COVID-19 triggers turning point for climate-resilient investment

Building resilience to climate change cannot be achieved without a systemic shift in the way projects are financed. This is according to the financial sector-led Coalition for Climate Resilient Investment, which stresses the need for robust climate risk data and analytics, as well as greater collaboration, if global climate goals are to be met.

Investment choices made now will lock in for decades either a global network of climate-resilient infrastructure or a collection of exposed assets, the group has warned.

At a meeting convened this week, senior representatives from the World Economic Forum, Aberdeen Standard Investments, S&P Global Ratings, HSBC and DWS, urged key global stakeholders to act now in addressing three specific weaknesses identified as critical barriers to properly assessing climate risk and being able to drive a shift toward a more climate-resilient global economy:

Incentive structures limited by short-termism – There is a crucial need to support longer-term incentive structures that promote resilience, such as regulation and cost of capital, in their growing efforts to foster and reward an appropriate integration of physical climate risks in investment decision making.

Climate risk data and analytics into mainstream finance – Better data supported by sophisticated analytical tools are needed to properly assess and price climate risk, and to translate exposure into cash flow modelling.

Sharing expertise across industries and public sector – A collaborative approach focused on building consensus in areas such as analytical methods and financial materiality is pivotal.

International environment minister Zac Goldsmith, who opened the event, said: “As we recover from this pandemic, we have a unique opportunity to create a greener and more resilient global economy with governments and the private sector working hand in hand as a force for good.

"The UK will continue its global leadership in tackling climate change ahead of hosting COP26 next year. The Coalition for Climate Resilient Investment and other partnerships are now more important than ever to help developing countries access the finance they need for adaptation and resilience.”

John Haley (pictured), Willis Towers Watson CEO and CCRI chair, added: “COVID-19 has certainly tested our determination to advance our mandate in what has been a hugely challenging period. Despite the human and economic crisis attached to it, COVID-19 also constitutes a unique opportunity to ensure that climate risk is embedded in stimulus plans and decision making more broadly. Our ultimate goal is that, by advancing more efficient investment decision making practices, we will see lives and economies in developing and developed regions become more resilient.”

Properly pricing climate risk in financial decision making will, according to CCRI, align investment flows towards infrastructure capable of withstanding a changing climate. Providing a methodology to quantify the economic and financial risks and benefits will provide a substantial incentive for financial markets to embed resilience upfront.

Since launching nine months ago with 35 institutions and £4trn in assets under management, CCRI has grown to include 53 members and £8trn in assets.

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