The 2023 Bermuda Climate Summit wound up last week with a brilliant speech by Joshua Rosenberg, Chief Risk Officer of the Federal Reserve Bank of New York. After a disclaimer that he was not speaking on behalf of the Fed, he said that he looks at risk management strategies from nature. It is “Eat or be Eaten”, the name of his talk.

Prevention, detection and response — that is the process that keeps animals alive to fight another day. Rosenberg used the examples of three endemic species to illustrate: the Bermuda skink, the diamondback terrapin, the common buckeye caterpillar and the hermit crab. Each has its own risk strategy.

The skink if under attack can shed its tail to the predators, escape and regrow another tail. It is an example of how preventive controls do not always work. It is important to respond and recover. Whereas the terrapin lives in a salty environment but relies on fresh water, especially near the mangrove. Amazingly, it can reach out of its element to drink rainwater straight from the sky. If it has been subjected to briny water, the terrapin has developed a way to shed the salt. It relies on externalities.

Then there is the buckeye caterpillar, which creates competitive advantage by camouflage. It shifts risk that cannot be reduced as it forages in open ground. There are competing objectives to eat or be eaten, seeking food while avoiding the predators. Apex predators tend to hunt their food sometimes at distance and risk feast or famine. Other animals flock together and live by the law of large numbers. They share the risk, but some on the peripheral are lost to predators feeding on the fringes.

The hermit crab and the sea anemone make for strange partners. The crab hunts and the anemone feeds on the scrapes. The anemone assists the crab by being able to sting and neutralise the approaching creature. The worry is that if there isn’t enough fodder, the crab will eat the anemone.

Risk controls on complex systems are challenging. A change to one part can create unintended consequences elsewhere. As a risk manager, it is critical to sense the changes in the environment to adapt to them and survive. Keep eyes on your competitors. Link competition, commerce and controls. Have a critical mass of expertise and incredible partnerships. Staff is the most important partnership. Convene, inspire and communicate.

The NYC Federal Reserve has several critical functions. It is the correspondent bank for international banks doing business in United States Dollars and handles their ongoing payments, which must be done right. The NYC Fed also handles distribution of cash. For example, with Puerto Rico under its umbrella, the NYC Fed had to deploy cash to the island after it was decimated by Hurricane Marie. The NYC Fed Branch also controls a stock of gold bars, although it cannot be accessed via the subways as depicted in the movies. It is very secure. In addition, the branch has an investment portfolio of $7 billion, which has to be monitored and managed. Rosenberg aims for resilient people, processes and technology.

Rosenberg mentioned the challenge of possible mistiming of costs and benefits. Some costs are known now, but the future benefits are unknown. Whereas in other events, the benefits are known, but the costs cannot be quantified. For example, ice cream or exercise? One is a short-term benefit but could have long-term costs. Another is the cost of hurricanes. There are advance actions that can benefit the long-term cost, but may not totally offset the future catastrophic cost. Cost/benefit dynamics can stress and break systems. You have to respond and recover.

Skills or wills? Ignorance or apathy? Setting goals and providing motivations are challenging. Teams have to have the right people, governance and culture to thrive. It is important to use understandable language and examples that people can understand. Change requires conversation and, especially, listening. And learning an adaptive approach.

That is Rosenberg’s advice for managing risk. He is definitely well attuned to Bermuda species and noted he was in his element with the other risk managers and modellers attending the climate summit. Well-known reinsurer Stephen Weinstein, who thanked Rosenberg for his talk, noted that he is one lively risk manager. Weinstein elaborated that it is important to tie risk management to dynamic issues to enliven the topic for those practising it, as well as for the understanding of those who stand to benefit.

• Patrice Horner, MBA is a European Financial Adviser who is interested in encouraging change to save the planet and our futures