Colossal and rapid mobilisation of investment capital needed to protect global economy from intensifying climate risks

In a new report, Coalition for Climate Resilient Investment also warns resilience to severe climate impacts will only be possible when existing systemic market failures are addressed.

As climate disasters intensify and prospects for avoiding even more catastrophic warming diminish, Coalition for Climate Resilient Investment (CCRI) warns in its maiden report since launching in 2019 that systemic market failures must be addressed before it will be possible to unlock the scale of private finance needed to support climate adaptation and resilience in both vulnerable and developed countries.

According to the report ‘Risk and Resilience’ published by CCRI, a global coalition of institutional investors, banks, insurers, rating agencies and governments representing over US$20 trillion in assets, three key factors are responsible for the chronic underinvestment in climate resilience by the private sector:

• 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.

The report 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 within the global economy. The framework goes from top down, looking at systemic risk and resilience, to bottom-up, looking at how investors should integrate physical climate risk considerations in the asset design and structuring of specific investments.

The latest report by the Intergovernmental Panel on Climate Change states that mean global surface temperatures will continue to increase until at least the mid-century, requiring all countries, but especially vulnerable developing economies, to be ready for at least 30 years of increased frequency of floods, heatwaves and sea level rises.

“This is no longer a ‘vulnerable nation’ discussion,” said Sanchez. “Extreme weather is taking hold in every part of the world and causing damage beyond our worst case scenarios. In response, we need a colossal and rapid mobilisation of investment capital to find solutions which will both mitigate climate change and increase our resilience to it.”

However, latest assessments reveal that adaptation in developing countries is estimated to require as much as US$300 billion investment per year by 2030[1], overshadowing the US$79.6 billion spent in 2019 on both mitigation and adaptation in these countries. In fact, the same analysis shows that investment in resilience for Small Island Developing States has actually declined, revealing a global ‘adaptation gap’ that is widening.

“The warming we’ve experienced to date has caused irreversible changes to many of our planetary support systems on timescales of centuries to millennia,” added Sanchez. “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.”

Quotes included below from stakeholders in Climate Resilient Investment

About the Report

‘Risk and Resilience – Addressing Physical Climate Risks in Infrastructure Investment’ focuses on the need to incorporate physical climate risks in infrastructure design and investment decision-making. It presents how Coalition for Climate Resilient Investment (CCRI) is addressing the ‘climate resilience market failure’ through the implementation of tools, methodologies and principles to help the various stakeholders involved in infrastructure, including the financial industry, build resilience to a changing climate.

[1] UN Environment Programme, “Adaptation Gap Report 2021”.