Category: Business & Private Sector

European Commission: Adapting to climate change is more urgent than ever

European Commission: Adapting to climate change is more urgent than ever

By Elisa Jiménez Alonso

In a recent evaluation of the 2013 European Adaptation Strategy the European Commission (EC) asserted that adapting the regions and economic sectors of the European Union (EU) to the impacts of climate change is now more urgent than was forecasted in 2013.

The finding was shared in a report on the implementation of the adaptation strategy and lessons learned, published on 12 November. The recently released IPCC report about the impacts of 1.5 °C versus 2.0 °C global warming added even more urgency to the EC’s findings.

“The need to adapt remains and it has actually grown, as impacts of past emissions unfold through heatwaves, storms, forest fires at high latitudes or destructive floods.”

Miguel Arias Cañete, DG CLIMA

Commissioner for Climate Action and Energy Miguel Arias Cañete said: “Our collective work on adaptation has shown we not only know more but can also do more to prevent the worst climate impacts projected by 2050. The need to adapt remains and it has actually grown, as impacts of past emissions unfold through heatwaves, storms, forest fires at high latitudes or destructive floods. This evaluation provides a credible basis for the EU policy on adaptation to explore new directions, improvements and also alignment with international developments since 2013.”

Expected annual damage to critical infrastructure in European regions, due to climate change, by the end of the century (million EUR). Source: European Commission.

The EC’s evaluation showed that the adaptation strategy had delivered on its objectives to promote action by Member States, ‘climate-proof’ action at EU level and support better-informed decision-making. However, it is very clear that Europe is still vulnerable to climate impacts and more work needs to be done in order to build resilience. The findings will undoubtedly provide food for thought for the upcoming UN climate change conference COP24.

Some of the key findings of the evaluation are:

  • The current adaptation strategy is still relevant, and the Commission will be guided by its objectives.
  • Major infrastructure projects financed by the EU budget have become climate-proof and will withstand sea level rise, flooding or intense heat.
  • In the future, an effort must be made to ensure most, or all, EU cities have a thorough adaptation plan to protect citizens from both extreme and slow-onset climate hazards. The plans should also cater for specific vulnerabilities of certain communities (e.g. the EU’s Outermost Regions) and the different risks faced by the very diverse regions in the European continent.
  • Adaptation must support and be supported by the protection of the EU’s biodiversity (nature-based solutions).
  • The contribution of the private sector to enhance society’s resilience must be encouraged: the Commission’s efforts will continue to be channelled through its Action Plan on Financing Sustainable Growth and the subsequent legislative proposals adopted in 2018.
  • Climate services for specific adaptation needs should develop into business opportunities, based on reliable and standardised data and the incentives provided by Copernicus and other European Earth observation initiatives.

Cover photo by  Dimitris Vetsikas/Pixabay (public domain).
Majority of companies in Scotland say climate change a risk to business

Majority of companies in Scotland say climate change a risk to business

by Georgina Wade

A study, commissioned by the World Wide Fund for Nature (WWF) Scotland, found that nine in 10 large companies in Scotland believe climate change poses a risk to their business.

The October poll indicates that 85% of large businesses and SME’s in Scotland say they want the Scottish Government to be a global leader in tackling climate change. The finding comes just after the release of an IPCC report warning that we have 12 years to limit climate change.

Additionally, the Bank of England only recently declared that banks and insurance companies will be required to appoint a senior manager to take responsibility for protection from climate change risk.

Responding to the poll’s findings, Dr Sam Gardner, acting director at WWF Scotland, said:

“These findings make it clear climate change is no longer a concern of a few ‘green’ businesses. Climate change poses many chronic and severe risks to our planet’s natural and financial systems. The best way for Scotland to minimise the threat posed by climate change and maximise the opportunities arising from our response is for Scotland to continue to take a world-leading role, as businesses across Scotland clearly seem to understand.”

Matt Lancashire, Scottish Council for Development and Industry director of policy, believes that Scotland’s transition to a low-carbon economy is a great opportunity for the Scotland’s economic growth.

“Our renewable energy sector has generated sustainable economic growth and created thousands of high-quality jobs, directly and in an extensive supply chain, while also reducing emission and making the air we all breath cleaner.”

The survey of 300 Scottish businesses was conducted by Censuswide on behalf of WWF Scotland and included 150 businesses with over 250 employees and 150 SME businesses.

Cover photo by Adam Wilson on Unsplash
UK government fails to make climate risk reporting mandatory

UK government fails to make climate risk reporting mandatory

By Will Bugler

In a move that was branded “disappointing” by the Environmental Audit Committee (EAC), the UK government has resisted calls to make it compulsory for large companies to report their exposure to climate risks. The move leaves the UK lagging behind France, which passed a law mandating climate risk reporting for big business in 2015.

Companies are facing increasing pressure from investors and shareholders to report their climate risk exposure, which is likely to have a significant bearing on future performance. The UK Government’s decision to rely on voluntary reporting instead was presented in its response to the EAC’s report on green finance – which had urged the government force businesses to disclose their climate exposure.

“It is disappointing that the Government has not used this opportunity to follow France in making it mandatory for large companies and asset owners to report their exposure to climate change risks and opportunities.” Said EAC Chair Mary Creagh MP.

The governments decision is at odds with the prevailing sentiment of investors. The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) has built considerable momentum behind the need to disclose climate information as part of companies’ financial reporting. Over five hundred companies have publicly expressed their support for the TCFD’s recommendations.

Major banks are also taking steps to understand climate risks. Sixteen of the world’s leading banks, the UN Environment Finance Initiative, and Acclimatise recently published new methodologies to help banks understand how the physical risks and opportunities of a changing climate might affect their loan portfolios.

“The physical impacts of climate change may pose a risk to banks’ loan portfolios.” said Acclimatise’s Chief Technical Officer, Dr Richenda Connell. “Once banks understand the scale of the risks, this will be a milestone that will encourage other corporates to take climate risk management seriously. Building resilience to physical climate impacts also presents banks with investment opportunities. Those that understand this best will have a competitive advantage.”

More needs to be done to encourage businesses to understand and respond to climate risks and opportunities. Recent research from the Asset Owners Disclosure Project, shows that while awareness is rising about climate change, almost ninety percent of assets managed by the world’s largest public pension funds have not been subjected to a climate risk assessment.

In the UK, the Department for Work and Pensions (DWP) has admitted that there is little understanding amongst trustees on the scale of fiduciary duties that are related to climate and environmental risks.

Download a copy of the ‘Navigating a new climate’ report from here.

Access the webinar recordings by clicking here.

Cover photo by bilaleldaou/Pixabay (public domain).
3 reasons the private sector should invest in Nature-based Solutions to become more climate resilient

3 reasons the private sector should invest in Nature-based Solutions to become more climate resilient

By Elisa Jiménez Alonso

Note: There is a survey at the end of this article to find out about private sector involvement in nature-based solutions, especially in Latin America and the Caribbean, make sure to complete it if you know of good examples!

In the past few years, ‘nature-based solutions’ has emerged as a new umbrella term for measures “inspired and supported by nature”. Nature-based solutions cover a range of methods that are tried and tested, such as ecosystem services, green-blue infrastructure, ecosystem-based adaptation, and more. This new term provides a new category of sustainable practices that utilize the natural world, which can be used by policy and decision makers to tackle many societal issues, such as climate change.

The recently released special report on the impacts of global warming of 1.5 °C above pre-industrial levels by the Intergovernmental Panel on Climate Change (IPCC) has put the urgency of immediate and effective climate action front and center once again. Not only is a swift reduction of greenhouse gas emissions extremely important, but, with the amount of warming that has already happened, climate change adaptation is also top of the priority list.

Climate change presents many challenges to the private sector, in particular for companies whose products or services are dependent on natural resource or have assets that are exposed to the elements. Companies will need to consider how to protect their assets from damages caused by extreme weather events, how to maintain services in the face of a changing climate, and how to maintain access to increasingly scarce natural resources. Not planning for climate change impacts can result in service failures with severe economic or reputational losses and cascading impacts to other sectors.

So, how can nature-based solutions help companies deal with climate and climate-related risks and why should the private sector invest in them? Here are three reasons to begin with:

  1. Nature-based solutions often take advantage of existing natural resources that regenerate themselves, consuming less energy and remaining unaffected by power loss as opposed to many gray infrastructure solutions. An example of this could be water treatment of industrial wastewater through wetlands rather than a wastewater treatment facility .
  2. Many nature-based solutions are self-sustaining and don’t lose performance capacity over time. Depending on the solution it might even improve. Gray infrastructure solutions lose value over time and have a finite life expectancy after which they need to be replaced or decommissioned. This could be, for example, restoring or establishing oyster reefs to break wave energy and reduce coastal erosion instead of building artificial wave breakers.
  3. Nature-based solutions have many co-benefits that can range from mere aesthetics to biodiversity conservation, decreasing water runoff and thus flood risk, and having a beneficial impact on human health. These co-benefits can significantly improve the reputation of private companies. Take for example a company that installs rainwater harvesting features in the form of vegetation and underground water storage to use the harvested water in bathrooms on their premises, thus reducing its impact on the local water supply, providing a pleasant green environment to its employees, and having a positive impact on local biodiversity.

In order to effectively make the business case for nature-based solutions and encourage the private sector to increase its investment in them, the Inter-American Development Bank, UN Environment, Acclimatise, and UN Environment World Conservation Monitoring Centre are working on a project that will identify the barriers and enablers to private sector uptake of nature-based solutions, specifically in Latin America and the Caribbean.

Despite the potential benefits and vast applications of nature-based solutions, few examples of private sector use in Latin America and the Caribbean have been profiled. Through this project, we seek to identify examples of implementation, the barriers and enablers to uptake by the private sector and what steps could be taken to increase the consideration and use of nature-based solutions to build infrastructure resilience.

If you know of any good examples in the region, please fill in the survey and tell us about them!

Fill in the survey in English by clicking here.

Complete la encuesta en español haciendo clic aquí.

Cover photo by Chris Barbalis on Unsplash
How do you make the financial business case for the private sector to invest in resilience?

How do you make the financial business case for the private sector to invest in resilience?

By Climate Finance Advisors

Last week’s Climate Week NYC played host to 35 official events on private investment for climate change and countless satellite gatherings, from the Sustainable Investment Forum to Climate Infrastructure. The topic has gained currency as municipal governments grapple with deferred maintenance of infrastructure, public pension liabilities, and other expenditures, ten years after the Great Recession local budgets remain tight. Add to this mix a growing and urgent need for climate-proofing local infrastructure, and it’s not hard to see why government officials and policymakers are searching for solutions that share the costs of climate-resilient infrastructure investment with the private sector.

On September 12, the Houston Advanced Research Center (HARC) hosted a panel on resilience financing that focused on how the public and private sectors together could develop resilience funding mechanisms for Houston. Stacy Swann, the CEO and Founding Partner of Climate Finance Advisors, joined by other five national thought leaders from the financial sector, shared insights on resilience bonds and how they may provide the necessary financing to future local infrastructure projects.

One year after Hurricane Harvey, Houston is clearly in need of climate-resilient infrastructure to prepare for future damaging flood events. This second costliest storm on record caused $125 billion worth of damage and put one-third of the city underwater. The estimated loss due to business interruption is $26 billion, and around 500 businesses are reported to have major damage. During the disaster, Harris County Flood Control District infrastructure sustained significant damage and will require an estimated $155 million for assessment and repairs. Within a network of 2,500 miles of bayous, creeks, and drainage systems, 1,200 sites were reported to damage such as erosion, slope failures, silt deposit, and concrete failures. However, as pointed out during the panel, the potential capital expenditure for infrastructure repair and development exceeds the public funding available.

The question on everyone’s mind is: How to catalyze private capital as a complement to public funding sources? With consensus on the importance of resiliency continuing to build, the need for capital and emerging partnerships between governments, industries, and communities may offer opportunities for innovative financing mechanisms.

Besides public infrastructure, many industries are vulnerable to such extreme weather events too, suggesting they have a business incentive to be proactive on climate resilience. As hurricanes rage, industries from fossil fuels to agriculture to Internet infrastructure are grappling with the impacts of climate change on infrastructure and other real assets. But are they ready to open their pocketbooks and invest in public and private infrastructure that delivers resilience solutions?

Let’s examine some of the affected industries. Representing 40% of the nation’s petrochemical manufacturing capacity, refineries, chemicals and plastic manufacturers along the Gulf Coast suffered substantial losses and posed threats to the environment. At the peak of the Hurricane Harvey flooding, more than 25% of the U.S. refining capacity was shut down, equivalent to the processing capacity of 4.8 million barrels per day. Domestic gasoline retail prices jumped more than 10% due to supply disruptions and refinery outages. Besides economic impacts, ExxonMobil, Shell, Valero, and Kinder Morgan were reported to experience storage tank failures, leading to leaks and spills of more than 620,000 pounds of hazardous chemicals including crude oil, benzene, and volatile organic compounds.  Leak incidents from natural gas and anhydrous hydrogen chloride pipelines were also reported, according to the National Response Center. While these immediate problems will be addressed, and manufacturing facilities will return to normal production eventually, the environmental damage as well as corporate costs and lost revenues underscore these industries’ vulnerability to extreme weather events.

It’s increasingly clear that Harvey is hardly a unique event. On the East Coast earlier this month, Hurricane Florence brought rainfall of more than 30 inches to Wilmington and other parts of eastern North Carolina. Besides road closures and power outages, the hurricane also caused a coal-ash breach in a landfill owned by Duke Energy, leaking 2,000 cubic yards of material containing mercury, arsenic and other toxic substances. While the exact impacts of the breach are yet unknown, this incident, following similar coal ash pond discharge events in 2014 and 2016, clearly illustrated how vulnerable fossil fuel infrastructure can be, particularly during extreme weather events.

Buffeted by Florence’s winds and catastrophic flooding, agriculture took a hit as well. As one of the nation’s largest poultry- and hog-producing states, North Carolina lost 3.4 million poultry and 5,500 hogs, according to preliminary estimates, and there have been widespread reports of manure lagoons flooding, leading to untold environmental damage from toxic contamination. Tobacco and sweet potato crops were affected as well. Before Florence made landfall, only half of tobacco and a quarter of the sweet potato crop were harvested. North Carolina accounts for 50% of the U.S. tobacco production and is the largest producer of sweet potatoes.

And the impacts of substantial physical climate risks are not limited to the fossil fuel, petrochemical, and agriculture industries. In as soon as 15 years, a significant part of U.S. Internet infrastructure will be underwater due to sea level rise, including over 4,000 miles of fiber conduit and 1,000 nodes, according to a recent study by researchers at the University of Oregon and University of Wisconsin-Madison. Among all service providers, CenturyLink, Intelliquent, and AT&T are identified at the highest risk with a significant amount of infrastructure located in coastal regions.

These imminent and material risks call for immediate action from a wide range of corporate actors. However, a report published earlier this year by CDP and Climate Disclosure Standards Board (CDSB) suggests that most companies are not yet ready to take strategic actions to address climate-related risks. This study looked at more than 1,600 companies across 14 countries and 11 sectors. While 82% of the surveyed companies acknowledged the risks and opportunities associated with climate change, only 12% of them address these issues by providing incentives to the board. Furthermore, a second survey released by HSBC during this year’s Global Climate Action Summit (GCAS) suggests that less than 10% of 1,731 issuers and investors are aware of the Taskforce on Climate-related Financial Disclosures (TCFD), which last year released guidelines on corporate climate-related risk disclosure.

Businesses vulnerable to changes in climate and weather need to make long-term and strategic investments that are climate-resilient, which will not only help mitigate potential risks, but may also transform business threats into opportunities, and develop core competencies by committing to climate-smart investment. While the TCFD’s recommendations for corporations on disclosure are an important first step, fully integrating climate change considerations in corporate strategy and risk management is a much more comprehensive and holistic process.

This year, as a first step, Climate Finance Advisors, in collaboration with Acclimatise and Four Twenty Seven, published a Lenders’ Guide for Considering Climate Risk in Infrastructure Investments to address questions shared by banking institutions and infrastructure investors. This report provides a framework to help investors understand climate-related physical risks, such as from weather damage and natural disasters, by linking them to projects’ revenue, cost, and asset value. This and other climate risk identification and management tools are helping to bring climate risk considerations into C-suites and investment committees, the first step in climate-proofing business models and investment portfolios, and mobilizing capital for public and private resilience solutions. In future blog posts, we will explore the business case for private investment in resilience that can help mobilize much-needed capital – stay tuned.

This article was originally published on Climate Finance Advisors and is shared with kind permission.

Cover photo by US Navy: In the wake of Hurricane Sandy debris and destruction can be seen in and around the houses in Breezy Point, N.Y. Over 100 houses burned to the ground as flood waters isolated the community from fireman. Hurricane Sandy was the largest Atlantic hurricane on record and caused the most damage in New York and New Jersey Oct. 29, 2012. (U.S. Navy photo by Chief Mass Communication Specialist Ryan J. Courtade/Released) Photo by Ryan Courtade – Nov 13, 2012 – Location: Breezy Point, NY. The appearance of U.S. Department of Defense (DoD) visual information does not imply or constitute DoD endorsement.
Spiraling wildfire fighting costs are largely beyond the Forest Service’s control

Spiraling wildfire fighting costs are largely beyond the Forest Service’s control

By Cassandra Moseley, University of Oregon

Just six months after the devastating Thomas Fire – the largest blaze in California’s history – was fully contained, the 2018 fire season is well under way. As of mid-July, large wildfires had already burned over 1 million acres in a dozen states. Through October, the National Interagency Fire Center predicts above-average wildfire activity in many regions, including the Northwest, Interior West and California.

Rising fire suppression costs over the past three decades have nearly destroyed the U.S. Forest Service’s budget. Overall funding for the agency, which does most federal firefighting, has been flat for decades, while fire suppression costs have grown dramatically.

Earlier this year Congress passed a “fire funding fix” that changes the way in which the federal government will pay for large fires during expensive fire seasons. This is vital for helping to restore the Forest Service budget. But the funding fix doesn’t affect the factors that drive costs, such as climate trends and more people living in fire prone landscapes.

The cost of managing wildfires began to rise in the late 1990s and increased significantly after fiscal year 2000. CRS

More burn days, more fuel

Why are costs increasing so dramatically? Many factors have come together to create a perfect storm. Climate change, past forest and fire management practices, housing development, increased focus on community protection and the professionalization of wildfire management are all driving up costs.

Fire seasons are growing longer in the United States and worldwide. According to the Forest Service, climate change has expanded the wildfire season by an average of 78 days per year since 1970. Agencies need to keep seasonal employees on their payrolls longer and have contractors standing by earlier and available to work later in the year. All of this adds to costs, even in low fire years.

In many parts of the wildfire-prone West, decades of fire suppression combined with historic logging patterns have created small, dense forest stands that are more vulnerable to large wildfires. In fact, many areas have fire deficits – significantly less fire than we would expect given current climatic and forest conditions. Fire suppression in these areas only delays the inevitable. When fires do get away from firefighters, they are more severe because of the accumulation of small trees and brush.

Blue areas on this map experienced fire deficits (less area burned than expected) between 1994 and 2012. Red areas had fire surpluses (more area burned than expected), while yellow areas were roughly normal. Parks et al., 2015,, CC BY

Protecting both communities and forests

In recent decades, development has pushed into areas with fire-prone ecosystems – the wildland-urban interface. In response, the Forest Service has shifted its priorities from protecting timber resources to trying to prevent fire from reaching houses and other physical infrastructure.

Fires near communities are fraught with political pressure and complex interactions with state and local fire and public safety agencies. They create enormous pressure on the Forest Service to do whatever is possible to suppress fires, which can drive up costs. There is considerable pressure to use air tankers and helicopters, although these resources are expensive and only effective in a limited number of circumstances.

As it started to prioritize protecting communities in the late 1980s, the Forest Service also ended its policy of fully suppressing all wildfires. Now fires are managed using a multiplicity of objectives and tactics, ranging from full suppression to allowing fires to grow larger so long as they stay within desired ranges.

This shift requires more and better-trained personnel and more interagency coordination. It also means letting some fires grow bigger, which requires personnel to monitor the blazes even when they stay within acceptable limits. Moving away from full suppression and increasing prescribed fire is controversial, but many scientists believe it will produce long-term ecological, public safety and financial benefits.

Suburban and exurban development has pushed into many fire-prone wild areas. USFS, CC BY-ND

Professionalizing wildfire response

As fire seasons lengthened and staffing for the national forest system declined, the Forest Service was less and less able to use national forest as a militia whose regular jobs could be set aside for brief periods for firefighting. Instead, it started to hire staff dedicated exclusively to wildfire management and use private-sector contractors for fire suppression.

There is little research on the costs of this transition, but hiring more dedicated professional fire staffers and a large contractor pool is probably more expensive than the Forest Service’s earlier model. However, as the agency’s workforce shrank by 20,000 between 1980 and the early 2010s and fire seasons expanded, it had little choice but to transform its fire organization.

In six of the past 10 years, wildfire activities have consumes at least half of the U.S. Forest Service’s annual budget. CRS

Few opportunities for cost control

Many of these cost drivers are out of the Forest Service’s hands. The agency may be able to have some impact on fire behavior in certain settings, with techniques such as hazardous fuels reduction and prescribed fire, but these strategies will further increase costs in the short and medium term.

Another option is rethinking the resources for wildfire response. While there are almost certainly savings to be had, capturing these savings will require changes in how society views wildfire, and political courage on the part of the Forest Service to not use expensive resources on high-profile wildfires when they may not be effective.

Even if these approaches work, they will likely only slow the rate of increase in costs. Climate change, the fire deficit on many western lands and development in the wildland-urban interface ensure that continued cost increases are baked into the system for decades to come.

The ConversationWildfire fighting costs now consume more than half of the agency’s budget, reducing funds for national forest management, research and development, and support for state and private forestry. Even if it doesn’t lower costs, the fire funding fix is vital because it will help create space in the Forest Service budget to fund the very activities that are needed to address the growing problem of wildfire.

Cassandra Moseley, Associate Vice President for Research and Research Professor , University of Oregon

This article was originally published on The Conversation. Read the original article.

Cover photo by USFS/Flickr (CC BY 2.0): Air tanker drops fire retardant on the Willow Fire near North Fork, CA that began on Jul. 25, 2015 and has consumed an estimated 5,702 acres.
Major new report on physical climate risk to financial sector released

Major new report on physical climate risk to financial sector released

Financial institutions should undertake comprehensive climate risk assessments and disclose material exposure to climate hazards such as flood risk, water stress, extreme heat, storms, and sea level rise, according to a new report released today by the European Bank for Reconstruction and Development. The report focusses specifically on physical climate risks to the financial sector and calls for firms to integrate climate impacts into investment decisions.

The report, published today at a conference hosted by EBRD and the Global Centre for Excellence on Climate Adaptation (GCECA), presents guidance and recommendations developed over the last year by industry-led working groups that include representatives from AFD Allianz, APG, Aon, Bank of England, Barclays, BlackRock, Bloomberg, BNP Paribas, Citi, Danone, DNB, DWS, The Lightsmith Group, Lloyds, Maersk, Meridiam Infrastructure, Moody’s, the OECD, S&P Global, Shell, Siemens, Standard Chartered, USS and Zurich Asset Management. An expert team led, by Acclimatise and Four Twenty Seven served as the secretariat to the working groups throughout the course of the meetings.

The report, Advancing TCFD guidance on physical climate risks and opportunities”, also recommends that firms investigate benefits from investing in resilience and opportunities to provide new products and services in response to market shifts. In order to do this, the report calls for organisations to use scenario analysis and incorporate long-term climate uncertainties into business planning and strategic decisions.

The report and the conference, respond to calls for strengthening financial stability in the face of climate change uncertainties, through the disclosure of climate-related market information.  This was the core message, delivered last summer, of the Task Force on Climate-Related Financial Disclosures (TCFD), initiated by the Financial Stability Board (FSB) in response to a call from the G20 economies.

The report is available on a dedicated website, as are opinion pieces from heads of working groups and other leading experts.

Download the report’s executive summary here.

Cover photo by Ryan L.C. Quan/Wikimedia Commons (CC BY-SA 3.0): Looking downtown from Riverfront Ave in Calgary, during the Alberta floods 2013.
Climate Risk Insurance: Preparing for the Next Superstorm

Climate Risk Insurance: Preparing for the Next Superstorm

By Soenke Kreft and Michael Zissener, United Nations University

In September 2017, the Atlantic basin was ensnared in one of the most active hurricane seasons of all time. With wind speeds of 185 miles per hour, Irma was the strongest hurricane ever recorded in the Atlantic. This one storm produced as much cyclone energy as is considered “normal” for an entire Atlantic hurricane season.

And it was not alone.

Irma ravaged the Caribbean Islands just one week after Hurricane Harvey hit the southeastern United States. Hurricanes José, Katia, and Maria followed, leaving a trail of destruction in their wake with more to come. By some estimates, the damage of Harvey and Maria alone totaled US$215 billion.

As if this wasn’t bad enough, the climate disasters of 2017 were not limited to the North Atlantic. Heavy downpours in Western Africa and an abnormally strong monsoon season in India and Bangladesh killed thousands of people and destroyed infrastructure and economies. Likewise, heavy rains caused floods, landslides and deaths in Peru, Columbia, Sri Lanka, China, and elsewhere.

With the increasing regularity of climate disasters — and with related costs quadrupling in the past 30 years — governments are beginning to prioritize disaster risk reduction and climate change adaptation.

Many countries already promote risk management measures, like using hurricane-straps to prevent roofs from flying off, and building dykes to minimise tidal flooding and coastal storm surge. But while these measures can reduce part of the risk posed by extreme weather events, superstorms like Irma show they are not enough. Not all damage can be avoided. As such, we must look to solutions to cover the risks to which we cannot adapt.

Climate risk insurance offers one such solution.

Some Caribbean countries affected by Irma bought an insurance policy with CCRIF SPC (the former Caribbean Catastrophe Risk Insurance Facility). CCRIF announced on 7 September, the day the storm hit, that a payout of US $15.6 million would be made to the governments of Antigua & Barbuda, Anguilla and St. Kitts & Nevis to cover damages. The payouts were to be made not more than 14 days after the storm hit — as mandated by CCRIF’s guidelines.

While these payouts are not nearly enough to cover all storm reparations, the example still illustrates that tailored insurance coverage can provide much-needed funds, and quickly. The payout mechanism is triggered by objective catastrophe models (data from the National Hurricane Center in this case), which avoids delays caused by uncoordinated responses in the aftermath of many major catastrophes.

Studies show that economies with high (private) insurance coverage bounce back quicker to pre-disaster development once hit by earthquakes, storms or floods.

But before we look to climate insurance as a panacea for disaster recovery, we must understand its strengths, and its limitations. Research from the United Nations University finds that while climate insurance offers a compelling solution to increased climate disasters, three things must be considered in its implementation.

First, events like Irma help gauge our preparedness for superstorms and help us better understand who is the most affected by them. Research shows that poor people are the most exposed to — and least protected from — climate risks, and affordable risk-based insurance premiums remain a major challenge. To make insurance an affordable solution, the product can be subsidized by governments or other donors. Regional risk pools can also protect the poorest and most vulnerable. Those who still struggle to afford a premium could pay for coverage through an insurance for assets scheme, where they would be awarded a premium in exchange for taking part in risk reduction activities, like building flood defenses in their own communities. Bottom line, climate insurance schemes must be designed to meet the needs of all socio-economic classes.

Second, climate insurance schemes must be tailored to local needs and conditions, both in terms of the potential types of climatic risks, and the needs and economic abilities of potential clients. With the local context in mind, a properly designed scheme can give incentives for risk reduction by rewarding clients for taking positive action. Higher premiums can discourage people from living in areas that are at heightened risk of flooding or landslides, or encourage them to take preventive measures, reducing their levels of vulnerability over the long term.

Third, climate insurance is not a stand-alone solution. It can only reach its full potential if complemented by other risk management measures and integrated into a wider risk management framework including risk reduction and preparation. The key is to reduce and avoid as much risk as possible first, then use insurance to cover only what cannot be prevented or adapted to.

Climate change is set to intensify and drive an increase in all categories of meteorological hazards — storms, droughts and floods. The 2017 hurricane season was a strong reminder that governments, businesses and individuals must boost their preventative risk management activities, while also designing climate insurance approaches for protection when nature’s harm cannot be avoided. Together, these measures will give us the best chance to adapt to, and survive, a future of superstorms.

This article originally appeared on Our World by UNU and can be accessed here. It is share under a Creative Commons license (CC BY-NC-SA).

Cover photo by DFID/Flickr (CC BY SA): View of damage caused on by Hurricane Irma in Road Town, the capital of the British Virgin Islands.
Climate risk disclosure can help companies create competitive advantage

Climate risk disclosure can help companies create competitive advantage

By Caroline Fouvet

Businesses across all sectors will be affected by climate change. Corporations, from Starbucks to Google, will be affected by climate impacts that can disrupt their supply chains and damage their physical infrastructure. However, comprehensive climate change adaptation assessments and strategies are infrequently considered as part of companies’ business plans. As suggested by Professor Michael Porter, the perception of “an inevitable struggle between ecology and the economy” leads some companies to be wary of environmental regulations, often viewing them as expensive procedures that lie outside of core business planning.

Professor Porter, however, disagrees and claims that there is a complementary relationship between environmental protection and business.  He argues that companies that pay attention to environmental risks are likely to be more competitive. The ‘Porter hypothesis’, formulated in the 1990s, is still relevant today especially with the implementation of disclosure policies on climate change–related risks gaining traction.

In July 2015, France introduced mandatory climate disclosure requirements as part of its law on “energy transition for green growth”. Institutional investors must now report on how their investment policies integrate climate change considerations, and where applicable, climate risk management. This was followed the following year by legislation passed by the European Union’s parliament targeting pensions funds and requiring them to include climate change in their investment strategies. Climate disclosure requirements could help companies to be prepared for emerging climate risks and increase their resilience.

Furthermore, in 2017 the Financial Stability Board’s Task Force on Climate-related Financial Disclosures published its final recommendations to help companies disclose climate-related risks and opportunities. Following the release of these recommendations, a group of 16 leading banks is participating in a UNEP Finance Initiative project, co-lead by Acclimatise and Oliver Wyman, that is developing a methodology for the banks to help them strengthen their assessments and disclosure of climate-related risks and opportunities.

Although the businesses are becoming increasingly aware of climate risks to their operations, there remains plenty of room for progress. For example, even though the insurance sector is particularly vulnerable to climate-related risks, its business strategy does not shield it from the impact of climate change. A study shows that many assets are becoming uninsurable, leading to an estimated US$ 100 billion ‘protection gap’ – the difference between the costs of natural disasters and the amount insured.

Assessing the impact of climate change on investments and adapting business strategies accordingly can help businesses save money in the medium-long term. For that to happen, it is up to governments to implement disclosure requirements. For companies it is important to pre-empt such regulation, and take early action to reduce climate risks to both core operations and supply chains.

Cover photo by Dan Schiumarini on Unsplash.
How climate services could revolutionise the aviation industry (and save you money)

How climate services could revolutionise the aviation industry (and save you money)

By Suzi Tart, LGI Consulting

Flying is a contributor to climate change, but how will climate change impact flying? A new report finds that under the emissions scenarios of RCP4.5 and RCP8.5,* both medium- and large-sized aircraft will be unable to lift as much weight at their current speeds. The reason is that the predicted higher temperatures will result in lower air density, yielding a less-effective plane lift. Indeed, The Economist reports that this has already happened, with dozens of planes being grounded in Arizona on a particularly hot day in 2017.

Several factors of course play into this equation, but the report notes that aircraft flying out of airports with higher elevations, as well as aircraft using shorter runways in high temperatures, will be the most affected. Anywhere from 10%-30% of all flights taking off during the daily high temperatures are predicted to have reduced lift abilities, resulting in the need to cut as much as 4% of their overall weight.

This difference in weight could mean that quite a few seats must go empty in order for planes to take off. It does not take a rocket scientist to figure out that airlines will not continue to earn the same amount of profit with flights that are less full. For travellers, this could result in more expensive flights, vis-à-vis hauling fewer passengers on the same trips, or higher luggage fees due to new luggage weight restrictions. Airlines may also cut back on ammenities such as the drinks they offer, in order to cut weight in other ways. Also likely are increased delays at airports due to planes being unable to depart on time, indirectly adding to the costs. Changes to airport infrastructure, should airports need to extend runway lengths to provide planes more time to generate the same lift capacity, could also hit travellers with higher airport fees.

Apart from the financial impacts, there are some safety concerns as well. The temptation for airlines to book a seat too many when there are seats sitting idle is imaginable, particularly if there is no guarantee of higher temperatures on the day of the flight. A quick look at the runways of the Madeira (recently renamed Cristiano Ronaldo) Airport in Portugal, Barra Airport in Scotland, Courchevel Airport in France, or Gibraltar Airport in Girbraltar, is all it takes to realise that there is little room for error on the current runways. Perhaps these airports offer more extreme examples, but if planes can’t get the lift they need before hitting the end of their runway, it could be disastrous.

Dealing with future air density restrictions no doubt calls for technological innovation. Yet climate services should be an integral part of the solution as well. Most people have never heard of the term “climate services,” including those who actually use them in their work. The EU’s Roadmap for Climate Services defines it as “the transformation of climate-related data—together with other relevant information—into customised products such as projections, forecasts, information, trends, economic analysis, assessments (including technology assessment), counselling on best practices, development and evaluation of solutions and any other service in relation to climate that may be of use for the society at large.”

The MARCO project, for which LGI is a contributing partner, shows us that although the climate services market is still in its infancy, there is an increasing trend of both public- and private- sector professionals across many economic sectors who are starting to use climate services. The aviation industry is among them. Should Europe’s airports effectively incorporate climate services into their work, requiring all airlines and aircraft flying into and out of the airports to do so as well, Europe’s aviation industry as a whole would become much more adept at handling the impacts of climate change. Foreseeable examples include:

  • Aircraft manufacturers being able to better predict and construct the features that planes (including electric planes) will need, based on future atmospheric conditions;
  • Airlines having a better idea of when to schedule flights and how many seats to book under the predicted conditions;
  • Air traffic controlers having a less-stressful job, with better-planned flight schedules and fewer disruptions;
  • Airport authorities being able to invest in future terminals and tarmacs in a wise, climate-proof manner;
  • Aviation schools being aware of the future conditions under which pilots should spend more time training.

There are many foreseeable benefits stemming from applying climate services to the aviation industry, and this does not exclude related financial benefits. However, one major hurdle is getting companies with short-term time frames to look at such long-term aspects. Guidance from the government, via regulations and policies promoting the use of climate services, would no doubt help to send a strong signal to the market. By way of example, in 2011 the City of Copenhagen implemented similar regulations for its built environment sector, incorporating climate services for flood risks into its new urban development projects. Today, the city now expects to gain a whopping EUR 700-900 million.

While the financial gain for the aviation sector has not yet been calculated, climate services offer strong economic incentives, both for travellers and the aviation industry alike. Moreover, climate services support fewer chances of human error under the predicted tougher atmospheric conditions—something that even the most powerful engine may need.

This article was originally published on LGI Consulting‘s blog and is shared with kind permission, read the original article here.

*RCP stands for Representative Concentration Pathway. Established by the Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC), there are four RCPs: RCP2.6, RCP4.5, RCP6, and RCP8.5. The numbers refer to the increase in radiative forcing in the year 2100 from pre-industrial values.

Cover photo by Gerrie van der Walt on Unsplash.