Open Circuit — JPMorgan’s Climate Scientist Thinks Differently About Risk
Episode date: September 5, 2025
Podcast: Open Circuit (Latitude Media)
Host: Stephen Lacy with Katherine Hamilton and Jigar Shah
Guest: Dr. Sarah Kapnick, Global Head of Climate Advisory, JP Morgan
Overview
This episode explores how climate risk is upending traditional financial risk models, why organizations need what Dr. Kapnick calls "climate intuition," and what adaptation means for capital allocation and investment strategies. The hosts dig into how climate extremes challenge the status quo, how sectors like utilities and real estate are most impacted, and whether proactive resilience can be an offensive—as well as defensive—investment strategy.
Key Discussion Points & Insights
The Metaphor of Climate Risk (00:09–01:29)
- Stephen Lacy opens the show with a skunk encounter, using it as a metaphor for climate risk: "We get complacent, we assume tomorrow is gonna look like yesterday, and then we get a costly surprise." [00:22]
Dr. Sarah Kapnick: Bridging Science and Finance (06:33–09:47)
- Background: Started as a banking analyst, moved to theoretical math and geophysical fluid dynamics, served as NOAA’s chief scientist, now back in finance helping translate climate science for JP Morgan’s clients [05:58–06:33].
- Role Vision: She saw, as early as 2004, that financial models relying strictly on historic data were ill-equipped for “never before experienced” climate events:
"If you've developed your entire model only in the past, you won't have a true representation of risk today, let alone risk in the future." – Dr. Sarah Kapnick [08:28]
The "New Climate Era" and Shifting Risk Models (09:47–11:50)
- Change in Last 5 Years: Integration of climate experts into organizations; building models that blend climate data with financial analytics.
- Obstacles: Resistance to incorporating future data, habit of basing decisions on past experience.
"We’re in this time period now that I call the 'new climate era,' where sufficient climate change has now happened, that we're going to start seeing these events that we've never experienced before." – Dr. Kapnick [11:13]
Insurance Markets and (Non)Translation of Risk Data (11:50–13:34)
- Jigar Shah challenges why risk data isn’t yet driving insurance best practices or requirements.
- Katherine Hamilton: Realtor.com now lists flood, wildfire, heat and other climate risks for every property—a sign that consumer-facing risk assessment is evolving.
Property Values, Insurance, and Data Disclosure (13:34–15:31)
- Even as insurers and reinsurers start to disclose data (e.g., Swiss Re), price hikes are often masked by inflation and construction cost increases.
"...a likely path [is] as people try to make sure they continue to have insurance." – Dr. Kapnick [14:32]
Most Impacted Sectors (15:31–17:00)
- Utilities (energy & water) top the risk list: Their assets and revenues are exposed to extreme weather, heat spikes, and aging infrastructure.
"They already see actually the pressures of extreme weather and climate change on their revenues today.” – Dr. Kapnick [16:13]
- Sea level rise and heat are as impactful as wildfires.
- Grid stress and adaptation costs are mounting.
Financial Products and Climate-Linked Investing (17:00–18:27)
- Jigar voices skepticism about whether risk is priced into climate-exposed financial products (utility or mortgage bonds).
- Dr. Kapnick cites PG&E’s recent credit upgrade driven by resilience spending as an early example.
Progress with Utilities and Data-Driven Decisions (18:27–20:35)
- Utilities are hiring meteorologists and using AI for predictive modeling.
- Investors increasingly demand granular climate risk data for physical assets.
- "You don’t even need disclosure… you can actually take information of weather and climate data and understand what the exposures are in a location." – Dr. Kapnick [19:41]
The Concept of "Climate Intuition" (22:10–26:48)
- Definition: Making climate risk “habitual” in decision-making, just like inflation or labor costs:
"People just are aware of climate change and they bring it into all of their decision making in the same way they think about inflation or labor costs." – Dr. Kapnick [22:22]
- Boardroom Impact: When companies have experienced climate-driven shocks, they start thinking in terms of product/geographical diversification, adaptation investments, and not just defensive measures.
- Challenges: The tension between planning horizons (5–10 years for adaptation vs. short-term leadership tenures).
Adaptation Postures: Early Adopters to Status Quo (26:48–29:37)
- Dr. Kapnick outlines four adaptation postures: early adopters, cautious amortizers, procrastinators, status quo.
"Most people for a very long time were status quo... I'm seeing a shift toward some procrastinators... moving into the amortizing space." [27:38]
- European insurers are ahead in integrating adaptation, often driven by passionate board members or visionaries.
The Regulatory and Disclosure Gap (29:37–32:24)
- Jigar and Dr. Kapnick discuss the gap between internal conversations and public, actionable financial disclosures (e.g., in 10-Ks).
"It's a regulatory question of when everyone does it, it's usually regulation that is forcing of it." – Dr. Kapnick [31:17]
- Speed of adaptation may lag behind climate risks, leading to inevitable crisis points.
The Limits of Voluntary Action, the Role of Banks (32:24–35:04)
- Jigar presses for banks and asset holders to notify customers of climate risks and available resilience solutions, worrying that action depends on waiting for the next disaster.
- Dr. Kapnick sees movement toward greater transparency and expects more actionable outreach as data becomes more robust and accessible.
Adaptation as an Offensive Play and Opportunity (35:29–37:40)
- Climate adaptation is not only about managing downside, but seizing growth/first-mover opportunities.
"Some companies... are now actually developing shampoos that... come out within a minute, so you can take a shower under five minutes because they're realizing that consumer behavior is changing." – Dr. Kapnick [36:19]
- Early R&D/readiness means companies and investors can capitalize on shifting consumer preferences and supply chain needs.
Which Asset Classes Are Moving First? (37:40–39:38)
- Infrastructure and real estate investors are furthest along integrating adaptation and resilience into their thesis.
- Catastrophe bond markets are also growing, with investors seeing pricing opportunities based on climate conviction.
Regional Differences in Sophistication (39:38–41:18)
- Asia and the Middle East showing heightened climate adaptation interest and sophistication, driven by localized risk and demand for advanced resilience strategies.
- European focus is on national security and disaster preparedness (e.g., ports and infrastructure).
Defense Sector Lessons (41:18–45:49)
- Department of Defense has advanced resilience metrics that account for everything from facility risk exposure to adaptive capacity. Their planning for “constant operability” underpins how private sector could approach adaptation.
- Dr. Kapnick: Many advanced climate modeling tools used today originated from military research (e.g., heat index work from Marine training camps).
Data Availability and Private Sector Support (45:49–48:25)
- Budget cuts threaten public data streams; private sector stepping in with proprietary data collection (e.g., weather stations, drones), but not everywhere.
"There will be a disruptive point now if certain data sets are no longer available... It's increasing costs as well as people are realizing that they may need to support their own data streams." – Dr. Kapnick [46:25, 47:09]
- International concern: Data-poor regions will limit AI-driven modeling and resilience planning.
Cultural Lessons on Risk and Human Nature (48:25–51:32)
- Across science, government, and finance, most people/companies react only after experiencing a crisis.
"Everyone can talk about things theoretically, but the majority don't act until they start experiencing events." – Dr. Kapnick [48:46]
- Tabletop exercises and scenario planning make risks and action plans more tangible—essential for effective adaptation.
The Goal: Climate Intuition as Habit (51:14–51:40)
- Katherine Hamilton: "You almost want people to internalize this risk in the same way they internalize buying health insurance or saving up for retirement."
- Dr. Kapnick: "Couldn't have said it better myself." [51:30]
Notable Quotes & Memorable Moments
-
On complacency and climate risk:
"We get complacent, we assume tomorrow is gonna look like yesterday, and then we get a costly surprise." — Stephen Lacy [01:06] -
On outdated models:
"[With climate change] you're going to start experiencing things you've never experienced before. And so if you've developed your entire model only in the past, you won't have a true representation of risk today, let alone risk in the future." — Dr. Kapnick [08:28] -
On sector vulnerability:
"Utilities... were built for a climate that is in the past." — Dr. Kapnick [16:13] -
On the culture gap:
"Everyone can talk about things theoretically, but the majority don't act until they start experiencing events." — Dr. Kapnick [48:46] -
On wanting climate intuition to be like health insurance: "You almost want people to internalize this risk in the same way they internalize buying health insurance or saving up for retirement." — Katherine Hamilton [51:14] "Couldn't have said it better myself." — Dr. Kapnick [51:30]
Timestamps for Key Segments
- 00:09 – Climate risk metaphor (skunk encounter)
- 06:33 – Introduction to Dr. Kapnick, her background and vision
- 09:58 – Changes in integrating climate risk into finance
- 13:34 – How climate data is affecting insurance and property markets
- 15:31 – Sectors most at risk from climate extremes
- 17:00 – Barriers to climate risk translation in financial products
- 22:10 – The concept of climate intuition
- 26:48 – Adaptation postures within organizations
- 29:37 – The need for climate risk disclosures and regulation
- 35:29 – Adaptation as growth/first-mover investment strategy
- 39:38 – Regional and sectoral differences in adaptation sophistication
- 41:18 – Lessons from the defense sector and resilience metrics
- 45:49 – Data-access challenges and private sector response
- 48:25 – Human behavior, culture, and the difficulty of preemptive action
- 51:14 – Making climate intuition as habitual as saving for retirement
Conclusion
Dr. Sarah Kapnick makes the case that climate risks are fundamentally altering how organizations must plan, invest, and adapt. Data must become part of everyday decision-making, not just for damage control, but to spot growth. Without regulatory requirements, progress will lag behind risks, but there are proactive opportunities for those who act first. Ultimately, the goal is to build "climate intuition" into the very core of economic behavior—before the next costly surprise.