Stopping and Preventing Wildfires with Technology

Jay Ribakove:

We need to think about how we solve the long-term climate crisis. But what do we do to make sure that we're resilient while this is happening? It's happening whether we like it or not.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer at BMO. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic, and NGO communities to explore how this rapidly evolving field of sustainability is impacting global investment, business practices, and our world.

Disclosure:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.

Michael Torrance:

The wildfires that have ravaged Los Angeles could be the costliest in US history. According to NASA research, around the world wildfires are becoming more frequent, and other research has shown that wildfires are becoming more powerful. Many people and companies are working on technologies that can help with wildfire prevention and mitigation, including today's guest, Jay Ribakove. Jay is a principle at California-based venture capital firm, Convective Capital, which invests in companies trying to solve the global wildfire crisis. He's here to discuss some of the most promising innovations, including from some of Convective Capital's recently funded companies. Jay, thanks so much for being here today.

Jay Ribakove:

Yeah, it's my pleasure. Thanks for having me.

Michael Torrance:

So to get started with our discussion, of course, it's all in the news. We see it increasingly every year. Wildfires are more intense and widespread than ever it seems. Can you help us to understand the scale of the problem, both in terms of impact on communities and in economic terms?

Jay Ribakove:

Absolutely. The first thing that you have to talk about is people. And we had, at least so far, 29 people who've died from the Los Angeles fires. 102 people died in the fires in Maui. And in the 2018 Camp Fire, 85 people passed away. And even more than that, 16,000 people a year are indirectly impacted by wildfire smoke that causes hospitalizations and deaths. That number could very easily be larger as well. I expect, unfortunately, that this year that will be the case. Then we've got the impact on communities in addition to the economic toll, which I'll talk about in a second. There's a lot of devastation, memories lost, communities disrupted, and you hope that communities get rebuilt. But a lot of times that's not the case. And then when we just think in dollars and cents, natural catastrophe has cost the US $500 billion a year.

There's $4 trillion of real estate value at high risk in the US, and that's growing pretty rapidly. Hundreds of billions of dollars of enterprise value are destroyed. A good example of that is when PG&E filed bankruptcy. We've got loss in value in timber and insurance payouts. The list goes on and on. And there's also this tremendous ongoing operational expense trying to stop these fires that isn't really accounted for in the expense of wildfire. But speaking again about PG&E, they spend 16% of the average customer's bill on mitigating wildfire risk. So it's a tremendously large number. And while the frequency of fires isn't going up, the severity is which is going to make those numbers grow as well, unfortunately.

Michael Torrance:

And Convective Capital has a rather unique focus on wildfire solutions. What drove the decision to specialize in that area and how does that distinguish Convective from other climate solutions focused funds?

Jay Ribakove:

That's right. So as far as we know, we're the only fire tech focused fund in the world. And there's a bunch of reasons that we chose to specialize here. The first is that it's personal. Both myself and my partner live, my business partner, now my wife, although she also lives here in California. But you can't live in California and not be aware of the risk and the devastation caused by fires. Also, I think in an increasingly hot planet, we're going to see these more frequent, more intense fires. And in terms of what we can do, fire is probably the most addressable natural catastrophe. We can't entirely prevent fires from starting, but we can certainly reduce the number of starts. We can reduce the impact of the fires that occur. And then we can take those technologies and those solutions and apply them much more generally to climate resilience.

So how do we protect neighborhoods, communities, people, infrastructure from not only fires, but hurricanes, convective events, hail storms, heat, drought. But in order to do that with technology, you need to start in a place where you can build a sustainable business. And fire is very much that. And so lastly I would say, generally you've got a lot of climate tech funds, most of whom are focused historically on decarbonization. And our view is that that's tremendously important. We need to think about how we solve the long-term climate crisis, but what do we do to make sure that we're resilient while this is happening? It's happening whether we like it or not.

Michael Torrance:

So in your investment approach, how do you think of the different verticals in the fire tech sector when you're looking at different companies with innovative technologies?

Jay Ribakove:

We have four pillars, if you will, prevention, suppression, recovery, and enabling technology. And so they're relatively self-explanatory and realistically they bleed into one another. But the theme overall is that we need a defense-in-depth strategy, like what exists in cybersecurity. First of all, technology alone won't solve this problem, but also no technology solution on its own will solve this. We can't entirely prevent fires from starting. We want to minimize those that utilities start.

We want to obviously stop people before they do things like commit arson, lightning strikes. So we're never going to be able to entirely stop fires. And then we have to figure out how we suppress them more efficiently so that includes things like detecting them faster so we get to them before fires get out of hand and are out of control. But then what are the tools that we have, depending on the size and location of the fire. One in a remote location in a forest is very different than what we saw in Los Angeles in an urban environment. And then after that, if all of our defenses have failed, how do we recover? How do we make these catastrophes as painless as possible? And that's in a scenario where there is already a tremendous amount of pain and suffering. And then the last thing is none of this can exist in isolation. A lot of times, technology and innovation relies on enablers and technology that makes new things possible. And so we invest across all of those categories.

Michael Torrance:

But what kind of companies are you investing in and what types of innovations have you seen in terms of preventing or mitigating wildfires?

Jay Ribakove:

Absolutely. So starting first on the prevention side, we've invested in software that helps county and municipal firefighters improve the defensibility of their communities, whether that's home hardening, defensible space, community planning. We've invested in fuels, treatments, technology where you can thin the forest, remove brush, do prescribed burns more economically, efficiently, and also faster and with less manpower. We recently invested in a business that's helping to increase the economic productivity of forests, basically reintroducing the milling and lumber business to areas where it's become impossible from an economic perspective.

Our forests have become 3 to 5X denser than they were historically. And this is because of things like NEPA, which makes it very hard to do that work without long environmental studies. There's public perception and issues of folks who don't want this type of thing happening in their backyard. But the result is that we have these tremendously intense fires as opposed to what are historically normal good fires part of our fire cycle. And then downstream, the other things I talked about like situational awareness and early detection, rapid suppression technologies in the way of drones and helicopters, insurance and insure tech to fill the void for what's happening in a lot of these high-risk areas where people are being dropped from their insurance for one reason or another. And then quite a few tools to help utilities specifically minimize their risk, operate more efficiently, things like that.

Michael Torrance:

So you've talked a bit about some of the innovation around prevention of fires or forest management. How does the risk associated with wildfires and the economics around that factor into the economics of prevention? And can you maybe give us any case studies or how you're seeing the prevention side of the investment opportunities evolve?

Jay Ribakove:

Yeah, it's a historically hard business because a dollar of prevention may be worth 10X, what a dollar of suppression is worth, but it's much harder to get folks to spend on prevention. That said, with the number of tragedies we've had over the last seven years, that paradigm is starting to change. And a big part of that, I guess there's two main things. It's public perception and the need to do this work and spend this money. And the other is the pressure around public utility commissioners to allow utilities to spend this money and pass some of that on to consumers in the way of rate increases. So one thing that's really interesting that we've seen, the Gordon and Betty Moore Foundation sponsored a study that showed that a 15-minute decrease in response times to fires would decrease the total cost of fires in California alone by 3 to $15 billion every year. And so what we're seeing is that the models are getting sophisticated enough that we can actually ascribe a return on investment to some of this preventative work as opposed to the suppression work only.

Michael Torrance:

Can you tell us more about the types of technologies you're seeing to help responders respond to fire situations once they develop? Which kind of rapid suppression strategies and technologies do you see emerging?

Jay Ribakove:

Yeah, so there's a couple of things worth talking about here. I think response starts before firefighters show up. The burden on first responders is tremendous, and that even is the call center. So how do we help minimize their workload and focus their efforts exclusively on true 911 emergencies as opposed to the vast majority of the calls they get. Call centers, 70 to 80% of their volume are non-emergency calls. The next thing is firefighters, a lot of times, don't have all the resources they need to battle these extreme fires. And so they're sharing resources with multiple states and what we saw in Los Angeles, even multiple countries. But the mechanisms for requesting those resources, understanding who will foot the bill, need an upgrade. And that's not because of bad intentions, it's just, matter of fact, when you build a complex system, a lot of times you end up with quirks in the system.

And then once firefighters show up on site, we want to have better situational awareness. Where should they actually be? What's the most impactful work they can be doing? How can we keep them safer? And we're seeing both technology and non-technology solutions to this. So a great example of a more traditional approach is the quick reaction force in Southern California, which are aerial suppression vehicles outfitted with night vision so that you can respond much more rapidly in a way that is very effective in slowing fires, and historically was not possible until we had daylight. But there's also a world where we can be sending much smaller drones that are much less expensive and can take on a higher level of risk from winds or environment, that could go and put a fire out before it becomes large enough that we need full-sized, if you will, aerial suppression or that we need boots on the ground. And then we also see a lot of innovators who are trying to introduce new materials, new fire retardants, and even alternative suppression methods like acoustic. Or we've even seen folks using supersonic technology, which blew my mind.

Michael Torrance:

And in terms of the customers for these products and services, what can you tell us about them? Are they governments? Are they insurers? Is it the utility or infrastructure companies that can be affected by this? Is it property owners or is it all of them? What's the market look like?

Jay Ribakove:

It's all of them. Those are the four customer verticals that we think about exactly. Utilities are the first that we think about both because it's a natural B2B sale, but also because it's an existential risk to their businesses. Very few things can quickly bankrupt a $100 billion business or more, but we saw that with PG&E in 2018. Hawaiian Electric just had a 4 or 5 billion settlement related to the fires in Maui. And Pacific Corp is currently being sued for $30 billion. And so this is a CEO top three problem, and it's paramount now. Governments also, of course, have a tremendous responsibility here, but there's a lot of different folks that are responsible in the government landscape because firefighting is split between federal, state, and municipal level, but they're becoming much more robust technology buyers and they're very proficient. I think the thing there is you have to find a way to build trust in selling to those groups, and you have to have a certain level of patience to understand the government procurement process.

Insurance companies share a tremendous amount of this risk. Historically, they haven't been excellent customers of technology, but that's starting to change. I think there's a few different things that are happening. But if I were to summarize it's that insurance companies need growth just like all other companies, and pulling out of some of these large markets is a challenge for them. If they're able to increase rates to accept or accommodate increases in reinsurance, in forward-looking climate models, there's also potentially room in that premium to spend a bit on risk minimization or risk transfer technologies. And then lastly, private asset owners. And this group, well, they have a tremendous amount at risk. It's actually a very diverse customer set. You have some large landowners like timber investment companies and forestry businesses or ski resorts, and those look a little bit like one another and they have a lot to lose. But then there's very bespoke folks like vineyards and you have to sell on a one-to-one basis.

Michael Torrance:

In terms of the insurance vertical, Jay, can you tell us a little bit more about the opportunities you see there and what gets you interested in that?

Jay Ribakove:

Yeah, so the way we've been thinking about insurance innovation is that there's really two specific modes of innovation. And you can have that on the modeling side where you better understand specific properties and the risk there. Or the other is, can we analyze a property and make recommendations so that property is either less risky or insurable in the first place? One of our portfolio companies, Stand, is taking the latter approach. And part of what we think is so interesting and important there is that we need proper risk transfer mechanisms in order to have a functioning real estate economy.

You can't get a mortgage if you can't get insurance, for the most part. And so figuring this out is critical. The other part of it that I think is so interesting, specifically in California, although fires are not a California issue exclusively, last year, 49 out of 50 states, everybody but Delaware had a wildfire, which surprised me. But I say that because what has happened in California with the fair plan is that a lot of folks have had the actual cost disassociated from the risk that we have. And what that means is that we need to re-internalize some of these spending and defense mechanisms that really will keep us safer and ultimately accrue a lot of value, but again, are unpopular.

Michael Torrance:

It's such a huge challenge. How confident are you that these types of new technologies and innovations can actually reduce the risk or impacts of wildfires over time? And what do you think the time scales are in terms of being able to do that?

Jay Ribakove:

It's a really good question. What we're seeing within our portfolio is a tremendous amount of adoption. Adoption a lot of times can be evaluated in terms of dollars and cents and number of customers. And so we're very much seeing that. But we also try to monitor what is the value of the assets that are being protected? What is the geographic area that is being protected or is being worked on? And so if we apply different confidence thresholds at the effectiveness of the technologies, what we can see is that even a modest amount of customer adoption, if placed in the right locations with the highest risk, has massive economic value. And that's one of the things that's really interesting about fire is that, forget about your political leanings. No one likes fire and no one likes catastrophe. And so that it can be so clearly boiled down to an economic issue, makes it one that is easier to address. Which isn't to say it's easy, but it's universally agreed that we should be trying.

Michael Torrance:

Such a fascinating topic, Jay. Are there any final thoughts that you have for our audience?

Jay Ribakove:

In light of what happened in Los Angeles, we've been getting asked very frequently, what can we do? And I think the easiest thing for individuals to think about is, some of the things we can do are deeply unpopular. No one wants to harden their home, whether that's introducing new building materials to the outside that are more fire resistant or removing landscaping even just five feet from the walls of their home. They want, and I understand this, you want your home to feel warm and welcoming and not like a fortress. But if we take these small steps, what we know is that fires are much less likely to go from small to catastrophic, and that means that a lot of the resources in place and a lot of the tools available to first responders right now can be very effective. So we're at this catalytic moment where we need to look ourselves honestly in the face and ask if the risk of not doing some of these things is worth the reward.

Michael Torrance:

Very good. Well, thank you so much for your time today, Jay.

Jay Ribakove:

Yeah, likewise Michael. It was a pleasure speaking with you.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO. You can find our show on Apple Podcasts, Spotify, or your favorite podcast player. Press the follow button if you want to get notified when new episodes are published. We value your input, so please leave a rating, review, and any feedback that you might have or visit us at bmo.com/sustainabilityleaders. Our show and resources are produced with support from BMO's marketing team and Puddle Creative. Until next time, thanks for listening and have a great week.

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