Strategic foresight does not mean one is the only person or entity to see risk coming. It means you are able to more accurately assess the weight and relevance of many overlapping prevailing trends. For instance, in 2005 and 2006, when The Economist, and others, and I, were seeing signs of catastrophic vulnerability and risk, many financial decision-makers were pouring new money into housing markets and mortgage-backed derivatives.
Some of them hoped to get a windfall before the boom went bust. Some of them believed in a kind of infinite growth. A significant amount of mythology had arisen around the potential for financial wizardry to generate new wealth even if that wealth were tied to no new real-world everyday value for most people. That was another layer of the problem: Some of the new calculations that were driving speculation had been crafted to build on this untenable premise.
What those who chased the market trend were ignoring was that structural flaws create structural risks. And structural risks proliferate. If the housing markets and mortgage-backed derivatives, and other related investments, financial products, and insurance arrangements, were all linked to something that was not as valuable as everyone pretended, then not only would there be a crash; the crash would also open a devastating new problem—that money everyone had counted on to be real had been fictional, effectively creating a hole at the center of what might be a majority of businesses and private financial holdings, across the entire economy of the world.
Industries like energy, automobiles, and many other consumer goods, would be affected by the fallout. This was foreseeable, if you were willing to look at structural flaws and structural risk. Strategic foresight would mean first recognizing that much of what was being said and written was simply false, and then looking for the actual hard evidence that seemed to be getting systematically ignored.
The climate challenge adds many new layers of complexity to these dynamics of value claim and exchange. For instance:
- Does a given place suffer multiple climate-related vulnerabilities that no market actor has ever had to price before? (Wind and water might be two, for instance, and suboptimal infrastructure a third.)
- Does a regional economy depend on something that climate change can fundamentally alter, like the population of a given fish species or the agricultural productivity of land experiencing deep ecosystem migration?
- Do institutions—including major banks and financial interests, and even state and federal government agencies—know in detail where the more hidden risks lie, or how to mitigate them?
- Has an economic development strategy been designed around standard macroeconomic assumptions that are now out of date? (This could be for reasons rooted in technological, market, or geophysical risk.)
Climate disruption happens at all scales—local, regional, national, and global. It also affects major human systems, like our food supply, at all segments along the value chain. Farms are affected by ecosystem breakdown, loss of pollinators, water scarcity, desertification, storms, floods, wildfires, and more. They are also affected by macroeconomic shifts that can alter the microeconomics of farm ownership, labor, production, and profit. All of these things have climate risk components that, if not properly evaluated, can cause sudden disruptions that ripple out.
Historically, there has been a complicated and unfortunate separation between food systems and finance. The reason is that food systems depend on producers living with very slim margins and carrying enormous risk. This also means high-level financial decision-makers are often not looking closely enough at trends that will cause food prices to spike, which will disrupt not only the livelihoods of producers, but the entire macroeconomy.
Food system sensitivity is a major area of climate disruption concern, where metrics that align with mainstream financial decision-making are still emerging and being proven and refined. Consider the human activities that can provide signals of eventual food-related market disruption:
- The burning of fossil fuels that emit heat-trapping compounds into the atmosphere and acidify the oceans;
- Military invasion by a hostile regime of a country that produces a significant amount of exported grain on which dozens of nations rely;
- Unsustainable decision-making in agribusiness value chains, about whether chemcial inputs or regenerative practices are more strategic for a 10-year time horizon;
- The reaction of insurers to geophysical change and rising threat of shock events both on agricultural lands and in areas that will impact them;
- Consumer choices that may or may not align rationally with the more hidden trends generating risk and rising future cost.
Strategic foresight linked to climate disruption and response requires clarity about these many overlapping nuances, and a focus on what can be done to shift the landscape for the better.
