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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast where Esther and I take you inside the environmental, social, and governance issues that are shaping the rapidly evolving sustainability landscape.

Esther Whieldon: There was a lot to keep up with in the sustainability world in the first month of 2025. A flurry of executive orders came out of the new administration in the US with potential big implications for climate, the energy transition, and many other topics that fall under the broader sustainability umbrella.

We also had a lot of headlines out about the EU's plan to potentially simplify its sustainability reporting rules, and we'll be covering all these topics in upcoming episodes. Today, we're zooming in on another big topic making headlines this year, the wildfires in Los Angeles, California.

Fires broke out in LA's Pacific Palisades and Eaton neighborhoods in January 2025. They rapidly spread to cover more than 37,000 acres over a period of weeks, killing 29 people and damaging or destroying more than 18,000 structures. That's according to the California Department of Forestry and Fire Protection. And AccuWeather estimates more than $250 billion in total damages and economic loss.

Lindsey Hall: Today, we're going to talk to climate scientists about the role of climate change in extreme weather events. We're going to talk about the very real business and economic impacts of the LA wildfires, and we're going to dig into the implications specifically for the insurance sector in a conversation with the former Insurance Commissioner of California.

First up, I wanted to understand the basics of wildfires, what causes them and how is climate change linked to what's happening in LA. For this, I spoke to Terry Thompson, the Chief Scientist in the Climate Center of Excellence at S&P Global and a repeat guest on this podcast. I also talked to his colleague, Danielle Montagne, a data scientist in the Climate Center of Excellence, who works on climate modeling and economic impacts of climate change.

Terry came on this podcast back when Canadian wildfires blanketed much of the Eastern US in smoke, and I wanted to bring him back to help understand what's been happening in LA. Here he is explaining the basic ingredients that go into wildfires.

Terry Thompson: Not unlike the Canadian situation a couple of years ago, I think we should keep in mind that there are several factors with regard to wildfire that may or may not be influenced by climate change. Weather conditions, which are certainly influenced by climate change, fuel availability and condition of that fuel, which is partially affected by climate change.

And then, of course, an ignition event, which is not affected by climate change. So those three factors are what we have to keep in mind because wildfire is related to climate, but it's one of the most complex phenomenon. And it is at times quite difficult to sort out how much of what we're seeing with regard to wildfire is climate related and how much not.

To use an overworked phrase, perfect storm, this really is a perfect storm situation in Los Angeles in which multiple factors have come together at the same time, some of them influenced by climate change and some not to create this horrific situation.

Let's talk about the weather factors first. Certainly, it's not only the level of the weather, but it's the pattern of the weather that is a contributing factor here. Wildfires in the Los Angeles region are primarily driven or fed by fuel that we'll call generically brush rather than forest. And brush, like other plants, responds very positively to increased moisture.

And for the past couple of growing seasons in the Los Angeles area, there's been substantial moisture and has built up the fuel supply, the brush supply. Brush, unlike forests, has a more rapid drying time. It takes less time to dry out brush to a flammable level, if you like, a dangerous level than it takes to dry out a forested area.

So we had two growing seasons building up the fuel content in the Los Angeles area. And then we had a very dry 2024 with still delayed arrival of winter or fall moisture. And this drying period rapidly dried out an increased level of fuel. So this is part of the perfect storm situation in which fuel has built up due to positive growing conditions and then it's dried out very rapidly due to lack of precipitation.

Added to that and specific, at least compared to some other regions to the Los Angeles area are the Santa Ana winds, which in this particular situation over the past several weeks or a couple of months have been very strong and very dry. So this exacerbates the entire situation.

So climate change is related to the first two factors, the buildup due to a good growing season, increased moisture associated with increased warming of the atmosphere, leading to more intense moisture filled situations and then a very dry period also related to climate change, the so-called volatility of the climate, more rapid changes from one extreme to the other, that drying period creating a very dry large body of fuel.

However, on the wind side, there is essentially no climate relationship that we can see, but this is very significantly a contributing factor to the Los Angeles situation. So it's this complex interplay that I'd like to emphasize. Climate change is not the only culprit here, but it is an accentuating factor that made this event and other events more severe than they would have been otherwise.

Lindsey Hall: Thank you very much. Danielle, anything you'd like to add?

Danielle Montagne: Something that I think is useful when thinking about these sort of events and climate change is to remember that one of the most risk-inducing parts of climate change is that the extremes are getting a lot more frequent. And so in a place like California where drought is expected to increase throughout the century, like Terry said, you have more frequent and extreme conditions for wildfire.

Lindsey Hall: We just heard about the complex factors that contribute to wildfires and how a warming world is making these kinds of events more frequent and severe. To learn more, I turn to our next guest from NASA.

Gavin Schmidt: My name is Gavin Schmidt. I'm the Director of the NASA Goddard Institute for Space Studies in New York City, where I work mainly on climate modeling, trying to understand why climate has changed in the past, why it's changing now and what the predictions are going to be for the possible futures that we might experience.

Lindsey Hall: In January 2025, NASA confirmed that 2024 was the warmest year on record. Here's Gavin explaining those findings.

Gavin Schmidt: 2024 was the warmest, 2023 was the warmest, 2020 was the warmest, 2016 was the warmest, 2015 was the warmest, 2014 was the warmest, and so this goes back. And so right now, we have a situation where the last 10 years have all been the 10 warmest years on record.

And so there's very little equivocation about whether the planet has, in fact, been warming and the magnitude to which it has warmed is very close to the 1.5-degree Celsius level above the pre-industrial that was called out in the Paris Agreement.

The fact that we keep on saying that we're breaking records sounds like a broken record, but it's true. And one of the things that you learn, I think, in communication is that you have to repeat things many, many times before people hear it for the first time.

So the fact that we are warming very considerably in kind of global terms is very significant, geologically significant. We're halfway to the temperatures last seen during the Pliocene, three million years ago. And so, you know, every new record is unfortunately a new chance to make that point to people and to have people hear it perhaps for the first time.

The sad thing is, is that we're going to continue to have similar headlines, not every year, but every few years as long as we continue to add carbon dioxide into the atmosphere until we get to net zero carbon dioxide, global warming will continue. And so even just to stabilize where we are now, then we really need to get to a net zero as soon as possible.

Lindsey Hall: You indicated that you spend a lot of time communicating about climate change. As you said, you have to repeat something a lot to get the message through. What do you think is one of the big misconceptions when it comes to wildfire that you'd like to correct or that you think people need to hear a couple more times to understand?

Gavin Schmidt:  With respect to wildfire, I mean, I think the thing that people need to know is that there are both proximate causes, right? So why did this fire start at this particular time? And sometimes it's arson, sometimes it's the power lines, sometimes it's lightning.

But that's a slightly separate issue to why there are so many more fires than there were, we're seeing more fires because the Southern California, in particular, but not just Southern California, they're seeing drier conditions and they're seeing hotter conditions. And when you have that wind component and that ignition source, then things are going to burn.

So you have both these ultimate causes and then you have the proximate causes and people get confused sometimes deliberately by thinking, oh, well, if we just stop the proximate cause, if we stop people, if we sue the power companies or if we, the stronger law enforcement when it comes to arson, then we can stop the fires. And that's a category error. The fires will come.

Lindsey Hall: What conversations is the science community having? Are you having right now about these Los Angeles wildfires? Are they prompting any kind of outstanding research questions, for example?

Gavin Schmidt: I mean these are the research questions that we've been working on. So not really new research questions, but it has become much more personal. So a lot of the folks that lost their homes in Altadena and in Pacific Palisades were actually people who are working at the Jet Propulsion Lab. And so colleagues of mine that I have worked on, on satellite instrumentation on sea-level rise lost their homes.

And so people that are working on climate change, we're seeing these things become very personal. Last year as well, the Hurricane Helene that hit North Carolina was extremely disruptive for people living in Asheville, which is where one of the main NOA labs are that we work with closely on keeping track of weather station data, ocean data, and monitoring the climate, as we mentioned earlier on. And they were flooded out and they lost their home. So this isn't an academic exercise. These are real people that are suffering.

Lindsey Hall: We just heard Gavin from NASA explaining some of the real-world impacts of extreme weather events like wildfires. He also talked about the importance of cutting greenhouse gas emissions and reaching net zero as quickly as possible. Our next guest has a unique perspective on this topic, especially as it relates to insurance. Here he is.

Dave Jones: Dave Jones, I'm the Director of the Climate Risk Initiative at the Center for Law Energy Environment at UC Berkeley School of Law and former Insurance Commissioner for the State of California.

At the Climate Risk Initiative, we're focused on looking at how climate change and climate risk is impacting the financial sector and financial institutions and making policy recommendations and regulatory recommendations with regard to what financial regulators ought to be doing to address the impacts of climate change and climate risk on the markets they regulate.

The LA wildfires tragically are the worst wildfire natural catastrophe in United States history. The insured losses are estimated to be as high as $35 billion. The economic losses from the LA wildfires could be as high as $250 billion, some 28 people's lives were lost, 16,000 structures and counting destroyed and terrible, terrible impacts on people's lives, their possessions, their homes and the local economy as well.

Lindsey Hall: Dave led California's Department of Insurance from 2011 to 2018. And during that time, the state experienced a number of deadly and destructive wildfires. I asked him how he's seen wildfire risk and the insurance industry's reaction evolve over time.

You'll hear him mention California's FAIR Plan. That's the state's insurer of last resort that provides basic property insurance to consumers when coverage in the voluntary market is unavailable.

Dave Jones: What we're seeing in California and throughout the Western United States is that wildfires are getting more severe and more frequent. This is particularly true in California, but it's also the case in Western and Southwestern states. So wildfires are killing more people, injuring more people, damaging, or destroying more property and wiping out all communities.

And because we're not doing enough fast enough to transition from fossil fuels and other greenhouse gas emitting industries, global temperatures are predicted to continue to rise, and we're going to see more of these extreme and severe weather-related events.

Lindsey Hall: Can you talk to me about what impact are these wildfires having on California's insurance market?

Dave Jones: Insurers in California and throughout the United States and the globe respond to increased losses from climate-driven disasters like wildfires, floods, hurricanes, tornadoes, severe convective storms, droughts, pick your peril in two ways. One is they raise price and the other is that they decrease the amount of insurance they're writing.

And the way that this has landed in California is that insurers for six or seven years now have been increasingly not renewing home and business property insurance. And last year, they actually paused writing new insurance.

Now they are renewing something on the order of 80% or 85% of their book of business in California, but we had never seen a pause in terms of writing new insurance policies for new customers.

This phenomenon is not limited tragically to California. There are some 18 states across the country where insurers are substantially raising price and declining to write or renew insurance because of the losses that they're suffering driven by climate-driven extreme weather events.

Lindsey Hall: And so what should our audience understand about the knock-on effects of that decision to pause on new insurance policies?

Dave Jones: First, the increase in price of insurance and the increased unavailability of insurance has significant economic consequences for households and businesses. One consequence is that their cost of purchasing a home and paying a mortgage on the home is going up.

So many households in the United States who purchase a home do so with a mortgage. Mortgage loans in the United States require that you maintain home insurance. If you lapse your home insurance, the mortgage lender can force place insurance for you and that oftentimes costs more than the insurance that you were able to purchase on the private market.

Families and individuals thought at the time they took out, say, a 30-year mortgage that they had some understanding that their insurance costs might go up 4%, 5% per year. Instead, insurance costs are going up 10%, 20%, 30%, 40%, 50%, 100%, 200%, sometimes 300 or 40% per year. This places a real strain on households' ability to continue to afford their mortgage.

And we're beginning to see some evidence of mortgage defaults in some markets across the United States, not just associated with the impact of wildfires on insurance price and availability, but also the impact of climate change and other extreme and severe weather-related events impacting insurance pricing and availability and then flowing through to the mortgage lending market. That's one knock-on effect.

It also has consequences for businesses who have taken out loans for their purchase of their property or the upgrade of their property and their ability to make debt service payments on those loans. It also has terrible consequences for other aspects of the financial system, too, in terms of flow-through effects. So insurance is the climate crisis canary in the coal mine and the canary is starting to expire.

Lindsey Hall: That's a really striking way of putting it. So Dave, who holds the keys to solving these problems you're explaining?

Dave Jones: Fundamentally, the problem is driven by climate change. And we're going to continue to see increased insured natural catastrophe losses in the United States and globally because we're not doing enough globally and throughout the United States to address climate change, which means more comprehensively and aggressively transitioning from using fossil fuels and other greenhouse gas emitting industries if we want to begin to bend the curve with regard to temperature rise.

So we've got to redouble our efforts in that regard. Sadly, our new federal administration here in the United States is going to take us in the opposite direction and double down on fossil fuels, but there's still a lot of work that states can do to help further the transition from fossil fuels and greenhouse gas emitting industry.

So that's the #1 issue. We can focus on the symptoms of the insurance crisis, but to address it fundamentally, we've got to focus on the cause, which is climate change.

Lindsey Hall: Dave described some steps homeowners can take to reduce their wildfire risk to their property as well as broader steps that states can take.

Dave Jones: In the wildfire context, that means whole hardening and doing various things to make your home less likely to burn as a result of a wildfire. That includes using roof materials that are more pervious to fire, shatter resistant glass so that when the heat of the fire approaches the house, your windows don't shatter and embers flow in, protecting the ease of the attic to prevent embers from coming. And there's a long list of things.

It also includes defensible space around the home, removing vegetation, no attached structures that are a conduit for fire to the home. These sorts of things make a difference and the insurers own research institute recognizes they make a difference.

In addition, landscape scale nature-based interventions like more aggressive forest management, including prescribed fire thinning of forest, not clear cutting and reduction of low level of vegetation, small trees in the forest can dramatically reduce the fuel load in the forest and reduce the likelihood of severe wildfires.

So we know these things work. The problem is that the direct writers of insurance for homes and for businesses are not accounting for the risk reduction benefit of mitigation measures at the property level or landscape scale in the models they use to decide whether to write or renew your insurance.

And that's very frustrating because homeowners can spend thousands or tens of thousands of dollars doing home hardening, doing defensible space. They're paying local state and federal taxes for billions of dollars of investment in landscape scale forest and chaparral and brush treatment.

And yet even if they're proximate to these activities where landscape scale mitigation is occurring and even if they're doing home hardening defensible space themselves, they get no credit for it in terms of the models and risk scores that are used to decide whether to write or renew them insurance.

Another thing that needs to happen is that US insurers have invested over $0.5 trillion in the fossil fuel industry, raises a very legitimate question as to why insurers in the United States are allowed to invest in the very industry whose admissions are posing an existential threat to the ability of insurers to write home and business insurance.

In addition, insurance companies have what's called a right of subrogation, which is the ability to stand in the shoes of any policyholder and bring claims against third parties for the third party's actions or inactions, which caused damages to the policyholder, which in turn caused the insurance company to have to pay out money.

Some of the best-known examples of these are when health insurers brought subrogation claims against big tobacco for the cost that the health insurers suffered as a result of having to pay out health insurance benefits to medical providers for insurers who were suffering the effects of tobacco use, health insurers also brought subrogation claims against the opioid industry.

Another example is property and casualty insurers bringing subrogation claims against utilities for starting fires. And so insurance companies should exercise subrogation claims against the fossil fuel industry. They haven't done so, so far. So states and governors need to stand up to the industry and demand that they do so. The only remedy should not just be imposing more costs on policyholders and writing less insurance.

Lindsey Hall: And I'm really curious, what is the response you're hearing to all of these ideas that you've laid out? What is the response you're hearing from insurance companies?

Dave Jones: So last year, the Nature Conservancy and I sponsored a bill in California Senate Bill 1060, which was carried by State Senator Josh Becker, that would have simply required that the models the insurers use to decide whether to write or renew your insurance account for property community and landscape skill mitigation, home hardening defensible space, the $3.6 billion in California has appropriate for forest treatment, the hundreds and hundreds of millions, if not billions, the federal government is using for forest treatment.

That bill was killed by the insurance industry. So I think it's going to require more fortitude on the part of state legislatures and governors to stand up to the industry and say enough is enough. We simply can't be marching towards an uninsurable future in this way without making sure that at a minimum, your models are accounting for mitigation, you give people a fighting chance to get insurance.

Lindsey Hall: Would you say that the wildfires in LA this year are prompting new conversations that you're privy to in California?

Dave Jones: As tragic as they are, the LA wildfires are yet another wake-up call that climate change is real, it has real consequences. It's impacting insurers and insurance markets, and we need to redouble our efforts to get the underlying cause, which is fossil fuel emissions and greenhouse gas emissions.

In California, Senator Scott Wiener, this last week introduced Senate Bill 222, which is the Affordable Insurance and Climate Recovery Act, which, among other things, puts a duty on the California FAIR Plan, which is the insurer of last resort, to bring subrogation claims against the fossil fuel industry for its contribution to losses that the FAIR Plan is facing from more extreme and severe weather-related events.

It also creates a private cause of action for private individuals and businesses to bring lawsuits against the fossil fuel industry for its contribution to the climate change-driven events that are causing losses.

And it also creates a cause of action for insurers directly, not through subrogation to bring lawsuits against the fossil fuel industry as well for that industry's contribution to the losses insurers are suffering as a result of climate change driven extreme and severe weather-related events. So yes, the tragedy in LA has resulted in renewed efforts to try to hold the fossil fuel industry accountable for its contribution to these losses.

Lindsey Hall: So today, we heard about some of the complex causes of the wildfires in LA. We heard how 2024 was the warmest year on record and how climate change means extreme weather events like wildfires are becoming more frequent and more severe.

And we heard about some of the ways this evolving reality is impacting people's lives, the economy, and insurance availability. We heard from Dave some ideas for what the insurance industry should do to tackle climate change. And we want to hear from companies, too, about how they're thinking about the ideas he outlined in today's episode.

We'll include an email address in our show notes if you'd like to get in touch, and we'll continue covering this topic in future episodes with perspectives from the industry.

Esther Whieldon: As Dave said, the LA wildfires are a wake-up call about the urgency of addressing climate change and the importance of mitigation actions.

Lindsey Hall: And while all of this can seem pretty dire, I wanted to end on a more positive and forward-looking note. So I'm going to give the last word today to Gavin from NASA. Here he is one more time.

Gavin Schmidt: Obviously, we can't prevent what has happened, but we can prevent the situation getting worse, and we can prevent the situation getting worse by reducing and in the end to zero carbon dioxide emissions. There's really no practical other way to even stabilize the situation, let alone reverse it.

One key thing that's come out of relatively recent science is that will we just stop tomorrow emitting carbon dioxide, the temperatures will effectively be flat, which means that any further temperature rises that we are going to see in the future are going to be caused by our future emissions. And so we still have agency as a society. What we do matters as a society. And I think that, that's an important message to get across as well.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon: And a special thanks to our agency partner 199, see you next time.

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