Japan actually have quite a bit of vulnerability relative to peer nations. Israel, some, but not nearly as much. Among Europe, the United States and China, it’s a gigantic horse race for who’s currently doing the worst job. The Germans and the Norwegians, probably the British, maybe the Chinese, could go either way, as far as I can tell. There are some things that the Chinese make a priority and they do a good job at, and there are other things that aren’t a priority and they don’t do any job. And the United States is a super messy case given the political football and decentralized decision-making on the issue, which currently is favorable but could flip at any time.

Tucker: In the United States, who is doing a good job adapting to climate change?

Sorkin: New York under Mike Bloomberg was doing a phenomenal job. Now they’re not even in the top half. I would say probably South Florida, which is in some respects ground zero. It has among the best public sector leadership on these issues anywhere in the world. But the voters don’t support what the public sector is saying are urgent priorities. And if the voters don’t support taxes or regulations or building code changes or inspections, basically what you get is Surfside buildings collapsing and over a hundred people dead. Now, eventually people wake up to that and I think South Florida ultimately will get it right. But a lot more bad things are going to happen in South Florida before they get it right.

Tucker: Bill Gates, in his new book "How to Avoid a Climate Disaster," talks a lot about innovation in this sector. As an entrepreneur who has commercialized new technologies in several fields, do you keep an eye on climate related innovation? Technologies, such as better batteries, machines and processes that store carbon or suck it back out of the atmosphere, there are some potentially promising inventions coming. As you monitor these technologies, what is the rate of mitigation efforts and innovation compared with the increase in CO2 being pumped into the atmosphere?

Sorkin: It’s all speculation. No one really knows. The prudent thing is to work for the best mitigation possible and plan for much worse.

Tucker: When that condominium building collapsed in Surfside Florida, did that have anything to do with a changing climate?

Sorkin: Very possible. Jeff Goodell wrote a book about South Florida called, "The Water Will Rise." And one of the things that he wrote about was how saltwater intrusion undermines the foundations of buildings and is getting worse due to climate change driven sea level rise. For decades the Miami Herald has been writing about corruption in building inspections in South Florida. And it’s almost certain that one, or both, of those contributed to the Champlain Towers coming down. It was horrific and likely so unnecessary.

Tucker: Taking a step back from all the details of running a startup having to do with a changing climate, what is your emotional state these days? I mean you've proved yourself many times over in the business world, and yet you're dealing with the potential undoing of the world as we knew it. Are you generally optimistic or just the opposite?

Sorkin: I would say that I am generally optimistic with periodic moments of despair.

Tucker: Tell me about the despair. How long does it last, does it go on for days or weeks before the sun comes out on your mood?

Sorkin: I have a foundational view of humanity that is a very important context. If you look at the last 5,000 years of history, generally speaking, human life has gotten better: more freedom, more health, longer lives, more education, more literacy, more rights for non-elites. But within that 5,000 years of history, really bad things occasionally happen. The Global Pandemic is still raging in many parts of the world. Three global conflicts in 150 years. Dictatorships replacing democracy left and right. So while bad things do happen in the sweep of history, the sweep of history is generally positive. When I talk about moments of despair, it’s because some of the problems the world is facing are because of people doing things that are just so colossally stupid. How could they not see that they’re literally contributing to their own misfortune with these very short-sighted decisions.

Tucker: And yet we all continue not making the tough decisions, and to call climate change a hoax and think it will impact people in years to come. How do you think this thing will play out?

Sorkin: Well, if you hit someone in the head with a two-by-four long enough, they either collapse and pass out or they make some effort to stop getting hit. I think there will be progress. It will be too slow and not enough, and a lot of people will die or suffer grievous misfortune as a result. But the progress will come. While the water will rise, adaptation will ultimately occur. But it will be uneven and, tragically, the people that are least able to respond will be the worst impacted. It's just like what we saw with COVID, it’ll be the exact same dynamic with climate. But when you’re down to adapt or die, most people will eventually adapt.