In 2021, Indian Prime Minister Narendra Modi announced the Pradhan Mantri Gati Shakti National Master Plan aimed at establishing a multi-modal transportation system. With a staggering budget of Rs 100-lakh crore, it is projected to stimulate economic growth through infrastructure investment. This is popularly known as the “Multiplier Effect”, wherein the expenditure on infrastructure leads to a chain reaction, generating more economic activity. As per the research conducted by the Reserve Bank of India and the National Institute of Public Finance and Policy, the multiplier effect is estimated to range between 2.5-3.5x, meaning that for every rupee the government invests in infrastructure development, it could yield a GDP gain worth Rs. 2.5-3.5.
However, as governments invest vast amounts of money into such infrastructure projects, concerns of climate risk and how they may impact these projects loom large. This is especially true in the case of India, which is highly susceptible to the effects of changing climate. In this regard, a global study which ranked 26,000 regions based on the climate vulnerability of their built-up area listed nine Indian states among the top 50 most vulnerable regions.
And while core infrastructure sectors such as transport, energy and telecommunication underpin all modern economies they are also highly susceptible to climate risks.
According to an OECD modeling of the potential impacts of a major flood,
30% to 55% of the direct flood damages would affect the infrastructure sector. Meanwhile, 35% to 85% of business losses would be caused by disruptions to transportation and electricity supply rather than the flood itself.
Importance of Incorporating Climate Change into Asset Management
Climate-related risks are on the rise globally and have significant implications for asset management. Rising sea levels, floods, drought and wildfires, for instance, have far-reaching impacts causing substantial damage to assets. The US, for example, has experienced an average annual cost of nearly $100 billion due to climate change in the past five years. Traditionally, asset owners focused solely on the harm inflicted on the asset, neglecting the broader consequences and associated expenses. These costs extend beyond just loss incurred due to physical damages and encompass both direct and indirect impacts, such as loss of utility, disruption of business activities and decline in property value. For example, climate-related impacts are impacting the valuations of companies and assets, known as the "Great Repricing". There have been dramatic shifts in home prices, for instance, as areas experiencing a higher frequency of damaging events are losing their appeal, resulting in a drop in prices. In fact, in the United States, homes located in vulnerable regions are worth less today, on average, than they were ten years ago. To learn more read blog our blog title “Real Estate in the times of Climate Change: Need for Climate Intelligence”.
Integrating climate change into asset management is also becoming a priority for investors and regulators alike.
Many public pension funds, endowments, and other asset owners are now strongly emphasising on sustainability while selecting asset managers to oversee their investments. The Net Zero Asset Owners Alliance, which is a group of over 40 members with approximately $6.6 trillion in assets under management, is an example of this trend, as they’ve set a clear demand signal for climate-aligned investing. Likewise, regulators are implementing policies that require financial institutions to assess and disclose climate risks associated with their investments. Failing to integrate climate change into asset management may thus result in reduced investment returns, reputational damage, and legal liability. Read our blog to learn more.
It is thus important for governments and project planners to consider these risks and take appropriate measures to mitigate them. This will help ensure that infrastructure investments are sustainable and able to support long-term economic growth.
🛰️ Strategic asset monitoring has become central to these issues as it can reduce losses and enhance asset resilience to extreme climate-related events.
Role of Asset Monitoring for Climate Change Adaptation and Mitigation
In light of the worsening climate crisis, there is a need to recalibrate our approach to asset management. Asset monitoring becomes crucial in this regard, as it is the bedrock of effective asset management. Referred to the practice of using technology and data to continuously monitor the performance and condition of assets such as equipment, machinery, and infrastructure, asset monitoring can help organisations identify and respond to risks such as extreme weather events and other environmental factors that may impact the performance and longevity of their assets.
Some of the key benefits of asset monitoring include:
- Ensuring sustainable service delivery:
The primary role of asset management is delivering services efficiently, and the effects of climate change cause impediments in this regard. It does so by posing a high risk of asset failure and reduced asset service life due to added stress on existing infrastructure or cascading impacts of other infrastructure systems. This not only reduces the level of service existing infrastructures can provide but also leads to high costs in managing these risks and delivering the same level of services. By continuously monitoring the assets, it is possible to detect potential risks and address them before they turn into significant problems. This helps to minimise service disruptions and ensure sustainable service delivery over the long term.
- Risk mitigation efforts:
Asset monitoring can help organisations prepare for extreme weather events, such as hurricanes, floods, and wildfires. By monitoring weather patterns and other risk factors, organisations can take steps to protect assets, minimise disruption, and ensure the continuity of operations. For example, it allows organisations to manage supply chain risks by diversifying their supply chains and developing contingency plans. Asset monitoring can help organisations stay compliant with climate-related regulations and avoid penalties or legal liabilities.
- Aid in decision-making processes:
Asset monitoring helps understand the vulnerability of assets to climate change. This understanding goes a long way in aiding decision-making processes by helping address questions such as whether it is pragmatic to maintain or replace an asset, where to invest in adaptation and how to improve resilience. Taking the right decision can help minimise losses in the long run. For example, the Institute for Building Sciences estimates that every dollar invested in building resilient infrastructure saves $6 in future costs. This includes economic disruptions, property damage, public health crises, and deaths caused by extreme climate-related disasters.
- Reduce carbon emissions and build resilience:
Asset monitoring can help analyze assets' lifecycle emissions, reduce them, and identify energy inefficiencies in buildings, transportation systems, and other assets. This can help organizations implement measures to reduce energy use, such as by installing energy-efficient equipment or implementing renewable energy sources. This not only helps reduce energy consumption and greenhouse gas emissions but can also lead to cost savings over time.
- Promote transparency in reporting
The impact of climate risks has elicited strong responses from regulators who have been emphasising the need to disclose climate-related financial risks. Considering the scale and value of assets that asset managers manage, and their impact on the economy, regulators today are keen on knowing the processes for identifying climate risks, how they are managed and communicated to investors. Failure to report this in a transparent manner does not just cause reputational damage but also leads to penalties and legal liabilities. Monitoring helps to facilitate better quality disclosures ensuring an organisation's credibility is maintained.
- Recognise opportunities:
Climate change has created new markets for products and services that address environmental challenges. According to the Carbon Disclosure Project, more than 200 of the top 500 global companies are of the opinion that climate change has the potential to create business opportunities worth more than $2.1 trillion. Asset monitoring can help identify opportunities to enter these markets by providing data on asset performance, identifying areas where innovation is needed, and tracking market trends. By tracking the performance of assets such as buildings, vehicles, and equipment, asset monitoring can identify areas where energy usage can be optimized, and emissions can be reduced. This data can inform the development of new products and services that promote sustainability, such as energy-efficient appliances, electric vehicles, and renewable energy systems.
In addition to providing benefits to asset owners and investors, by incorporating sustainability considerations, asset managers can play a crucial role in combatting the climate crisis as well.
Ben Ratner from the Environmental Defense Fund states in this regard, “As a centerpiece of the financial system, asset managers direct the flow of trillions of dollars in the global economy. Their leadership may well be the missing link in solving the climate crisis. Meeting the moment requires walking the walk on net zero by converting aspirational pledges into concrete plans that deliver tangible progress.”
Enhanced Asset Monitoring with Satellite Data and AI
Considering the new and dynamic challenges posed by climate change, there is a need to move beyond traditional asset monitoring approaches and leverage the latest technologies to rise to the challenge. Satellite technology and AI, in this regard, hold tremendous potential to enhance asset monitoring as they can provide critical insights into the state of the planet's natural resources as well as infrastructure, helping inform decision-making processes and mitigate the impacts of climate change.
“Geospatial data is the currency for climate adaptation. By leveraging the most contemporary methods of collecting (airborne or satellite), processing, analyzing, and tracking change over time, companies can keep their finger on the pulse of what’s happening around their assets. By investing in higher spatial and temporal resolution geospatial data, companies have more assurance that they are allocating spending to suitable locations and reducing business risk.” - Toby Kraft, CEO & Founder, Teren
As satellite data provides high-resolution imagery, it is a beneficial tool for monitoring assets. In conjunction with AI, it enables better detection of potential climate risks allowing stakeholders to take steps before they become critical. It also enables real-time monitoring of assets, allowing quick time response. Further, Satellite data and AI can facilitate data-driven decisions by collecting and analyzing large amounts of data from multiple sources.
To learn more read our blog to learn more.
Satellite data can provide a detailed and up-to-date view of the environment surrounding critical infrastructure assets, such as power plants or transportation systems. This enables monitoring of changes in real-time which can impact the operation and maintenance of these assets. It also provides an innovative and cost-effective way to support asset planning (ex: site selection for power plants), asset management (ex: monitoring the structural integrity of assets), and operational risk management ( ex: event detection for natural hazards, such as floods or fires). Thus, by helping build resilience of infrastructures, satellite data and AI helps in increasing asset life as well as protect asset returns.
It also improves climate modeling processes, as accurate, credible data is the cornerstone of a reliable climate model. While many factors play an important role in bettering climate models, such as strong computing systems capable of crunching more data and effective frameworks, data remains the paramount factor for effective climate modeling. This is because a climate model is only as good as its inputs. Thus by providing high-quality, verifiable data, satellite technology not only increases the accuracy of the models but also helps in creating better simulations. This further helps provide a clear picture of risks and, thus, by extension, aids in building resilience against them.
Read our blog on “The Role of Comprehensive Data in Efficient Climate Modeling” to learn more.
The Bottom Line
🛰️ Although satellite data plays a crucial role in climate intelligence, the terrabytes of such data are of low value, unless appropriate intelligent modeling is used to carve out actionable climate data sets from the mountains of raw data.
In order to make the most of satellite data for climate intelligence, it's important to have the right expertise in place. Partnering with organizations that have expertise in AI, machine learning, and data analytics, and a deep understanding of the challenges posed by climate change can thus help minimise risks and build resilience of assets.