The twentieth century trained us to think about long-term value as though tomorrow will always look like today – just slightly richer. Climate change sets that idea on fire

Christopher

What&rsquo;s your house worth?
If we were at a dinner party, you&rsquo;d have every right to roll your eyes and head for the canapes. But this is about climate change, folks, I promise &ndash; so humour me. What is your home worth, and how do you know?
Whatever the final figure, I&rsquo;m sure you&rsquo;ll be thinking about the number of bedrooms, those period fireplaces, and what your neighbour got for their place last year. And let&rsquo;s be honest, your place is just that little bit nicer than your neighbours.&nbsp;
And if all else fails, you can always burn it down for the insurance, right?
<h2>The market is on fire!</h2>
Not if you live in parts of California. The cataclysmic wildfires of recent years have seen more and more insurers pack up their trucks, hoist their elderly shareholders upon their backs and flee the state altogether. Hundreds of thousands of properties are now hit with non-renewal notices each year, a situation so politically fraught that the state government actually issued a moratorium on policy cancellations during the 2022 season. That&rsquo;s right &ndash; the government forced business to write unprofitable business.
Or perhaps you live in coastal Florida, where Hurricane Ian in 2022 &ndash; a $50bn event, second only to Katrina &ndash; simply bankrupted insurers. But there is history here: well over a dozen have gone bust since 2020, with 30 more on regulators' watchlists. Many are wondering if Florida will have a functioning insurance market &ndash; or a property market &ndash; in the future at all.&nbsp;
California and Florida dominate the headlines in the US, but they are hardly outliers. 40% of the population lives in coastal counties and 10% on designated floodplains. Another 16% live in wildfire zones. What happens to all that property as climate change ratchets up extreme weather, those at-risk zones spread across the continent, and insurers disappear en masse?
Hurricanes and wildfires are the poster children for climate change; if you&rsquo;re reading this, you&rsquo;re well aware of the connection. What is more interesting to me is what these examples suggest about a more profound question &ndash; what does long-term value actually mean in the climate age?
<h2>Rethinking long-term value</h2>
The long-term value of a business is calculated as the total present value of all future cash flows. That is what textbooks and business schools taught throughout the twentieth century &ndash; but we&rsquo;re not in the twentieth century anymore. When it comes to the question of value, climate change changes everything.
To return to our original question, what is the value of an uninsurable property? In the long run: zero. Lightning &ndash; or flood or fire for that matter &ndash; only needs to strike once, and over a long-enough span of time, it will.
Similarly, what is the value of an uninsurable business? If the bank won&rsquo;t extend credit against its assets; when its customers don&rsquo;t know if their home has any value; and the government doesn&rsquo;t know if it can replace key infrastructure&hellip; what&rsquo;s it all worth?
Extreme weather events are the most obvious driver of climate chaos when it comes to valuations. But all the other impacts of climate change &ndash; across health, food systems, migration, supply chains, political cohesion, and so on &ndash; bring existing valuations into question in more subtle ways.&nbsp;
<h2>The bottom line on climate repricing</h2>
One way to think about it is that the final backstop for the costs of climate will be the government, which ultimately means all of us. Through drastically higher taxes or reduced services, societies will end up paying for those externalities they ignore today. What happens to business valuations &ndash; those extrapolated cash flows &ndash; when climate inflation and taxation start showing up in your cost base, and that of your customers?
Next, consider that the natural response to the arrival of these crushing new costs will be to revoke the social license of anything that would compound them. From poisonous food to cheap plastic goods to addictive digital media, any business activities that load other non-carbon costs onto society will see themselves regulated out of existence.&nbsp;
And those that survive the chronic squeeze will face acute shocks. Climate change will create the mother of all rolling financial crises, as every asset on the planet goes through profound repricing. 2008 brought the banking system to its knees just by fiddling around with US mortgage-backed securities; but as the dust settled, plenty of people made a fortune buying up solid assets at foreclosure prices. Now imagine 2008 if the value of those properties was actually marked to zero!&nbsp;
That is just one housing market. What about all the world&rsquo;s debt backed by assets that rely on a fossil-fuelled world, priced for nothing to change? This isn&rsquo;t just abstract musing: everyone from Nobel Laureates to the BIS to the Feds is suddenly treating climate-induced financial crises as a real threat.
<h2>If you value it, act now</h2>
The twentieth century trained us to think about long-term value as though tomorrow will always look like today &ndash; just slightly richer. Climate change sets that idea on fire. Every asset in the world faces radical repricing unless we get serious about solving our environmental crises.
Surely nothing &ndash; literally, the number zero &ndash; could be more motivating.
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illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.
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Think you know what your business is worth? Climate change says: don’t be so sure

When 80% of leaders report that they are struggling to find the right people, we need to ask what is going on – and what we can do about it

It&rsquo;s no secret that this is one of the toughest hiring environments for businesses in a generation.
When 80% of leaders report that they are struggling to find the right people, across all sectors and scales, we need to ask what is going on &ndash; and what we can do about it. Does sustainability have a role to play?&nbsp;
<h2>Great Resignation or talent shortage?</h2>
The first step is to stop blaming the pandemic. The Great Resignation was a powerful explanatory frame for a while &ndash; even if it does have a penchant for changing outfits halfway through the party. But as Covid fades into memory, our feverish labour markets remain the one symptom we still can&rsquo;t shift.&nbsp;
Instead, we must face the underlying secular trends that are shaping our future. For all the talk about robots coming to take our jobs, the demographic reality is that we are facing a talent shortage of 85 million skilled workers by 2030. That&rsquo;s equivalent to over half of the US labour force today. Good luck papering over those gaps with ChatGPT.&nbsp;
As this talent pool shrinks, it will also undergo radical compositional changes. By 2030, millennials and Gen-Z will make up around two-thirds of the workforce, centering a very different set of values and priorities in the process. So if what you&rsquo;re offering isn&rsquo;t attracting young people today, it won&rsquo;t work for anyone in ten years&rsquo; time. Instead, we have an opportunity to transform hiring into something much, much better.
<h2>What gets us out of bed anyway?</h2>
At the heart of this issue is a reconsideration of what motivates us. For a long time, businesses believed (with a little help from economics textbooks) that it was all just about money. Need better hires? Make the numbers go up.&nbsp;
That no longer really works, if it ever did. Today, the secret to finding the right people is something much more important: purpose. To illustrate this, let me tell you a brief story. I met a young man &ndash; let&rsquo;s call him Marcus &ndash; for whom work was a means to an end. He did occasional jobs to pay the bills.
We met when he was cleaning the building I was in, and after a while, we began talking about climate change. Suddenly Marcus lit up because the climate was his passion too. We fell into the first of many deep and brilliant conversations, and I could see how intelligent and knowledgeable he truly was.
Speaking to Marcus on this level, I discovered the authenticity of his purpose &ndash; and he got a sense of mine. So when I mentioned that I was on the lookout for someone to fill a policy and research role at my own renewables company, it was as though the match had already been made. He has proven to be a fantastic member of the team: driven, curious, and devoted to the mission. Without that shared purpose, we would never have truly met.&nbsp;
<h2>Searching for alignment</h2>
Marcus&rsquo; story is not an isolated one. Survey after survey is finding that purpose matters more than ever in attracting talented people, particularly amongst younger generations. One report found that 42% of Gen-Z workers would prioritise purpose over pay for their next role, versus just 38% who want more money.
This shouldn&rsquo;t really be a surprise. Psychologists have been telling us for years that intrinsic motivation is much more powerful than extrinsic motivation. What has changed is the landscape itself; as the ESG revolution gathers pace, it suddenly seems realistic for people to demand impact and have businesses listen.&nbsp;
That said, there&rsquo;s no free lunch here; if you want to lead with a mission, it needs to be authentic. Hiring is about the personal connection, and ESG folk are savvy enough, after years of greenwash, to tell the difference. But if you can make that connection real, you solve more than one problem. People who feel aligned at work are more productive and innovative, and tend to stick around too - and the best recruitment measure of all is retention.&nbsp;
<h2>Purpose-first hiring: how to do it</h2>
If you want to try purpose-first hiring, start by getting clear on what your company&rsquo;s purpose actually is. ESG is a huge tent, so it pays to get specific as well as authentic (but that is the subject of another article entirely!)
In terms of the hiring process, start by listening to what your employees and applicants are telling you about themselves &ndash; and how they see you. Do you have the culture and mechanisms to empower people to share their intrinsic motivations? Finding the right fit must always be a dialogue.&nbsp;
Next, bring your most passionate advocates for the company mission into the hiring process. They may be best placed to articulate your culture to potential hires and to assess them for compatibility.&nbsp;
Finally, make the recruitment journey as human as possible. AI screening, online assessments and remote interviewing are all very well, but it&rsquo;s a face-to-face conversation that reveals true character.
Get the purpose right, and you&rsquo;ll find your colleagues become allies &ndash; and hiring becomes human again. Go find your tribe.
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illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability &amp; Energy writers, their opinions do not necessarily represent those of illuminem.
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You can’t miss it!

Christopher Caldwell

Christopher Caldwell

Think you know what your business is worth? Climate change says: don’t be so sure

Yes, ESG is the answer to your hiring troubles

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