 We're back. We're live. I'm J. Fidel. This is a given Wednesday. It's Wednesday. Tell me it's Wednesday, Ray. That's right. King Birch over there. As far as I know, it's Wednesday somewhere. We settled on something. If only Congress could agree on these things. Anyway, so we're going to talk about the environmental finance today. And actually, this actually, Ray, this relates to, in a way, something that also happened in Florida, namely the collapse of that building. We're talking about literally thousands, if not millions of condominiums around the country, all of whom are 40-plus years old, and who need to have serious renovation done to avoid what happened in Florida. And how do you finance that? The people in these condos are not necessarily rich. Some of them are on fixed income. You come around and ask them for the money to rebuild the condo and reshore it in some way, do the necessary maintenance and repair to avoid those accidents. It's infrastructure money. And the question is where do they get that from? Banks are going to lend it. I'm not sure. Maybe the federal government should have a program to help. Maybe Joe Biden's infrastructure bill could help them out. But the bottom line is, in this country, we have a lot of work to do, and we have a lot of financing arrangements to make. The federal government is very important in this, and so is the banking system. And that's what you're working on, right? Right. We're trying to bring some sort of academic rigor and teaching to the idea that environmental sciences and environmental conditions are connected to the financial system. And basically, that's not being done in academia right now. It's been created outside of academia. There are a lot of insurance mechanisms and financial market mechanisms for funding environmental cleanup, environmental risk management, and so forth. It's a high-tech kind of subject, and we want to bring academia into the cutting edge of that. And going to what you just said, the city of Miami may or sometime ago said he can't afford to ignore climate change. He's got $200 billion worth of real estate in the city of Miami exposed to climate change. And the amount, this magnitude of risk far exceeds whatever money they can raise locally. They have to go in to the global capital markets to try to solve this risk management problem, whether it's to rebuild, relocate, or just shift the risk somewhere else and wait for a disaster that requires cleanup. There are a lot of different ways to approach it, and it's going to take some real informed debate that combines scientists and the financial industry. And they need to be able to have some common ground on how they're going to discuss that and not just talk about it, what they know from their own separate, but important industries, disciplines. I just finished making a short film on the fact that climate change is an existential threat. We all know that, and it's getting worse. You look at the wildfires, you look at the floods, and now the heat waves in the Pacific Northwest, and it's so clear these things are directly connected, and we have to do something. And it's not just after the fact, it's not adaptation. We have to go to the root cause and fix it. And so people have this perpetual conversation about raising public awareness over the threat presented by climate change and what it's going to do to us, what it is doing to us. But what they don't talk about, this is why I really admire what you're doing, what they don't talk about is actually doing it. And why is that? Because they don't have the money, and they don't know how to raise the money. And we really, all we can have is a perpetual talk fest unless we figure out how to raise the money. That's why you're right in the center of the stream on this. Yeah, we're in the center, but we're very, very beginning. It's all very preliminary, because we haven't studied these things as a combined system. You've got the planet's environmental systems operating and interacting in complex ways, and you've got the human systems. And we think the central issue of the human system is how finance operates and how it funds the actions that connect or react to the environmental systems. And we have to begin that study now. We haven't done that in previously. And so we're creating this new program with the idea that we need to know how these systems interact and what the risks are that involve this interaction. And then we need to know how to model and price those risks so that we can then go out and try to raise the money to manage those risks. And it's a very incipient sort of thing. But basically, you know, the world is moving ahead towards that direction outside of the US. And now suddenly with the Biden administration, we're playing catch up. And there's the whole machinery of government is kind of moving towards this, trying to understand the financial and environmental connections and how to make use of that. And so you see a lot of articles now on climate finance, disclosure, or sustainable finance. That's the sort of thing we're talking about in this academic program. It'll be an educational program, but also a heavy research program that brings in multiple disciplines to try to figure out what we are dealing with, what we can do about it. Now, let me let me offer you a thought that's not, you know, it's this is not without complication. On the one hand, you mentioned raising the money. So you go into the money markets, you go into the banks, you go into the government, you go in whatever program there might be, philanthropists, whatever program I and you raise the money and you have to demonstrate to those people that it's a worthy cause. Of course, it's worthy of concept, but is it worthy in the investment? And I imagine this is something you would be teaching and scoping out. Because if I lend you, say a billion or a trillion dollars to do some major projects to deal with, you know, climate change, which is really what we have to do. I should be showing you the return on the investment. I should be showing you the underwriting possibilities of the repayment of the investment or the loan. This is very hard because we are in climate change now. There are things that are going to happen to us and our planet and our society that will make it harder to pay this back. You know, and so the whole money market approach is a little different when you're when you're seeking big money for a big problem and the problem may eat up the possibility of repaying the loan. Right. Well, you're right. And so you can fund local projects and they probably will work for some period of time. The question we also want to look at is whether business as usual is funding other things that will overwhelm what you're doing in the short term or the local thing. So that has to be understood. It's not an easy question to figure out, but that's why we're seeing now Biden administration say, I want a whole of government approach to climate finance. I want to know what the risks are. So he's got the Securities and Exchange Commission hiring people to look into this, create a research hub. They've got the Federal Reserve Board has joined what's called the Network for Greening the Financial System. It's 80 or 90 central banks around the world. All of these different federal agencies are now moving to try to figure out what's going on with climate change and how it affects them, what they can do about it, the Commodities Futures Trading Commission. Did I say a Department of Treasury? I mean, it's all going as a whole of government approach. And that's a tremendous change. And so businesses is rushing ahead. The estimate is that maybe as much as $40 trillion is now being invested with the idea of ESG, they call it, Environmental Social Governments criteria for investments. So it's a huge, it's a sea change of of innovation going on right now. But the standards for what is green and what's effective and what can be repaid as you're talking about, it's not set yet. It's not going to be set until you get a multidisciplinary point of view of what's going on here. It's not enough just to ask the scientists how to do this or the financial industry that got to be collaborating on this. God, some of these things, just that it dawns on me, there's some of these things, that you would adopt, some of these programs that you would create. They're trials. They're test situations. We haven't worked at this level before in terms of trying to save the planet. So you may wind up spending a ton of money on something that is kind of experimental and may not work. And so from a business point of view, that changes the whole notion of risk and reward and underwriting. And I suggest from what you've said so far, is that this is going to require a complete change in the way we see our society and especially our economics. Right now, Joe Biden is spending trillions to try to just recover from COVID, recover the economy, the society from COVID. And we really haven't gotten to the question and we're talking about it, we'll see, but we haven't gotten to the question of putting big money into climate change. So the question is, can we afford it or putting it another way? Assuming we do that and assuming we spend all this other money on things we have to do, such as recovering from COVID, that's going to change our economy. That's going to change the way the world works, not only here, but everywhere. I agree. I mean, I think they're going to come around to a point of view is, does green finance work? Does it produce a superior return? But that's kind of assuming that you could go on with business as usual if you didn't have green finance. And that's what I think will change. There's going to be a reputational risk. There may be actual environmental consequences to continuing business as usual that will wreck everything. That's why we now have climate, I think it's the task force for climate-related financial disclosure. It's mandated by what's called the G7, the Financial Stability Board. It's big in the UK. It's big in Europe. It's coming here. I mean, it can't kind of carve out little pieces of the financial system to work and say, oh, we don't have that in the United States, but we have it in Europe. It's going to be a uniform system at some point of disclosure. In Hawaii, we spend a lot of time dealing with EIS, EIS is Environmental Impact Statements. And that's had an effect on a lot of projects. And it's cost a lot of money, I must say. Sometimes you wonder if it's worth it. But I think that's old hat. The whole notion of the environmental laws in Hawaii and on the federal level may be outdated. An environmental impact statement that would satisfy today's law in Hawaii's section, or rather, Chapter 343, may not be sufficient to satisfy the climate change considerations. So I think looking forward, and I'm sure you're thinking about this too, is that the environmental impact statement may turn out to be an environmental and climate change impact statement. You've got to look at both, don't you? Well, they're mandating that to say, what are the projections telling you? It's not just what is the historical data telling you. And that's a complicated legal question. The director of the program that we're creating is an environmental lawyer. And he's part of the faculty at Florida International University. It's something that he's very interested in because these laws are in motion now about the idea of fiduciary duty of pension funds or public investment funds, whether they can ignore climate change or whether they can just go by the past and say, well, we're only interested in risk-adjusted returns, and we don't have to worry about climate issues. But now I think there's a lot of legal research coming out that says it's a valid concern. And so who knows how far the changes will go. But I think we're in a new world. It's now reached a critical point that I don't think it's going back to business as usual, where science is dealing with the impacts of climate and finance is running ahead with risk-adjusted returns on its own without connecting to the environment. I think those days are gone. I hate to say this, but it could be we're in the perfect storm. I think what happened with COVID, it made people rethink and be willing to accept the transformational experience coming out of COVID, not just in healthcare, but in business and in organizing a society and in putting your money where your mouth is, and including climate change. And climate change is going to come back roaring why? Because we have been ignoring it in the distraction of other things. And now it's catching up. I mean, you'd have to be in space not to connect the wildfires, the floods, the droughts, the heatwaves. I could go on. And I think it becomes obvious in the media. It becomes obvious to people who were not treating it as obvious before that we are being enveloped with the implications of climate change now. So I think we're in for a new time. As I said before, you are mainstream in this. So the question is, Ray, how did you get involved in this? Did you wake up one morning and decide you had an obligation? I certainly never, and certainly didn't plan this over the long term. It just kind of happened a little bit along the way. I had a number of different career aspirations. I started, I wanted to be a marine biologist, and I went to graduate school and studied fisheries biology and came to Hawaii. That was in Miami. And then I moved to Hawaii, moved to Honolulu, and worked on an aquaculture project. We raised mahi-mahi at the Waikiki Aquarium for a number of years. And when the funding ran out, I thought, well, I want to go to the MBA program at UH and study how marine institutions, organizations, whether they're for-profit, non-profit, raise their money, manage their money. So I went to the MBA program and took a lot of finance courses. And when I got out, I ended up working for a Japanese real estate company. That wasn't a planned thing, but that was part of the big Japanese investment period back in the late 80s. And so I did that for a while. And I saw the bubble and the collapse of the bubble, and I moved to Florida and stayed in real estate and was working on hotel properties, and took some time off and got another degree in real estate capital markets, came back to Hawaii. I was working for a resort developer. And I saw that this mortgage innovation at the time in 2004 and 2005 was creating environmental consequences. There was development everywhere and thought, well, this is affecting land use change and potentially a number of environmental systems. Is anybody studying this? And so I started looking into it. Nobody in academia was studying and nobody would encourage me to study it. I thought maybe I'd get a doctoral degree in it. And so I thought, well, nobody's studying it. I reached out to the current, at the time, chairman of the Oceanography Department at UH, Lawrence Maygard, and he was interested in it. So we tried to work on this as an idea for a new academic program. But it just, it was too soon apparently, it just didn't work. And he retired. And so I took the idea to Florida. And over the years and years and years, I wouldn't have guessed it would take me this long to finally find the right setting for it. But I saw the connection between environment and finance and through land use and the equations that are used to model financial markets and the equations used in modeling fish populations were so close. I thought that's curious. And the more I looked into it, the more similarities and I found out that basically all of this mathematics is, was generated by a guy studying financial markets way back in the year 1900. And it's spread through environmental sciences. And now today we use it to use measure the prices of derivatives put, you know, you've heard of put options and call options on stocks. That's the kind of mathematics we're talking about random motion mathematics. And that's the basis of the beginning of our program. It's kind of pretty sophisticated. It's that the cutting edge of things, but it's indispensable. I mean, it leads to you to something called, you know, I call them environment-linked securities like catastrophe bonds, hurricane or flood or earthquake, even pandemic catastrophe bonds in which, you know, a homeowner goes to the insurance company says, I want to lay off my homeowner risk of flood or windstorm. The insurance company one day says, you know, I'm not comfortable with how much I'm insuring. So I'm going to lay off some of my risk. And it goes into the capital markets and issues a catastrophe bond. And an investor will buy that bond, but the investor has to figure out, you know, what are my risks? Because if there's a bad hurricane or something, I'm going to lose my money in this bond because it goes to the insurance company to pay flames. So he's got to understand the science and the finance. And this is a very important issue because Florida issued the world's biggest catastrophe bond, a billion and a half dollars, you know, some years ago, the California earthquake authority uses raises it to raises a billion dollars through this method. FEMA and NFIP, the flood insurance program are now issuing. In fact, even first insurance company of Hawaii, its parent, Tokyo Marine Insurance company issues cat bonds. So, you know, this is a global market that has to understand science and finance together. And it's a great opportunity to be used as a teaching tool, but also to do something necessary for risk management. Oh, yeah, well, it's a new world. But what about the relationship of these catastrophe bonds against insurance? You know, it sounds like sort of the flip side of it somehow. How do they relate? How do they work together? Well, they work together in that the insurance insurance companies lay off their risk. They say we're not comfortable ensuring a million homes. So if there's a bad event, we'll go broke. So we'll sell some of our risks, we will get somebody to say, if there's a bad event, they'll pay us money so we can pay claims. And that's what the investors do when an investor buys a catastrophe bond. Does that make sense? Yeah, yeah. So the question also is that, you know, this sounds like a very rational, if not scientific, mathematical AI, predictive analysis kind of underwriting. And that's that's why not, you know, this is the world we live in. But query, is the government thinking this way too? Is this is this going to replace what the government might do or is doing? Or is it going to operate only in the private sector and let the government do or not do what comes to mind politically? Yeah, plenty of debate about that. I'm sure that the insurance industry might like to see, you know, private markets supply the risk financing on others may say, well, let's just have a government backed fund that some sort will print the money if need be. But, you know, budgets will have to be arranged according to whatever they decide on this. But as I said, the NFIP, the National Flood Insurance Program has now raised approximately a billion or a billion three in CAT bonds. And this is new. This, the first one was issued in 2018. So this is a new sort of thing that they're pursuing. And so, you know, I think it's something that will persist. Yeah, good. But let me ask you this, you know, at the end of the day, these are real risks. And they're likely to be realized, a lot of them, if not most of them. And that means there will, there will be losses, there will be losses. And these bonds will, you know, at least redirect the losses, reassign the losses, if you will, those losses will take place. And they will affect the economy and the country and the society, our quality of life, many more or less, some people, some companies and some places and so. But it will affect all of us. And my question to you is, this is a hard one. How is this good? How is this going to affect our economy? Because it will change. Somebody has to undertake the loss. It will affect our economy. Can I make personal choices based on my appreciation of that question? Well, we have the risk now. So I mean, you're absorbing the risk in some way right now. In fact, probably insured risk is only some fraction of the actual total economic risk of these events. So it's the reality today. And the risk is probably not going. And we're not going to disappear. We might do things to lessen it through mitigation and adaptation. But the risk is there. So how you manage it and how you shift it through willing investors. Now, why would an investor do this, buy this is because you might get a good return. I mean, if he doesn't lose his money, he stands to make something higher than just putting it in a savings treasury bond. But on the other hand, if it's uncorrelated with financial market risk, I mean, if there's a hurricane, that's not affected, the probability of a hurricane is not affected by what the stock market is doing going up and down. So it's uncorrelated risk in that regard. If there's a really bad hurricane, it might affect the stock market temporarily or for some part of the market and so forth. But the idea is it's a diversification tool that appeals to investors. And so the first one was issued first cat bond back in 1997. And about $140 billion has been issued. They usually last three years at a time and have to be renewed. So since their inception, about $140 billion has been issued. And it's in an all time high right now. The interest is very high in investing in these things. But you have to have a sophisticated team that can evaluate the risk and put it in, invest your money for you, manage your money. That sounds like a side effect that we want to have. Namely, as I said, we live in a world of AI and predictive analysis. Our mathematics has never been as sharp as it is now. And so that this whole market that you are describing, this undertaking of risk and investment, it sounds like what it will do, what it is doing, maybe what it has already done, is to sharpen people's skills in predicting where that hurricane's going to be. Oh, absolutely. That's a great point. Talk about it. Yeah, that's a great point, Jay, because people don't want to invest without having the best skills of prediction. So it will drive money into something that might create a better return or avoid a loss. And I think that's a great point. They'll have better technology, more demand for graduates and so forth. Yeah, we need to have that because it's not just the money market. It's sending FEMA down to the right places. It's having the government ready to act or the military as the case may be with the non-profits, the NGOs, not only here but anywhere. No, no, you can raise- The global market, as you've said. Yeah, you can structure these bonds to spend the money on any sort of community need, whether it's transportation, whether it's communications after an event, it's housing. It's basically anything, but it's a contingent form of finance, which means it's a risky form of finance, which means there's random motion involved. It's back to the math and the computers that you're talking about. I think it's very important. There was a story yesterday about how the moratorium on evictions is going to last probably another month, and then nobody knows what's going to happen, and 50 million people are likely to be at risk all at the same moment. And we are dealing with big numbers in 2021 at SEC. We are dealing with situations that involve 50 million people, and so we have to find ways to deal with, to predict the risk and so forth. So my question is actually this. We only have 10 minutes left here. My question is, why FIU? FIU is international. It's big. It's in Florida, which is a site of some environmental issues and research already, but tell me why FIU? Well, a number of reasons. Actually, I went there and I know a math professor. He was interested. I approached him. He was a financial mathematics expert. He created a master's program in financial engineering. There's 200 of those kind of programs worldwide, but he was interested in what I was talking about. He saw instantly that this is the future. You can't just talk about math. I mean, financial math by itself. You've got to now pull these environmental aspects into it. And so he and I began working on this, and FIU has tremendous assets, environmental assets. It's got this Everglades reconstruction project in its back. That's the biggest environmental reconstruction project in the world. Not without some controversy, of course. Of course, yeah. And Miami is basically ground central for any news media article on environmental risk, whether it's pollution in the Biscayne Bay or Hurricanes, climate change, sea level rise. It's the people that need to keep this on their front burner to figure out how they're going to manage these risks and all of the real estate that continues to be built there. So I'm originally from Miami. I saw that when I couldn't get the thing going in, Honolulu, I moved to Miami and started approaching them with it. That's not a great choice. They're indifferently a great choice, and I think it's a great location to do Europe and parts east. But let me ask you this, though. Well, we would love to have UH and Hawaii involved in this, too. I mean, in the future, we're looking at some way to make this a global thing. That's Asia Pacific. So if you had both schools in a collaborative arrangement of some kind, that's why it's good that you're here, right? Because you're in a position to set that up, you know, to see who the personalities are and all that. But who is going to attend? Who is going to participate? Who is going to register for the graduate degrees and the like that you see? And what are they going to study in the classes? How are you going to break this down so that you get the kind of people who will be influential in the years to come? The kind of people who are connected or will be connected with Wall Street and, you know, capital sources and so forth? How are you going to approach that to bring the students and the graduate students into it? Yeah. So, you know, the science students now in PhD programs, they're studying the random theories of how environmental parameters change, whether it's a fish population that goes up and down as I studied or whether it's weather or earthquake risk or flood risk, they're exposed to what's called Brownian motion or random motion. And so there's a way to grab that and say, not only do you know that, we're going to show you how that's important for managing our future risks. The financial market needs to know what you know and you need to be able to talk to the financial markets about basically risk adjusted environmentally risk adjusted returns. So students are going to want to know not just the impacts of science, they want to know what to do about this is a solutions oriented program. But I think it's going to grab a lot of people's interest in because that's the way employers are looking. That's the way governments looking. In fact, the National Academies of Science just came out with a new report that says there's something called the Global Change Research Program mandated by Congress in 1990. For its history, it's been studying the impacts of global change, environmental change. It just came out and said, enough of that, we need to know how we're going to manage the risk, how it's connected with society. And that's basically what we're talking about. The financial system is a way to connect the environmental risks with something we can do about it. And so I think, you know, the governments are moving toward it. The industries are moving toward it and the students are going to move toward it. They're going to say, I want to be at the forefront of this new idea. Yeah, I think you're going to find that the students who were dedicated to environmental studies and graduate degrees and 15 years ago would be much more likely to go to this because it's obvious, or it should be obvious to them, you know, that this is where the action, this is where some things are going to happen. This is where the action area is clearing. It's not just a talk fest. So I guess, you know, the question is, is there, is the possibility of a joint degree or a degree that has evolved or will evolve from what we all knew to be an environmental graduate degree to an environmental and call it environmental finance and risk degree? Yes, our first way of attacking this is to offer a graduate certificate of four or five courses that depends on the student's background in math and they can get either as a credit course that they can apply to some further degree or they can do it as a professional certificate. And that'll probably be up and running sometime late next year, but fall next year perhaps, we'll begin teaching that. And beyond that, our hope is both ledged in masters and PhD degrees that have research, intensive research that really pushed the boundaries of what we know about how these systems interact and what we can do about it, how we design new things that are triggered, environmental parameters that trigger financial flows that can help us with sustainable finance. You know, when I attended graduate school at NYU Law School, graduate program there, I found that my classmates were, they were all taking courses after hours, they were all working on Wall Street, they were all, you know, already in the game somehow, and this was going to polish off their education and make them, give them an advantage they didn't have by just working on Wall Street. And I suggest that, you know, there are a lot of people on Wall Street right now who are in environmental situations in their jobs and professions, and of course in their investments, who would really love to take this program. Would they be able to do that? Do you see a system by which you can bring Wall Street down to FIU or whatever, or have the twain meet? Definitely. And we don't really have to do anything because Wall Street's now moved, or it was until this building collapsed, moving to Miami. I mean, they're escaping for a number of reasons, but they realize now that there are tax advantages and also that you can work remotely. And so a lot of hedge funds and financial firms, big ones, the glittering names, are moving to Miami and Palm Beach. So this is a special thing that FIU will be the first of its kind to offer this in a sense that we're going to look at multiple environmental systems. We're not just going to talk about climate finance or carbon finance. We're going to talk about things that involve, you know, earthquake risk for different markets or pandemic risk or restoring coral reefs, mangroves and so forth, carbon markets, carbon sequestration markets. So we have a holistic approach to this that's unique, along with the mathematical approach. Well, it's not just big in the scope of it. It's not just big in the dollars of it. It's big in the sense that it has all the prospects of actually taking action on climate change and thus doing whatever we can. May I use this term saving the world? Nothing much, just saving the world. So you must sleep well and you must feel very encouraged with the possibility of being in this particular space. So Ray, what follows? What happens next? And when can we circle back and get a status report from you on all the excitement? Well, I'll keep you informed. We actually had money that was going to be appropriated by the Florida legislature to keep our program going on a recurring basis. And then COVID stepped in and wrecked university budgets and the state budget. And so it was put on hold, but we may come through again in a future budget, or we may find some benefactor to enlarge our ideas and realize our ideas. But we're working on it every day and probably within the next three months or so, we'll have some more news on where we're going with our approvals of our certificate program and the next steps. Well, great to talk to you, Ray. Ray Virch, Ray King Virch, a guy who is going to do a lot, is doing a lot to move from talk to action to facilitate real solutions and to change the world in the process. Thank you so much, Ray. Thank you, Jay. It was a pleasure. Aloha.