Wharton Risk Center
2021 Annual Report
Letter from the Directors
This has been another year of transition. The Penn community has returned to campus and the Risk Center staff have moved some of our meetings off of Zoom and into our new offices. The Risk Center’s founder, Howard Kunreuther, has transitioned to a position as Director Emeritus. We have welcomed new staff, new student fellows, and new faculty affiliates.
But there are also some things that never change at the Risk Center: our commitment to high-quality research and deep engagement with the private and public sector. Our affiliated scholars have been hard at work and we hope you enjoy reading about their efforts in each of our five research labs. We have continued our investigations of disaster finance, risk transfer markets, political risk, risk communication and decision making, and the role of new technology and data in our lives. This year has also seen an acceleration of our work on climate risk management, from investigation of disclosure policies to how sea-level rise is impacting housing and mortgage markets to the impact of climate extremes on municipal finance. Our climate work culminated in our annual workshop, Climate Change and the Transition to a Carbon Free Economy: Managing Risk and Harnessing Opportunities.
As the world faces ever more challenging risk management questions, the Risk Center also continues to seek collaboration and partnerships with those from other disciplines, sectors, and regions in the pursuit of scalable and sustainable solutions. We have continued to expand the projects under our Policy Incubator, most recently through the Civic Innovations Challenge award from the National Science Foundation. We have also been privileged to engage in joint analysis with several corporate partners, to advise public sector decision-making, to host wide-ranging dialogues with diverse groups of experts, and to advise the next generation of leaders studying at Penn. We are ever grateful for the support of our sponsors for enabling our work.
Please take a moment to explore our efforts this past year in our annual report. We look forward to continuing the conversation with you in 2022.
Robert Meyer and Carolyn Kousky
Through our five Research Labs, the Risk Center continues to engage researchers and other key stakeholders around core topics. Work by affiliated scholars is showcased on our Lab webpages.
Business, Climate, and Environment Lab
The Risk Center’s Business, Climate, and Environment Lab, headed by Arthur van Benthem and Sarah E. Light, aims to centralize Wharton’s research and teaching on business, climate and the environment. The Lab acts as a go-to place for these topics at Wharton, and disseminates cutting-edge research to stakeholders from academia, government, and the private sector. The Lab is taking on an expanding number of projects aimed at informing public and private climate policy; recent work includes explorations of building climate resilience, carbon trading policy, transportation policy, and environmental policy in emerging markets. Learn more about this Lab.
Disaster Risk Management Lab
The Disaster Risk Management Lab, led by Carolyn Kousky, has been pursuing multiple projects on how we can improve our management of disaster events and strengthen our recovery. Recent work on flood insurance has explored the willingness to pay for insurance and adapting policies to changing conditions, while our work on innovative disaster insurance models has focused on parametric microinsurance for low-income US households and community-based catastrophe insurance. Additional research outputs include how cities are managing stormwater from extreme rainfall, the impact of sea-level rise on housing markets and mortgage lending, and the fiscal impact of wildfires on Californian communities. Learn more about this Lab’s work here.
Risk Communication and Decision-Making Lab
To better understand and improve individual and collective decision-making in the presence of uncertainty, the Risk Communication and Decision-Making Lab investigates different approaches for framing and providing information to households, businesses, and public sector decision-makers to ensure that they are aware of the risks they face and able to improve their preparedness and response to future adverse events.
In the past year, research has focused on the cognitive biases that affect homeowners in controlling their risk of wildfires and adopting solar panels. In addition, the exponential nature of COVID-19 spread can help us learn about the exponential nature of climate change, and offers opportunities for the public sector and private sector stakeholders to learn from the pandemic on how insurance might be used to cover losses from other “uninsurable” risks. Explore this Lab’s work.
Behavioral Science and Technology Lab
Led by Robert Meyer, the Behavioral Science and Technology Lab studies the impact of consumer technology on our lives, and applies these insights to a range of initiatives to enhance public welfare. This Lab’s research includes building systems that identify and control the spread of false information, improve disaster preparedness, and quantify the phenomenon of psychic numbing using natural language techniques to analyze news articles and social media. Learn more about this Lab here.
Political Risk Lab
The Political Risk Lab has continued its efforts to bring academic rigor to the analysis of political risk exposure and risk mitigation. We analyzed the data from the 2021 EY-Wharton Survey that was presented in the 2021 Geostrategy in Practice Report and summarized by Knowledge@Wharton. We developed new theoretical arguments unpacking the relationship between business and conflict risk in our forthcoming Academy of Management Review article Business and Peace: The Impact of Firm-Stakeholder Relational Strategies on Conflict Risk. Our multi-year research program to develop an advanced data science tool that can contribute to advance and test these theoretical arguments in support of Peace Positive Private Sector Development received a three-year funding commitment from the Norwegian Research Council. Lab Director Professor Henisz’s efforts to bring this theory and data into the classroom were recognized by the Aspen Institute’s Business and Society Program with a 2020 Ideas Worth Teaching Award.
“Since our development is very long-lived, it is critical that our building standards consider future increases in risk instead of being backward looking.”
– Carolyn Kousky. October 12, 2021. Washington Post.
Over the past year researchers affiliated with the Wharton Risk Center have written op-eds, joined podcasts and been quoted in major news outlets. Read and listen to these on our Media page.
Connections to Penn
2021 deepened the Risk Center’s role as the hub for climate and environmental research, education, and outreach at The Wharton School. Our Business, Climate, and Environment Lab and Disaster Risk Management Lab issued a joint call in Spring 2021 for faculty research proposals on climate and sustainability. Learn about this year’s Climate and Sustainability Research Faculty Grant Awardees here. The Risk Center continued to partner with faculty and other centers across the school, such as through events like Wharton Climate Prof 2021, which took place during Penn Climate Week or Tackling the Climate Crisis, which was part of Wharton’s Beyond Business series hosted by Dean Erika James. Additionally, the Risk Center continued its role in supporting the undergraduate concentration and MBA major in Business, Energy, Environment, and Sustainability (BEES). Learn more about additional student research and engagement activities below and on our Education page.
“There is a tendency right now for insurers to say that the catastrophic risks which are being fueled by climate change are more and more likely to be uninsurable. In a sense they are right – they will be uninsurable if the private sector has to deal with it alone, but I think if we have interactions with the public sector then we will be in a much better position to deal with these risks.”
– Howard Kunreuther. September 16, 2021. The ESG Insurer.
By the Numbers
Over the past year, the Wharton Risk Center has continued to share our research findings with industry partners, representatives from the public sector, scholars, and students through our publications, blog posts, virtual events, and other outreach activities. We also continue to expand our presence on social media.
“Not all firms have gotten there, and I would want to encourage them to do this, and that is to put their money where their mouth is in terms of advocating for public policies that will support a transition to a net-zero economy by 2050”.
— Sarah Light. October 20, 2021. Wharton School, Beyond Business LinkedIn Live Event: Tackling the Climate Crisis: What Can Companies and Policymakers Do To Drive Impact?
The Policy Incubator supports novel approaches for increasing resilience through the development of visionary ideas, encouragement of innovative thinkers, and the advancement of workable on-the-ground solutions. This year, the Incubator has dived deeper into our projects on developing novel insurance solutions to climate change. Learn more about the Incubator, current projects, and partners.
NSF Civic Innovations Award
The Policy Incubator received a Stage 2 Civic Innovations grant from the National Science Foundation. This joint project with the New York City Mayor’s Office of Climate Resiliency and the Center for New York City Neighborhoods (CNYCN) aims to improve the post-flood financial resilience of low- and moderate-income (LMI) households through inclusive insurance models. The key pilot will be the purchase, by CNYCN, of a parametric flood insurance policy designed to rapidly provide emergency cash grants to LMI households in the event of a flood. Learn more about the project here.
The Role of Insurance in Climate Adaptation
In the Policy Incubator’s role as a test kitchen, where promising policies are analyzed and researched, the Incubator is engaged in several research projects exploring a range of innovative insurance mechanisms to fill gaps in disaster recovery and aid climate adaption. The Incubator released research this year on parametric microinsurance for low-income US households and community-based catastrophe insurance, two new models that could help support disaster recovery.
Our Digital Dialogues are an online forum for policy experts of varying backgrounds and affiliations to propose and discuss innovative solutions to resilience challenges. Our most recent dialogue explored ideas for Driving Decarbonization through the Insurance Sector: How can insurers best support the goal of reaching net-zero emissions for the global economy? Read all our Digital Dialogues and learn more about the participating scholars.
Over the past year, the Risk Center has had the opportunity to engage with a broader audience at the university and across sectors through webinars.
Climate Change and the Transition to a Carbon-free Economy: Managing Risks and Harnessing Opportunities
On December 3, 2021, we held our annual conference, entitled ‘Climate Change and the Transition to a Carbon-free Economy: Managing Risks and Harnessing Opportunities’. The event brought together leaders from the private sector, government, and academia, along with students, to discuss cutting-edge research and practice at the intersection of climate change, business strategy, and government regulation. The four panels and keynote address can be found on the conference page here. The conference was organized by the Business, Climate, and Environment Lab.
Inspired by “Iron Chef” and Wharton’s own “Iron Prof” events, this presentation was a part of a special event that took place during Penn’s Climate Week (September 20 – 24, 2021) to showcase the climate-related research of Wharton faculty. Watch this recording to hear from all ten Wharton scholars who each presented their cutting-edge research on climate and business in five minutes or less. If you’d prefer to watch a specific presentation, they are available as separate videos here. This event was moderated by Sarah Light and hosted by the Business, Climate and Environment Lab.
Keeping the climate safe for future generations will require a multilateral approach and trillions of dollars toward mitigation, adaptation, and restoration activities. The Wharton Club of the National Capital Region hosted a virtual Climate Change Conference from October 18-21, 2021. The conference was co-hosted by the Wharton Risk Center, ColumbiaDC, and several other Wharton Clubs across the nation. The event brought together experts to examine core topics of climate change and open doors for new opportunities and collaboration. Topics focused on climate change mitigation, restoration, and investment opportunities. See the full agenda and watch recordings here.
The Wharton Risk Center’s series over the summer of 2021, “Conversations about Climate Change and Insurance” examined issues at the intersection of insurance and climate change. Topics ranged from the insurability of climate perils and the impacts on housing markets to innovative new risk transfer approaches. Watch recordings of all of the virtual talks and learn more about the speakers here.
Outreach & Engagement
This past year, the Wharton Risk Center has deepened our partnerships with local groups working on disaster and climate risk management. For example, we worked with the Delaware Valley Regional Planning Commission to educate communities in Pennsylvania’s coastal zone about how to improve financial resilience to floods. We are also working with the Pennsylvania Silver Jackets Team on an upcoming series of webinars to expand education about flood risk in the state.
NFIP Issue Briefs
Given the Risk Center’s deep expertise in flood insurance, this year we developed several outreach materials for local partners, providing place-based examinations of the National Flood Insurance Program. Take a look at the NFIP in Washington DC Issue Brief, the NFIP in Pennsylvania Issue Brief, and a two-part flyer on flood risk in Pennsylvania’s Southeastern Coastal Zone (as well as our prior brief on the NFIP in New Jersey) to learn about the ways flooding and this program affect different locations in the mid-Atlantic.
While Risk Center Directors, staff, and Affiliated Scholars have been featured on podcasts before, we have never created our own! This fall the Risk Center partnered with Doug Parsons of America Adapts to put together a podcast mini-series on building financial resilience to flood risk with local and regional experts joining as guests. Take a listen to Episode 1 and Episode 2. See other podcast episodes featuring the Risk Center here.
This year we continued our Primer series to better explain concepts in risk and resilience. Read our Understanding Climate Disclosures Primer for an overview of how investors may be interested in risks from climate change and how the disclosures might change moving forward and check out the Catastrophe Bonds Primer to learn about the general mechanics of catastrophe bonds, see examples of their use, and future opportunities for the market.