A founder's journey with Sid Jha, CEO of Arbol - the fast-growing "climate risk management" platform

Sid covers his journey from India to Harvard to JP Morgan, his recognition of the challenges of climate risk that led to Arbol, and where he sees future opportunity for recent graduates.

“For anybody entering the field, there's just a huge choice of areas to focus on. Initially when you start out your career, it's best to understand one or two things really, really well. And then, you can expand after that. It’s just like you build a business, but you're building a personal business. You want to become an expert first. And with climate there's a huge choice of problems to work on.”

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Transition Leads profiles top entrepreneurs — like Sid Jha, as well as investors, scientists, policymakers and executives in the energy & decarbonization transitions who share their insights, personal stories and career advice for the new generation of leaders.

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Siddhartha (Sid) Jha is the Founder, Chairman, and CEO of Arbol, an insurtech and global climate risk management platform. Before Arbol, Sid worked for thirteen years in quantitative analysis and trading at major Wall Street firms. He also launched and managed his own commodities trading funds and authored the guidebook "Interest Rate Markets," published in both English and Mandarin. Sid has taught financial markets at NYU and was on the board of a non-profit working with inner-city youth. He graduated from Harvard University with a bachelor’s in Applied Mathematics and master’s in Statistics as part of a 4-year combined degree program.

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James Socas

We're here this morning with Sid Jha, the founder and CEO of Arbol among other accomplishments. Sid is going to go through his very interesting personal story, his business which addresses climate financial risk, and his advice for people starting out in their careers. We are meeting at Arbol’s offices on Park Avenue, and Rob Griffen and I will ham and egg it as usual.

Sid, we usually begin by asking people to go through where they grew up, how they got started, and how they became interested in climate and the transition. Can we start there with you?

Sid Jha

Absolutely. Thank you, and thank you for having me on. My background is fairly eclectic. I was born in India, and I lived there until I was 11 years old. My dad was a long time in the Indian Forest Service and served a number of roles for the government in the jungles of southern India, where a lot of my early years were spent. He would be told to manage tea plantations, so when I was three years old, we lived on a tea plantation. I think he was involved with a crocodile hatchery at some point and protecting a sandalwood forest. So a big influence in my life early on was the natural environment and the importance of preserving it.

Then I spent the next few years in the other kind of jungle, the urban jungle of New Delhi. That was a whole different type of crazy! From there I came to the US and went to school around Boston through high school and then Harvard for college. Outside of the environment, math was another big theme at my house, and I always loved it. I did a bachelor's and master’s in applied math and statistics at Harvard.

When I came out of school, I went to JP Morgan to do interest rates and macro-investing in what was a bit of an assembly line then for a Harvard quant. I spent the next decade or so in commodities as a quant analyst and portfolio manager working at places like Castleton and Citadel.

To be good at commodities trading you have to understand how the world works at a very base level. How does gasoline make it to your car? Where does wheat come from that makes your bread and what are the different export zones? Same for sugar, coffee, cocoa, copper, lead, zinc, you name it. That taught me a lot about how the interlinkages of supply and demand, logistics, and supply chains worked. And obviously the weather and climate was a big part of all of that.

Around 2018, I decided I wanted to do something on my own, but it was difficult at first to figure out exactly what that would be. One of the things that had always been very interesting to me was that weather was one of the biggest risks we took, but there was no way to actually transact it. That got the original idea for Arbol going.

James

Hedging weather risk has been done through things like futures contracts and catastrophic bonds, and so what was it that you saw as an opening for a new company?

Sid

Climate risk gets talked about a lot today and it was talked about then too, but as a far more distant problem, probably like how pandemics were talked about until COVID hit. All that started to change fairly quickly as climate risk accelerated and the things that seemed a long way in the distance are happening today. Climate risk is now a huge, pervasive part of our financial system.

I also wanted to build on what I knew. I don't like abandoning threads, and what I like about Arbol is that every thread of everything I've ever worked on has come full circle.

James

I've had the benefit of hearing the Arbol story and the impressive numbers the business has been putting up, but for someone who hasn't, can you give us the Arbol elevator pitch?

Sid

Sure. Our goal is to create an end-to-end financial infrastructure to help businesses manage climate risk. We work with a range of companies in different industries that are being affected by climate risk, whether it's agriculture, energy, property, and soon travel. Think of a farmer who might get wiped out if they face a major drought or a ski or beach resort that is facing increasingly unstable weather. And on the other side, we connect those businesses with capital providers who are looking for uncorrelated, diversified risk. We want to empower resilience against climate risk.

We picked the name “Arbol” because it means tree, and by using software, multiple data sets like weather, satellite, construction files, AI and analytics we can be the tree or foundation that enables people to write contracts to manage that risk. The simplest thing is to think of Arbol as a two-way platform — but that belies a lot of complexity and coordination underneath.

James

From my very simple understanding and bear with me — if you think you're going to die, you can get life insurance. You can get health insurance to protect against getting sick or injured. You can buy flood insurance if your home is in an exposed area. And your thesis with Arbol is that climate risk is going to be similar. People are going to want to trade out of the risk they face or could face, and there will be people on the other side — just like there is with life insurance and fire insurance and health insurance — that are willing to take the other side. They're willing to take on that risk for some payment, some money.

Sid

Exactly. Risk transfer is a very old business — insurance is one of the oldest financial products. What makes climate risk so interesting is that it is a risk completely separate from the typical economic risks, a bad business cycle or interest rate or political changes. It is “uncorrelated” to those other risks; it is its own unique thing. And we think it is a big, growing market that is just getting started.

Climate risk is also behind a lot of things that people may not see. If you look at a home insurance company, 85% of the risk is now climate. There are some small risks, of course, with mechanical failures or human error and things like that, but the bulk of the losses now are coming from climate-related risk. Look at what happened in Los Angeles a few months ago. There are now regularly hundreds of billions of dollars of losses that have climate as a root cause.

These risks are also broadly felt. Look at the agricultural supply chain, it's not just the farmer who is at risk. In fact, we work less with farmers now, and more with the agricultural processors, transporters, warehouses. Because when a crop fails, it has a cascading effect. When the 2012 drought happened, most of the ethanol industry went bankrupt. They don't grow corn, but they don't get a federal subsidy check when the crop fails.

And the risks are getting harder to manage as they interact. There's a significant amount of instability in the power grids because wind variations and solar variations and temperature variations are all coming together, like a trifecta of volatility.

We try not to think of this as insurance but rather think of it as managing a balanced portfolios of risks. How do we create a diversified portfolio of risks so that the person on the other side, a fund or whoever, will be willing to write coverage?

James

Sid, it sounds like one of the very good benefits as Arbol continues to be successful is that by creating this new asset class you'll really be able to offer those farmers or people that live in coastal areas or exposed places a much lower cost of managing risk than they would get by taking, as you said, the one-off risk. It creates an interesting financial investment for some people, but it also really lowers the cost.

Sid

Yes, and let me give you an example. If I just come to you and say, “Hey, how much would you charge me to protect against severe rainfall in southeast Peru in August?” Well that's a single idiosyncratic risk, and it's going to be crazy expensive. It’s a bit more like betting on the weather.

What differentiates what we do is that we are building a portfolio. Think of life insurance. Insurers are not betting on the lifespan of a single person, they are looking at a large group where some people may die prematurely and some may live a long time. In our case the portfolio might be a little bit of rainfall risk, a little bit of heat risk, a little hurricane risk, so that you create an asset class that is different than idiosyncratic random bets with single players. That asset class now becomes something which can funnel large amounts of capital, and pricing is much better and more efficient. And that's the difference, in my mind, between a prediction market or weather betting versus an actual functioning risk transfer mechanism.

James

Got it. And as climate risks increase this becomes more important.

Sid

Yes, lower cost is one benefit, but I would say an even a bigger one is that we are finding we may be the only company offering coverage in many areas for the climate-related risks businesses are facing. In other places the insurance deductibles and the exclusions continue to get worse and worse. We can keep cost low and manage risk by diversification. That advantage is interlinked with the fact that we offer our products in lots of underserved areas, so that we can build a truly diversified portfolio, which in turn brings cost down for everybody. We help make a farm or a renewable facility or a home insurance company much more resilient, so that they not just survive but thrive.

Rob Griffen

Sid, that was a fascinating overview. You are obviously using some pretty advanced technology combined with your experience in finance. If you were to advise somebody who wanted to get into the area, what would be a good career path? Would it be through finance as you did it? Is it through tech?

Sid

Great question. And I have actually had over the years many, many talks with young people about to graduate, family members, friends or whoever. And my story is just a little too meandering to be the model! There probably could have been a much cleaner route to where I got to.

I would say that for what we do specifically having a grounding in math and stats is absolutely essential. I didn't do a degree in finance, but that was where I ended up. I had always been a math and stats guy. I could code seven, eight languages, although at this point, I probably can code only zero. The longer time you spend as a CEO, the more it's just phones and meetings and you stop actually doing things!

Our hiring is primarily math, stats or computer science grads. We have an amazing pipeline of people we talk with, and we have a very heavy intern program. Some of our best employees came as interns. I was myself an intern at JP Morgan, and I really like that it's a kind of long interview process for both sides.

What we have seen is that the people who have been most successful are the ones with a solid grounding in understanding data, statistics, and then putting that into action through the new tools that are coming out. On the AI side, most of what is called AI is graduate or late undergraduate stats. There's marketing around it, but that's what a lot of AI really is.

In the climate space a lot of the AI models are getting better at understanding near-term extremes. We work a lot on seasonal changes and impacts. That's where different kinds of statistical analysis and AI come in. And so there's just a plethora of different quantitative techniques that you need to understand.

Rob

How is analyzing climate data and weather different than what you used to do as a financial quant?

Sid

What I would say about the climate space in particular, unlike maybe the finance space, is that it's far more of a hodgepodge of things with a lot of complexity. Our head quant has spent the last few weeks understanding wildfire quantitatively, and that is so different than the previous thing he and his team were working on which was hail. With hail you're working with things like hailstone size and speed, and with wildfires you're working with terrain, and soil moisture levels, and wind. So you need to have a sense for how you can dynamically work with tons of different kinds of variables and be creative doing so. And there's a lot of human creativity and there's a lot of AI creativity that has to come together.

Another team of ours is working on the on the insurance side, where a lot of human processes are prone to errors. In traditional insurance, it's very qualitative. We are helping people take climate analytics into underwriting. How do you combine different, very disparate insights from traditional data and new data like spatial images and maps and say, “Okay, this is an area in which we want to write home insurance, or this is an area in which we really don’t?"

We also talk to renewable asset guys all the time, and one of the biggest concerns they have is — Where do I exactly build the solar or wind farm? What can I expect, not just now in terms of the trends, but over the next 5-10 years? What are the trends showing about cloud cover or wind speed? And these can vary quite a bit in different areas and within the same area, so you need to have a deep grasp of what's going on with the climate system and how it's changing.

I think it's less about finance and more about having a deep comfort with understanding data, different kinds of data, and then being able to come up with solutions for how you understand the linkages between that data. I would say that's a big part of entering the space for a new person.

James

I’d like to go back to what you said earlier to frame how people planning their careers should think about the next few years. You said something like in 2017 or 18, climate change seemed a long way off. And this goes to Rob's question about how you would advise a younger person — is your view that some of the stuff we thought was a ways away is accelerating and is becoming bigger, something that people now need to put on the front burner, whereas it might have been on the back burner. Is that what you're seeing?

Sid

I can cite examples for most every arena we work in. The Los Angeles fires are just a most recent example. You have the floods in North Carolina, you have had a ton of bankruptcies of insurance companies in hurricane prone areas, you're starting to see that financial impact. It's no longer a theoretical discussion. And the thing is, if insurance breaks down, lending breaks down, mortgage markets don't work without insurance, local property markets start to break down.

In agriculture, you see it all over the place where crop yields are starting to tail off. In many, many regions, heat stress or drought stress are becoming more widespread and causing falling crop yields, when we've all gotten used to crop yields just going up and up.

One last example is hydropower and transport. We write coverage on river water levels, for example, because as river levels fall waterways don’t work for moving goods and hydropower drops. A lot of hydro is starting to be at risk, and that's our biggest renewable energy source currently.

For anybody entering the field, there's just a huge choice of areas to focus on. Initially when you start out your career, it's best to understand one or two things really, really well. And then, you can expand after that. It’s just like you build a business, but you're building a personal business. You want to become an expert first. And with climate there's a huge choice of problems to work on.

James

That's great advice.

Rob

A related question is if you're a non-STEM person and you want to get into resilience, or or some area related to climate risk, what would be good avenues to think about given how quickly the market is changing?

Sid

I would say almost every field has a need for non-STEM graduates given what is happening. For example, there’s a tremendous need for better legal talent. A lot of things are in flux, and you’ll as events happen, such as in California, there’s a lot to do in law and policy. Our tax structures, regulations and contracts are extremely behind in, for example, incentivizing better buildings, incentivizing more energy storage, whatever area you're working in, better water use in agriculture.

We as a society still don't do a good enough job of incentivizing the right climate mitigation practices. Insurance companies can do a little bit, but it really has to come from policy. So I think there's a lot of space for someone entering the field to grow in those areas. How do we create better policies? How do we create better legal structures? Figuring out these questions will be a large opportunity for non-STEM graduates.

James

That's a great observation on the policy changes needed. We are going to wrap up with our last question. From a personal standpoint was there some advice you got from your mother or your father, or some book that you read that made a big difference to you and your career?

Sid

That's a tough one. A lot of books have meant a lot to me, and I grew up around so many environmental books. I would say it was smatterings of different books. Silent Spring is one. I learned a lot reading Barbarians at the Gate on the finance side. Also, When Genius Failed, because it wasn't any one particular thing that brought down Long Term Capital Management, it was the combination of many factors – just like we have been talking about with climate and finance.

James

Sid, this has been great. Rob anything else?

Rob

That was terrific advice for people across lots of areas. Thank you and good luck with Arbol and building the company.

EDITED FOR LENGTH AND CLARITY

For more background on the changing climate’s impact on insurance markets please see:

Council on Foreign Relations on climate and U.S. property insurance

Munich Re commentary on climate risk

Senate Budget Committee report on insurance and climate

For FT subscribers/paywalled: FT Series: The Uninsurable World