A group of investors, insurers, banks, rating agencies and governments have outlined how three key factors are responsible for “chronic underinvestment in climate resilience” from the private sector.
The Coalition for Climate Resilient Investment (CCRI), which represents over $20trn (£15trn) in assets, outlines in a new report how “systemic market failures” must be corrected to unlock the “colossal and rapid mobilisation of investment capital” needed to protect the global economy from intensifying climate risks.
A lack of analytical tools to quantify the exposure of assets to physical climate risks, difficulty in determining and comparing resilience options, and investors not adequately adjusting their expected returns or cost of capital to account for such risks, all must be addressed.
The report also details progress made by CCRI to support and accelerate the shift towards greater investment in resilience, including development of a framework for approaching different levels of physical climate risk.
This framework includes a top-down approach – looking at systemic risk and resilience – as well as bottom-up analysis of how investors should integrate physical climate risk considerations in asset design and structuring of specific investments.
“Even if we stop all emissions today, adaptation will still be necessary,” said Carlos Sanchez, CCRI executive director.
“For nations and investors to fund and build infrastructure that is more resilient and capable of withstanding present and future impacts of climate change, physical risks must first be properly priced upfront in financial decisions.
“There is increasing demand for practical approaches to deal with the challenge of scaling up adaptation, with CCRI playing a key role in advancing solutions that will allow more private finance to support the orderly transition to a low-carbon, resilient economy.”
The Intergovernmental Panel on Climate Change estimates that mean global surface temperatures will continue to increase until at least the mid-century, requiring all countries to be ready for 30 years of increased frequency of floods, heatwaves and sea level rises.
However, the latest UN assessments reveal that adaptation in developing countries could require as much as $300bn investment per year by 2030, overshadowing the $79.6bn spent in 2019 on both mitigation and adaptation in these countries.
The same analysis shows that investment in resilience for Small Island Developing States has actually declined, revealing a global ‘adaptation gap’ that is widening.
Mark Carney, UN Special Envoy for Climate Action and Finance, said: “CCRI has a crucial role to play in the evolution towards investors integrating physical climate risks into their decision-making process.
“The Coalition’s commitment to collaborate with other initiatives, such as the Task Force for Climate-Related Financial Disclosures, the development of practical solutions, and consultation with global regulators, is enabling a deeper and more pragmatic understanding of the climate transition challenge ahead of us.”
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