Category: Finance

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.
EBRD launches physical climate risk tool at California conference

EBRD launches physical climate risk tool at California conference

By Franka Klingel, EBRD

The impacts of climate change have dominated headlines this year. This summer has seen some of the most severe wildfires in California, with an area of 5,808.30 km2 devastated and the total losses estimated at US$ 2.5 billion. Europe has also experienced its fair share of extreme weather events – the cost of Greece’s deadly Attica fires in July is estimated to be around US$ 33.7 million while Storm Friederike earlier this year caused an overall loss of US$ 2.7 billion to Germany and its surrounding neighbours.

It is therefore very timely that Bank of America and the European Bank for Reconstruction and Development (EBRD) hosted the event “Finance, Business and Climate Resilience: Physical Climate Risks and Opportunities in San Francisco as part of the California Global Climate Action Summit.

The event focused on how financial institutions and businesses can share better market information to help factor physical climate risks into their operations, investment decisions, and financial and corporate reporting.

It provided an opportunity for the EBRD to share insights about how it has integrated physical climate risk management and climate resilience into its financing operations, as part of its Green Economy Transition (GET) approach.

During this high-profile event, the EBRD also released a new knowledge product – a web tool exploring how businesses can integrate information about physical climate change impacts into corporate and financial reporting.

Access EBRD’s physical climate risk knowledge hub by clicking here.

Covering firms across a range of sectors including manufacturing, agribusiness, power and energy, mining and commercial property, the infographic provides successful examples of how recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) on physical climate can be put into practice. It builds on the report Advancing TCFD Guidance on physical Climate Risks and Opportunities , which was jointly developed by the EBRD, the Global Centre on Adaptation (GCA), a range of partners from the financial, corporate and regulatory sector as well as two consultancy firms,  Acclimatise and Four Twenty Seven. This report, which was published in May 2018, provided recommendations on how institutions can include physical climate risks and opportunities into their financial and corporate reporting.

In addition, the United Nations Environment Programme Finance Initiative presented their newly developed methodology on assessing the risks and opportunities from the physical impacts of climate change on financial institutions’ loan portfolios. They also shared experience of piloting the methodology in 17 partner financial institutions.

The “Finance, Business and Climate Resilience: Physical Climate Risks and Opportunities” event was a milestone along a collaborative journey that involves thought leaders from the corporate, finance and regulatory sectors, which the EBRD and the GCECA initiated in 2017 based on the recommendations of the TCFD.

Whilst the TCFD recommendations provided a framework for disclosing transition and physical climate risks and opportunities, they left organisations to develop their own methodologies and approaches for implementing the disclosure recommendations.

A vivid public discussion followed, focusing on the impacts of transition risks. However, physical climate impacts also affect businesses’ balance sheets and asset values.

Here at the EBRD we have been developing practical approaches to supporting climate resilience through our investment operations for almost a decade. This experience enables us to support our clients in identifying the specific hazards they face from the physical impacts of climate change.

Since 2011, we have built up a portfolio of over 200 climate resilience investments with a total investment volume of more than €5 billion. Covering a wide range of sectors and industries, this provides a valuable evidence base and demonstration impact for the growing range of businesses and financial institutions interested in managing physical climate risks and promoting climate resilience through their investments and operations.

This blog was originally published on EBRD’s website and is shared with kind permission.

Who benefits and who’s willing to pay? Key questions for adaptation finance

Who benefits and who’s willing to pay? Key questions for adaptation finance

By Mairi Dupar, Technical Advisor to CDKN

Last week in London, Climate Policy Initiative, adelphi and GIZ convened a roundtable to examine developing countries’ financing challenges, needs and opportunities in response to climate risk. The discussion ranged from government preparedness to the insurance industry’s role in encouraging resilient behaviours by adjusting premiums. Mairi Dupar of CDKN shares her view.*

The adaptation finance roundtable focused on how developing countries can mobilise investment for climate adaptation more effectively. The discussions explored a key question: ‘Who benefits from investments to reduce climate risk and, as a result, who is willing to pay?

Indeed, ‘who benefits’ is a question that gets to the heart of individual and organisational incentives to invest in climate change adaptation.

Consider a mangrove forest

Convincing businesses to pay for climate adaptation depends on aligning identified risks (and mitigating measures) with their business plans.

The group considered the hypothetical case of a 5 star hotel on a stretch of coastline, where mangroves protect against coastal erosion. Imagine how important the mangroves’ ‘green infrastructure’ could be in breaking up wave energy and retaining soils as storm surges increasingly pound the coast in a changing climate. The hotel’s very existence depends on the shoreline’s integrity and the presence of mangroves.

The hotel company would benefit directly and materially from preserving the mangroves. There is a clear business case for why the company should invest in mangrove conservation to protect its own continuity. Here, investing in mangrove protection, a form of climate risk reduction, becomes an integral part of the business plan.

In this scenario, it is likely that conserving the mangroves would benefit the local community and wider society, by providing many ecosystem services (some with direct monetary value, others not), such as hatching grounds for fish, carbon storage and sequestration, and so on. These would be ‘positive externalities’ of the company’s investment, that would bolster broader social resilience.

Consider another case: the 5 star hotel is positioned several kilometres inland. Removing the mangroves has no immediate impact on the hotel’s physical integrity and its profitability over five, ten, even twenty years. Imagine in this scenario that thousands of low income residents are situated close to the mangrove forest and highly exposed to coastal storm surges if the mangroves are cut. Some community members gain from cutting the mangroves today for their firewood and income needs, but overall, these gains are small and short-lived; whereas a mangrove conservation scheme promises steadier long term employment for some workers and indirect benefit from healthy fisheries and a resilient, more protective coastal environment, for thousands more people.

In this scenario, the hotel company doesn’t have a business case for investing in the mangrove’s protection; it has less stake in the game.

By contrast, thousands of community members have a material, long-term stake in the mangroves’ health. Here, the needed investment in mangrove conservation (and hence climate risk reduction) is a public good. Who invests? Who is willing to pay?

The hotel company may be willing to pay, but as a matter of corporate social responsibility or ‘charitable work’ rather than as an integral part of its business operation.

The community members may band together to self-organise and pay in cash or in kind for mangrove conservation. Or, this could be a role for financing by local or national government (or benevolent, external actors) of this public good.

Business basics are what drive private sector adaptation investments

“We need to be careful about over-emphasising the call for ‘innovative’ financial mechanisms to attract private investment to climate adaptation,” said John Firth, Director of Acclimatise. “What we need to do to mobilise private sector investment is in fact quite simple. We need to answer two questions: ‘Is there a business case, for investment in climate change adaptation and for more resilient investments,’ and ‘is there a return on investment?’”

Sometimes the investments that companies need to make to reduce their climate exposure and vulnerability are clear-cut.

Other times, it takes big picture thinking and good data and analysis to pinpoint the investments that will reduce climate risks to a manageable level. The Oasis Platform for Catastrophe and Climate Change Risk Assessment and Adaptation – which is funded by the CPI’s Global Innovation Lab for Climate Finance, offers ‘a set of tools that together aim to offer a more transparent, robust and comprehensive approach for analysing and pricing risk from extreme events’ including modelling of climate-related disaster losses.

Dickie Whitaker, its Chief Executive, said: “We are looking at mangrove swamp removal and coral reefs and the connection is embedded in the model-as well as factors such as the type of soil, the saturation of soil, and the runoff. We don’t say ‘I wonder what will happen to the mangrove swamps because it’s included in the model already – if someone takes the mangroves away, then the insurability will go down”.

Financing adaptation when it’s a public good

Craig Davies of the EBRD pointed out that recent developments such as the Task Force on Climate-related Financial Disclosures (TCFD) are beginning to create incentives for a more rational allocation of capital in a way that reflects the realities of climate change impacts. Multilateral finance institutions and climate finance mechanisms should urgently consider how the public funds that they manage can help ensure that developing countries are not left behind. ‘International climate finance has an important counter-cyclical role in supporting vulnerable locations and communities that commercial finance would otherwise not reach’ said Dr Davies.

Forms of blended finance, where the public sector takes the ‘first loss’ for an adaptation investment and reduces financial risk for private investors, are growing in popularity – a recent article by Charlotte Ellis and Kamleshan Pillay documents promising blended finance initiatives in Southern Africa.

Ultimately – according to John Ward, Director of Pengwern Associates, the public sector may have a role to play in monetising and paying for the benefits of resilience activities that are not currently monetised and paid for.

These interventions to build climate resilient societies – beyond the company level – could be as fundamental and diverse as: data and information sharing, creating education and alert systems, creating, preserving or restoring public infrastructure and many other activities.

Once these public goods activities are identified, then either they can be funded by public monies or, said Mr Ward, “you identify who the people are who are willing to pay to access those benefits and match them to the investors who are willing to bear the costs.”

Roundtable participants agreed that non-governmental organisations have often led the field in identifying the multiple benefits of adaptation projects and either financing them directly from their own private sources, or setting up reciprocal financing mechanisms to make programmes self-sustaining. Many successful NGO initiatives involve nature-based solutions that mediate the impacts of climate change—such as tree-planting and sustainable water management in watersheds to benefit both upstream and downstream water users and compensate natural resource managers for their efforts. One such combined initiative on climate adaptation and mitigation, by the NGO Natura Bolivia in Santa Cruz Department of Bolivia, has now grown exponentially in size and is being adopted across many other parts of Bolivia and South America.

Inaction is not an option

One thing is for certain: experts at the roundtable agreed that identifying climate risks, who has a stake in managing the risks and who’s willing to pay – plus the job of unlocking that finance – is a process that generally takes too long. Climate risks are here today and action is needed now. Without action to reduce climate-related risks, losses for firms and for societies will mount – with UNEP predicting an annual cost of climate adaptation in developing countries of up to US$500 billion per annum by 2050.

The roundtable was part of an ongoing study and consultative process by CPI and adelphi, on the challenges and opportunities for adaptation finance. The results are due to be presented in late 2018. Top of the study team’s initial conclusions – according to CPI analyst Valerio Micale – are the need tocreate demand among governments and private companies for services and products to analyse climate risks.’

*The policy roundtable took place under Chatham House rules and all interviewees agreed to be quoted for this article.

Further results of the study will be published on This article was originally by published on CDKN’s website and is shared with the author’s permission.

Cover photo by Anton Bielousov/Wikimedia Commons (CC BY-SA 3.0): Mangroves in Los Haitises National Park (Dominican Republic).
Close to 400 companies support the TCFD as of August 2018

Close to 400 companies support the TCFD as of August 2018

By Elisa Jiménez Alonso

Since the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), chaired by Michael Bloomberg, presented its final recommendations at the G20 summit in July 2017, almost 400 companies have expressed their support.

The TCFD recommendations offer a set of guidelines for companies to voluntarily disclose their climate-related financial risks and opportunities in a consistent, comparable, reliable, clear, and efficient way in order to provide information to lenders, insurers, and investors. The recommendations are primarily aimed at organisations with public debt or equity, asset managers and owners, but also industry associations, central banks, governments, regulators, and others.

As the momentum around climate action increases, more and more companies around the globe are deciding to publicly support the TCFD recommendations. Public support provides a clear signal to companies’ investors, clients, and employees that they are tackling the implications of climate change on their business.

Publicly disclosing climate-related risks and opportunities ultimately provides better access to data that will enhance how those risks and opportunities can be assessed, priced, and managed. In doing so, companies can improve how they measure their own risks and investors can make better decisions on how and where to allocate their capital.

Acclimatise has been involved in advancing the TCFD recommendations with the European Bank for Reconstruction and Development (EBRD), in partnership with the Global Centre of Excellence on Climate Adaptation (GCECA). The work resulted in a report that provides practical guidance for corporates looking to disclose their risks and opportunities with regard to physical climate impacts.

Furthermore, our company, together with the UN Environment Programme Finance Initiative (UNEP FI) and 16 of the world’s leading banks, developed a set of methodologies for banks to assess physical climate risks in their loan portfolios, evaluating the impacts on key credit risk metrics – Probability of Default (PD) and Loan-to-Value (LTV) ratios. The forward-looking assessments offer longer-term insights that go beyond the usual stress-testing horizon of 2-3 years.

Click here to learn more about Acclimatise’s climate-related disclosure services and how we help our clients analyse and understand the climate risks and opportunities in their portfolios or operations and guide them through the disclosure process.

If you want to learn more about how your company can become a supporter to the TCFD, visit the TCFD website and watch the video below:

Cover photo by Patrick Tomasso on Unsplash
Webinar recordings: Assessing climate-related physical risks in the banking industry – Outputs of a working group of 16 banks

Webinar recordings: Assessing climate-related physical risks in the banking industry – Outputs of a working group of 16 banks

These two webinars discuss the results of a collaboration between sixteen of the world’s leading banks with UN Environment Finance Initiative (UNEP FI), and climate risk and adaptation advisory firm Acclimatise, which resulted in the new report “Navigating A New Climate”. The banks set out to develop and test a widely applicable scenario-based approach for estimating the impact of climate change on their corporate lending portfolios as recommended by the Recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

The webinar focussed on the physical-related risk and opportunities, which is the risk resulting from climate variability, extreme events and longer-term shifts in climate patterns, and constitutes the second in a two-part series publishing both the physical risk and transition risk assessment methodologies developed through the Working Group’s collaboration.

Webinar 1

  • Introduction – Simone Dettling, Banking Team Lead, UNEP FI
  • Presentation of the physical risks & opportunities methodology – Richenda Connell and John Firth, Acclimatise
  • Piloting the Developed Methodology – Case Studies from Participating Banks – Alexandra Dumitru, Rabobank | Guy Stevens, ANZ

Webinar 2

  • Introduction – Remco Fischer, Climate Team Lead, UNEP FI
  • Presentation of the physical risks & opportunities methodology – Richenda Connell and John Firth, Acclimatise
  • Piloting the Developed Methodology – Case Studies from Participating Banks –  Nicole Vadori and Frank Yang, TD Bank Group | Simon Connell, Standard Chartered
Coastal flooding in Europe ‘could cost up to €1 trillion per year’ by 2100

Coastal flooding in Europe ‘could cost up to €1 trillion per year’ by 2100

By Jocelyn Timperley, Carbon Brief

The economic damage from coastal flooding in Europe could reach almost €1 trillion per year by 2100 without new investment in adaptation to climate change, a new study finds.

The research looks at how rising sea levels and continued socioeconomic development will affect future coastal flood risk in 24 European countries.

In contrast to the past century, the main reason behind rising loses from coastal flooding will be global warming, rather than socioeconomic changes, the lead author tells Carbon Brief. The acceleration of loss is also unprecedented, he adds.

The UK would be the worst hit by far, the study finds, seeing up to €236bn in annual damages and 1.1 million people exposed to coastal flooding by 2100, if no upgrades are made to coastal protection.

Coastal damage

Europe’s coastline stretches to more than 100,000km. Many of its coastal zones are highly populated and developed.

This leaves it vulnerable to increased coastal flooding due to extreme sea levels. These arise from a combination of sea level rise, tides, and storm surges and waves due to cyclones.

Future damages due to coastal flooding will also be highly dependent on socioeconomic changes, which will impact the number of people moving to the coast and the extent of development.

The new study, published in Nature Climate Change, aims to combine modelling of both extreme sea levels and socioeconomic development to show what damages could look like this century without further adaptation efforts.

It projects that the economic damages from these extreme events will increase from €1.25bn per year today to between €93bn and €961bn per year by 2100, depending on how socioeconomic trends play out over the rest of this century. This is a 75- to 770-fold increase on today’s levels.

Three socioeconomic scenarios are considered, as set out below. (Carbon Brief recently published an explainer about these new scenarios, which are known as “Shared Socioeconomic Pathways” or SSPs.)

  • “Sustainability” (SSP1), where the world shifts gradually towards sustainability, with emphasis on more inclusive development that respects environmental boundaries. This is combined with a future emissions scenario known as RCP4.5, whereby greenhouse gas emissions level off by 2050 and global temperatures rise by 2-3C above pre-industrial levels by 2100. Expected annual damages from coastal flooding hit €156bn by 2100, the study finds.
  • “Fragmented world” (SSP3), where countries focus on achieving energy and food security goals within their own regions at the expense of broader-based development. This is combined with RCP8.5, a high emission and low climate policy scenario where global temperatures reach around 4-6C above pre-industrial levels by 2100. Expected annual damages from coastal flooding reach €93bn by 2100, the study finds.
  • “Fossil fuel-based development” (SSP5), where a push for economic and social development is seen alongside the exploitation of abundant fossil fuel resources. This is again combined with the RCP8.5 high emissions scenario. Expected annual damages from coastal flooding reach €961bn by 2100, the study finds.

The graph below shows how these annual damages for the different scenarios pan out across different European countries by 2100.

The graph below shows how these annual damages for the different scenarios pan out across different European countries by 2100.

Expected median annual damage from coastal flooding for 24 European countries by 2100. The scenarios included are: RCP4.5-SSP1 (“Sustainability”), RCP8.5-SSP3 (“Fragmented world”), and RCP8.5-SSP5 (“Fossil fuel based development”). Source: Vousdoukas et al. (2018). Chart by Carbon Brief using Highcharts.

It is worth noting that while emissions are the same for the “fragmented world” and “fossil-based development” scenarios, lower development and urbanisation leads to less economic exposure to extreme sea levels.

In all scenarios, the UK is the worst hit in absolute economic terms, followed by France and Norway. The UK – which today accounts for around a third of damages from coastal flooding – accounts for 22-28% of damages in Europe by 2100.

Dr Michalis Vousdoukas, an oceanographer at the European Joint Research Centre in Ispra, Italy, and lead author of the paper, tells Carbon Brief the high expected damages in the UK are due to its exposure to the oceanic waves of the North Atlantic. This is one of the most energetic areas in the world, he says, leading to more intense weather conditions than in Mediterranean countries, for example.

Dr Andra Garner, a postdoctoral fellow in sea-level research at Rutgers University in New Jersey, who was not involved with the research, says the results of the paper are “very telling”, although emphasises that any modelling study comes with caveats. She tells Carbon Brief:

“The results here indicate that, although socioeconomic choices can be important, rising sea levels ultimately dominate future flood risk in many regions, suggesting the need for swift action towards increasing adaptation measures and resilience planning in coastal communities.”

This is especially important, adds Garner, since the ocean responds slowly to a warming climate, which means that sea level rise impacts are likely to become even more severe beyond the end of the century.

Nearer-term damage

The authors also looked at damages from coastal flooding in the shorter term. By mid-century, the study shows these would reach €21bn, €13bn and €39bn for, respectively, the “sustainability”, “fragmented world” and “fossil fuel-based development” scenarios. This is a 10- to 32-fold increase compared to the annual damage in 2000.

The breakdown of these costs among different countries by 2050 is shown in the chart below. In all scenarios, the UK is again the most affected in absolute terms, followed by France and Italy.

Expected median annual damage from coastal flooding for 24 European countries by 2050. The scenarios included are: RCP4.5-SSP1 (“Sustainability”), RCP8.5-SSP3 (“Fragmented world”), and RCP8.5-SSP5 (“Fossil fuel based development”). Source: Vousdoukas et al. (2018). Chart by Carbon Brief using Highcharts.

According to the study, flood defences will need to be installed or reinforced to withstand increases in extreme sea levels of around 0.5m by 2050, and 1-2.5m by 2100, depending on the country.

GDP ratio

The researchers also calculate the expected annual damages from European coastal flooding as a share of combined total gross domestic product (GDP).

Depending on the scenario, they find that coastal flooding damages will account for 0.06-0.09% of Europe’s GDP by 2050. This rises to 0.29-0.86% of GDP by 2100. This is up from current average damage from coastal flooding in Europe today of around 0.01% of GDP.

Some countries are particularly hard hit, when viewed in this way. The study finds Norway would see damages equal to between 1.7-5.9% of its GDP, depending on the scenario, by 2100. Damages in Cyprus would equal 1.7-8.3% of its GDP and in Ireland it would be 1.8-4.9% of GDP.

A key point here is that river flooding in Europe is currently much more damaging than coastal flooding in GDP terms, the study says, with an average €6bn in annual damages, equivalent to around 0.04% of GDP.  This will change, according to the study, with flood risk increasingly dominated by coastal flood risk from 2050 onwards, unless flood-protection standards are upgraded. Vousdoukas tells Carbon Brief:

“In the future, the coastal flooding becomes four times more important than river flooding, because of the accelerating factor which is sea level rise basically. Coastal flooding will change so much, there will be so higher damages, that it will become more important. Then there needs to be spending there for protection.”

People affected

As well as looking at economic damages, the new study projects the number of people who will be affected by coastal flooding. This depends not only on the extent of increase in extreme events, but also how many are living in coastal zones. Therefore, as for economic damages, socioeconomic development will have a large impact alongside climate change.

The study finds the annual number of people in Europe exposed to flooding will rise from 102,000 today to between 530,000 and 740,000 by 2050 (again, in the absence of further adaptation measures). By 2100, 1.5 million Europeans would be affected by coastal flooding in the “fragmented world” scenario, the study finds, and 3.7 million in the “fossil fuel-based development” scenario.

The three graphs below show the projected number of people affected in each country for the three scenarios in 2100. Again, the UK is by far the most impacted across all three scenarios.

Expected median number of people affected by coastal flooding per year in 24 European countries in 2100. The scenarios included are: RCP4.5-SSP1 (“Sustainability”), RCP8.5-SSP3 (“Fragmented world”), and RCP8.5-SSP5 (“Fossil fuel-based development”). Source: Vousdoukas et al. (2018). Chart by Carbon Brief using Highcharts.

High uncertainty

It is important to remember that the projections in the study come with a very high uncertainty, Vousdoukas stresses.

The chart below shows the projected change of coastal flood impacts up to 2100 for the three scenarios. The dotted line show the median projections, as described above, while the coloured areas show the large potential range in the results.

Evolution of coastal flood impacts aggregated at European level for 24 countries under three socioeconomic scenarios: (a) shows the projected changes in expected annual damages and (b) the expected annual number of people exposed due to coastal flooding. The lines are the ensemble median projections and the coloured areas show the 5-95% quantile range confidence interval. Source: Vousdoukas et al. (2018)

Commenting on the paper, Dr Diego Rybski, deputy head of climate change and development group at the Potsdam Institute for Climate Impact Research tells Carbon Brief the paper “significantly contributes” to the understanding of coastal flood risk and sea level rise in Europe. However, he adds that such assessments of coastal flood risk are affected by further large uncertainties.

For example, he says, it is hard to know when the inundations are going to take place because coastal flood are very rare. The impact of a once-in-100-year event in the first half of the century could be very different than if it occured in the second half of the century. It is also possible that there is no such event, or more than one, during a given 100 years.

Vousdoukas, M, I. et al. (2018) Climatic and socioeconomic controls of future coastal flood risk in Europe, Nature Climate Change, . doi:10.1038/s41558-018-0260-4

This article originally appeared on Carbon Brief and is shared under a Creative Commons license. Read the original by clicking here.

Cover photo by grumpylumixuser/Wikimedia (CC BY 3.0): Flooding on Piazza San Marco, Venice, Italy.
Climate gentrification to impact real estate market

Climate gentrification to impact real estate market

By Caroline Fouvet

While an ocean view from a balcony often implies higher property prices, this trend seems to be reversed as sea level rise and climate-change-triggered flooding unfold. In 2016, in the United States alone, four inland flooding events amounted to US$ 4 billion, in a country where inundations are the costliest and most common natural disaster. Coastal cities such as Miami and New York City are even more vulnerable to flooding, and are ranked first and second in the list of places most at risk from climate change and sea-level rise.

Such effects are likely to cause displacements, reshaping urban settlements and the socioeconomic status of neighbourhoods. This is what a new Harvard study that looked at climate change impacts on property markets in Miami-Dade County, Florida, suggests. The authors found a correlation between the higher elevation of single-family properties and their rate of price appreciation. Similarly, the research demonstrates that since 2000 the price appreciation of homes at lower elevations was inferior to that higher properties.

This imbalance demonstrates that the perception of flood risks is likely to shift consumer preferences and trigger relocation. As a result, the question arises how vulnerable communities can move to flood-risk-free zones, given the increases of property values in those areas. This situation illustrates the issue of climate gentrification, or how property value fluctuations based on a building’s climate resilience can lead to speculation and investment, forcing lower-income population out of climate proof areas.

The research points out three ways for climate gentrification to manifest:

  1. The “superior investment pathway” is a situation where high-income households opt for safer locations, as illustrated in the study.
  2. Under the “cost-burden pathway” assumption, only richer segments of the population can afford to live in climate vulnerable areas and to pay the associated costs of insurance and repair.
  3. Lastly, the “resilience investment pathway” relates to engineering and infrastructure investments in homes, that drive up property value and exclude those who cannot provide for it.

Climate change impacts on the real estate market are a topic not only for local authorities and urban planners to watch, but also for investors. Part of the methodology designed by Acclimatise, UNEP FI and 16 leading banks for banks to assess climate risks to their loan book covers real estate and estimates the potential changes in property values and loan-to-value ratios due to extreme weather events. A complex interplay of factors, including risk perception, are considered in the analysis. Evidence shows for instance that updating flood risk maps changes beliefs around the riskiness of newly designated flood-prone areas, driving down properties’ sale prices by 12% to 23%. Moreover, the report describes that the value of unaffected properties can increase compared to that of affected properties in the same area, as well as the value of homes that have undergone maintenance and resilience enhancement works following an extreme event.

As both the incremental and acute impacts of a changing climate manifest themselves globally, so do their financial costs. The real estate sector is already impacted, and future trends seem to point toward increasing damages. Improving the resilience of homes is a necessary adaptation measure, but this must go hand-in-hand with careful consideration of communities’ socioeconomic status to avoid a two-tier system for urban development.

Cover photo by Ryan Parker on Unsplash.
In a warming world, access to cooling is an everyday essential

In a warming world, access to cooling is an everyday essential

By Elisa Jiménez Alonso

A recently released report by Sustainable Energy for All finds that 1.1 billion people around the world face immediate risks from insufficient access to cooling. According to the report, access to cooling is an important emerging opportunity in climate adaptation innovation.

Rachel Kyte, CEO and Special Representative to the United Nations Secretary-General for Sustainable Energy for All, said “In a world facing continuously rising temperatures, access to cooling is not a luxury – it’s essential for everyday life. It guarantees safe cold supply chains for fresh produce, safe storage of life-saving vaccines, and safe work and housing conditions.”

The study shows that access to cooling is very much tied to wealth. Of the 1.1 billion people at immediate risk, 470 million are in poor rural areas and 630 are in hotter, poor urban slums. These people are also concentrated in nine countries across Asia, Africa and Latin America: India, Bangladesh, Brazil, Pakistan, Nigeria, Indonesia, China, Mozambique and Sudan.

Cities, communities, and country leaders are asked to consider cooling action plans in order to close the access to cooling gap. Additionally, the Kyte points out that for companies that produce HFC-free, affordable air conditioning devices there is an enormous market opportunity out there.

In addition to the 1.1 billion rural and urban poor at immediate risk, the report identifies 2.3 billion people from the increasingly affluent lower-middle class, on the brink of being able to afford air conditioning, and 1.1 billion belonging to the established middle class, many of whom own air conditioning units but may able to upgrade them to more efficient ones.

This also ties into findings recently presented in a report completed by Acclimatise with UNEP FI and sixteen leading international banks. The report focuses on climate-related physical risks and opportunities to the banking sector. One of the examples named is an increased demand for loans for home improvements in order to cool houses where it was previously unnecessary.

While cooling is increasingly becoming a necessity, it is also a very energy-intensive measure. Increased cooling from HFCs and using fossil fuel powered energy can lead to more warming. In Mumbai alone, 40% of power use comes from air conditioning. Thus, phasing out HFCs, for instance through the Kigali Amendment, and the continued investment in renewable energy sources should remain priorities.

At the same time, urban development and real estate have the opportunity to radically rethink how buildings and cities can be designed in order to optimize cooling. In India, for example, 75% of the buildings required by 2030 have yet to be built, offering a massive opportunity to be innovative and provide cooler cities and housing.

Download the report by clicking here.

Cover photo by  PDPics/Pixabay (public domain): Mumbai skyline.
16 of the world’s leading banks collaborate to tackle physical risks of climate change

16 of the world’s leading banks collaborate to tackle physical risks of climate change

Note: Global briefings to the industry were held via webinars on 14 August – scroll down for more information and access to the recordings.

By Will Bugler

Sixteen leading banks, UN Environment Finance Initiative (UNEP FI) and Acclimatise, have published new methodologies that help banks understand how the physical risks and opportunities of a changing climate might affect their loan portfolios.

The methodologies, published in the report “Navigating a new climate”, were piloted across three climate-sensitive industry sectors: agriculture, energy and real estate. Using the methodologies, banks can begin to assess physical climate risks in their loan portfolios, evaluating the impacts on key credit risk metrics – Probability of Default (PD) and Loan-to-Value (LTV) ratios. The forward-looking assessments offer longer-term insights that go beyond the usual stress-testing horizon of 2-3 years.

“This report provides a practical way to assess the physical risks of climate change, which we have piloted on our real estate mortgage portfolio to consider how flood risks could impact Barclays’ customers now and in the future,” said Jon Whitehouse, Head of Government Relations & Citizenship, Barclays, “this type of assessment helps us to manage climate change risk and opportunity, both at a transactional and portfolio level.”

The methodologies are designed to enable banks to be more transparent about their exposure to climate-related risks and opportunities, in line with the recommendations of the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD).

“The physical impacts of climate change may pose a risk to banks’ loan portfolios. The innovative methodologies…provide foundations which can be built upon, as research and data analytics improve,” 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.”

The methodologies demonstrate that physical risks will worsen if the global economy continues on its current greenhouse gas emissions pathway. Future negative impacts could be reduced somewhat, but not avoided completely, if strenuous and rapid efforts are made globally to cut emissions.

The guidance also aims to inform banks’ strategies to support clients in adapting to changing conditions. Clients who face physical risks may need to make investments to become more climate-resilient. What’s more, global markets are developing for providers of climate-related products and services, as companies such as engineering and technology providers are identifying opportunities to capitalise on shifting market trends. Banks may have opportunities to support these investments.

A separate, complementary report focused on the assessment of transition risks and opportunities, was published in April.

“For financial institutions and other market actors, effectively managing and responding to climate change always means two things: understanding and responding to the intensifying physical impacts of unavoidable climate change; and also mitigating the risks and seizing the opportunities from the decarbonisation of the economy,” said Eric Usher, Head of UNEP Finance Initiative.

“We are proud of our collaboration with these 16 leading banks and Acclimatise in the development of methods and tools that will help the global financial industry respond to climate change in a holistic manner, spanning both the physical and transition dimensions of the challenge.”

The banks leading this work and currently piloting the methodologies are ANZ, Barclays, BBVA, BNP Paribas, Bradesco, Citi, DNB, Itaú Unibanco, National Australia Bank, Rabobank, Royal Bank of Canada, Santander, Société Générale, Standard Chartered, TD Bank Group and UBS.

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

Access the webinar recordings by clicking here.

For more information, please contact Acclimatise’s communications team:

Will Bugler and Elisa Jiménez Alonso


Can blockchain unblock climate finance?

Can blockchain unblock climate finance?

Funders’ perceptions that there is too much risk in investing at the local level prevents climate finance from making a real difference. Sam Greene discusses whether new technologies can benefit local communities while delivering the confidence donors and investors need to put their money where it matters.

By Sam Greene, IIED

Climate finance is not getting to the people who need it most – vulnerable communities on the front line, hardest hit by the impacts of climate change but least able to respond. IIED estimates only 1 in 10 dollars of the $60bn in public and private climate finance from dedicated climate funds is directly committed to local level activities.

Local communities know what works and have ingenious and sustainable solutions for adapting to climate change. But cut out of the funding picture, they have almost no say in how or where the bulk of the money is spent.

IIED is exploring the barriers stopping climate finance reaching local people. Part of this is examining emerging innovations in technology that can break those barriers. We are considering the role that blockchains, artificial intelligence, GPS satellites and advanced data platforms might play enabling finance to flow.

A risky business?

One major blockade is perceived risk: donors and investors do not have confidence in local level institutions’ (e.g. small business, local government authorities) financial systems, in their ability to spend money effectively and are wary of having no means of holding them to account. The distance between international and local actors makes it harder for funders to know what is happening ‘on the ground’.

Emerging technologies may help to circumvent this barrier. It’s been hard to miss the blockchain hype – decentralised ledgers that make the transfers of funds or assets between people or organisations fully transparent. Blockchains can record transactions of anything of value such as money, land, or identities, as well as assurances of impact or change delivered by an investment.

And being a decentralised system, costly intermediaries become redundant as investors, governments or communities can transfer funds or other assets directly between each other faster and at less expense.

The video below was made by the World Economic Forum to explain some of the benefits of blockchain technology.

With the potential for such a radical shake up in the transparency of transactions, could blockchains be the key to increasing funders’ appetite for climate finance investments?

Blockchains in practice

Digital “smart” contracts are programmed to automatically trigger payments when certain conditions are met.

Gainforest is using smart contracts to incentivise small-scale Amazonian farmers to preserve the rainforest. Farmer ’caretakers’ receive rewards for preserving patches of rainforest over a 3-6 month period. The reward is crowdfunded by private individuals or institutional donors and the size is determined by the difficulty in preserving the particular area of land.

When remote sensing satellites verify a particular patch of forest is still standing, the smart contracts enable payments to be sent automatically to the farmers. Since satellites independently verify the status of different patches, these transactions are significantly more transparent and can be trusted by donors. And with no ’middle-men’ transferring funds, administrative costs are cut dramatically.

Bitland in Ghana is using blockchain technology to create an immutable, transparent record of land ownership using drones, remote sensing and field-level research to enhance the data. Clear, public records of who owns what can help tackle corruption, illegal land grabbing and costly local border disputes that thrive on poor data and incomplete or unavailable written records. Clear records of ownership can transform local peoples’ access to finance – as they can prove ownership of their land and secure credit by borrowing against it.

Risks and challenges

However, there are challenges – such as the significant energy needed to maintain blockchains. Accessibility is also an issue: all users must have reliable internet access and enough technological literacy to access and review blockchain data.

There are also risks. Since the distributed ledger is transparent and immutable, its value rests on the quality of data that populates it. And the choices of information put onto ledgers, or the conditions set for smart contracts are highly political. Blockchains may entrench uneven power dynamics between donors and recipients. If smart contract conditions are set by donors, the needs of the recipient risk being overlooked. Can this power dynamic be shifted to a model where both donor and recipient ‘own’ the conditions, enabling both groups to hold each other to account? How can we ensure that these kinds of contracts preserve trust within and between communities?

Exploring the barriers to local-level climate finance

Blockchain technology is still an unknown quantity and a wave of local-level investment is unlikely until the various obstacles are addressed. These include:

  • high energy demands to power blockchains
  • the potential for blockchains to become cumbersome as more users and data is added
  • issues of fairness, recognising that the most vulnerable will only benefit if they have internet access and user-friendly, local language platforms to review ledger data
  • a skewed power dynamic where investors and donors set smart contract conditions that may not reflect local priorities.

At a workshop in early July, we’ll be bringing together donors, investors, innovators and community funds to explore the potential of Blockchain and other new technologies, and whether these new platforms can help tackle perceived risk in local level climate finance investments.

This blog was originally published on IIED’s website and is shared under a Creative Commons license. Read the original blog here.

Cover photo by Joel Filipe on Unsplash.