Sarah Kapnick began her career as an investment banking analyst at Goldman Sachs in 2004. She was struck almost immediately by the overlap between financial growth and climate change and the lack of client advisory on the subject.
She believes that integrating the two will help investors understand both risks and opportunities, and helps them use climate information in finance and business operations. Having earned a degree in theoretical mathematics and geophysical fluid dynamics, Kapnik saw himself as a unique position to take on the challenge.
But first, she had to dig deep into science.
This led her to more research and then to the National Maritime and Atmospheric Administration (NOAA), the national scientific and regulatory authority within the US Department of Commerce. Its defined mission is to understand, predict and share that knowledge and information with others, including climate, weather, oceans and coastal changes.
In 2022, Kapnick was appointed Chief Scientist at NOAA. Two years later, JPMorgan Chase hired her, but not as the best sustainability officer, but a common role in most large investment banks around the world, and a position already filled with JPMorgan.
Rather, Kapnick is JPMorgan’s global climate advisory director, a unique job she imagined in 2004.
A few days before the official start of the North American hurricane season, CNBC spoke from JPMorgan’s office in New York about their current role at Kapnick and the bank, as well as how they are warning clients of advice and warning.
This is the Q&A:
(This interview has been lightly edited for length and clarity.)
Diana Olick, CNBC: Why does JPMorgan need you?
Sarah Kapnick, JPMorgan Global Head of Climate Advisory: JPMorgan and banks need climate expertise. Because there is a demand for clients to understand climate change and how it will impact your business and understand how to plan. Clients want to understand how to create a framework for thinking about climate change, how to think strategically, how to think about it from an operational perspective, how to think about it from a diversification and long-term business plan perspective.
Everyone has the highest sustainability manager. You are not. What is the difference?
The difference is that I have a deep background in climate science, but how that climate science is converted into business and into economy. NOAA, who works for NOAA for most of my career, is a science institution, but a science institution at the Department of Commerce. And my job was to understand the future for physics, but could I translate it into what it means for the economy? What does that mean for economic development? What does that mean for economic outcomes? And how do you use that science to help support the future of commerce? So I have this deep idea that combines all that science, its commercial idea, its economy, how it translates into national security. And it brings together all these different and systematic issues people are facing right now, so how do you navigate that complexity, and how do you proceed with all that information at hand, so that they can understand?
Give us an example of what some of that expertise does to investors at the ground level.
They ask because they have clients who are concerned about the future of wildfire risks. How does the risk of a wildfire unfold? Why isn’t it a building code? How could building standards change in the future? What will happen to that? What kind of modeling is used for that, and what types of observations are used for that? So, can I explain to them the whole flow of where the data is? How is data used to determine where regulations come from? How are they evolving? How will they evolve in the future? So we can look into the various uncertainties of different scenarios of what the world looks like, decide what to do now, prepare it, or we can make sure that the uncertainty is reduced and more information is known, so that we can change that preparation over time.
So are they making investment decisions based on your information?
Yes, they are making investment decisions. And they sometimes have some knowledge of something when they are beginning to evolve, so they decide when to invest. They want to act early or act like more information is known, but they want to know what the possibilities are, when the information is known, when it is known, and what conditions they are aware of, so they can grasp when they want to act, when they need to act.
How does it inform their investment, especially wildfire decisions?
Due to the increased risk of wildfires, there have been several recent events like the Los Angeles wildfires seen. The question I’m getting is, is this possible that it may happen in my place? When will it happen? Are there any advanced notifications? How can I change to infrastructure and invest? What do you think about the differences in infrastructure and building infrastructure? Should I think about insurance, different types of insurance? How do I access the capital market to do this kind of work? That’s a question in the range of ways to find ways to reduce vulnerabilities, how to reduce financial exposure, but if there is a risk in this one location, these other locations may have more secure opportunities. It is done all through risk management and thinking through risk management and what to do about it, but also considers what opportunities are being created as a result of this change in the physical state of the world.
But you are not an economist. Would you like to work with others at JPMorgan to augment it?
Yes, my work is extremely supportive. I work with different teams with experts from different sectors, different industries and different capital, so I have expertise in science, technology, policy and security, and work with them to ensure that I can provide as much of the bank as possible for my clients.
With the Trump administration’s reductions to NOAA, FEMA and all sources of information gathering, we haven’t seen some of what we normally see in our data. How does that affect your work?
We are looking for what we need, what we can use for any problem. If data becomes unavailable, we are beginning to translate and move other datasets, use other datasets, and make sure that developments in certain parts of the private sector will extract these types of data that were available elsewhere. I think we’re going to look at this adjustment period where people search for the data they need to answer the questions they have. And then there’s the opportunity. There are many startups beginning to develop in that field, and more important companies that have some of their datasets. They are beginning to make them available, but many market or financial decisions are based on a specific data set that people thought was always there, so there is this adjustment period as people understand where they get the information they need.
However, government data was considered the best data that was there that could not be rebutted. So, when you go to the private sector, how do you know that this data is as reliable as government data?
There is a period of adjustment as people know which data they trust, what they don’t trust, what they want to use. This is when adjustments are made, as everyone has become accustomed to the job doesn’t have it now. And that’s the question I get from many clients and is it about which dataset I should be looking for? How should I evaluate this issue? Would you like to build an internal team to evaluate this information you’ve never had before? And I’m starting to see what’s happening in different sectors. There, increasingly, people are able to help their own meteorologists, their own climatologists, guide some of these decisions.
Final thought?
Climate change will occur in the future and will not affect future funding. It is the future risk that we are actually finding us today.
