Category: Finance

Acclimatise co-leads UNEP FI project to develop framework for measuring climate risk and opportunities

Acclimatise co-leads UNEP FI project to develop framework for measuring climate risk and opportunities

PRESS RELEASE

OXFORD, UK – January 16, 2018 – Acclimatise have been selected to co-lead a United Nations Environment Programme – Finance Initiative (UNEP FI) project exploring climate-related risks and opportunities for financial institutions.

The UNEP FI project has a Working Group of 16 leading banks, which includes ANZ, BBVA, BNP Paribas, Barclays, Bradesco, Citi, DNB, Itaú, National Australia Bank, Rabobank, Royal Bank of Canada, Santander, Standard Chartered, Société Générale, TD Bank Group and UBS. The Working Group was established in June following the final recommendations by the Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosures (TCFD).

Acclimatise – together with UNEP FI, Oliver Wyman and Mercer – will develop a harmonized methodology for banks that will help them strengthen their assessments and disclosure of climate-related risks and opportunities. By using this harmonized approach, climate change assessments and disclosures will become consistent and comparable.

“One of the buzzwords in the sustainable finance world is ‘mainstreaming’,” notes Eric Usher, the Head of UNEP FI. “For us to achieve a sustainable financial sector we need to mainstream environmental factors from the periphery of financial institutions’ attention into their core decision-making. This is a key objective not only of UNEP FI but also of the TCFD. We are therefore very pleased to have the support of Acclimatise, one of the most recognized advisory firms on physical climate risk, as we work together with 16 global banks to operationalize and mainstream the TCFD recommendations into their core businesses.”

The Acclimatise team will focus on all aspects relating to physical risks under different climate scenarios. Acclimatise will help the Working Group develop scenarios and analytical approaches to better understand physical risks and their impact on physical assets and investment portfolios. The focus of the Oliver Wyman and Mercer team will be on transition risks associated with different scenarios for decarbonising the economy.

Acclimatise has worked on physical climate risk and adaptation with corporates and financial institutions for over a decade, helping them identify and respond to physical risks and to take advantage of emerging opportunities generated by a changing climate.

CEO of Acclimatise, John Firth, states, ‘The ability of firms to embrace climate risks and opportunities, and factor them into strategic planning will not only improve their performance, but will create a more resilient banking sector and economy. The methodology we are developing with the 16 banks in this project will be a means to start this process, as it aims to allow quantification and meaningful disclosure of physical climate risks and opportunities.’

About Acclimatise

Acclimatise is a UK-based climate change advisory and analytics company that specialises on climate change adaptation and resilience building. Acclimatise is a trusted advisor for many organisations across a wide range of sectors including government, finance, insurance, water, energy, transport, mining, agriculture, defence, food and beverages, and international development. The company’s 24 staff have successfully worked on more than 350 projects in over 70 countries for 180 public, private and non-governmental organisations.

For more information, visit acclimatise.uk.com, follow us on LinkedIn, Twitter @Acclimatise, and Facebook, and subscribe to our newsletter.

For more information about Oliver Wyman and Mercer, visit mmc.com, follow them on LinkedIn and Twitter @mmc_global or subscribe to BRINK.

 Acclimatise Contact:

Elisa Jimenez-Alonso: e.jimenez-alonso@acclimatise.uk.com

Mercer and Oliver Wyman Contacts:

Alayna Francis, Mercer: Alayna.Francis@mercer.com, 00 1 212 345 1315

Francine Minade, Oliver Wyman: Francine.Minadeo@oliverwyman.com, 00 1 212 345 6417


Download the press release by clicking here.

Cover photo by Samson Duborg-Rankin on Unsplash
2017: The United States’ Year of Billion Dollar Weather and Climate Disasters

2017: The United States’ Year of Billion Dollar Weather and Climate Disasters

By Georgina Wade

It turns out that 2017 was uniquely disastrous to the United States in more ways than one with the National Oceanic and Atmospheric Administration (NOAA) attributing a cumulative damage amount of $306.2 billion to 16 separate disaster events, a record previously held in 2005.

Hurricanes Harvey, Irma and Maria combined with 2017’s extreme wildfires make up four of the 16 weather and climate disasters with losses exceeding $1 billion each. Overall, these events resulted in the deaths of 362 people and had significant economic effects on the areas impacted.

Source: NOAA National Centers for Environmental Information (NCEI)

Since 1980, the U.S. has sustained 219 billion-dollar climate-related disasters with cumulative costs exceeding $1.5 trillion dollars. From 1980-2016, the annual average number of billion-dollar events was 5.8 whereas the most recent five years (2013-2017) saw an annual average of 11.6 events.

With $135 billion expected in insured losses, 2017 is also a costly year for the insurance industry, giving reinsurance companies such as MunichRe a primary role in helping people and communities rebuild in the wake of natural catastrophes.

Source: Munich Re NatCatSERVICE

Acting as an insurer for insurance companies, MunichRe utilises NOAA’s National Centers for Environmental Information (NCEI) to understand the probability of these natural disasters and sell premiums to insurance companies in exchange for coverage.

As insurance companies are often required by law to buy reinsurance because they lack the capital resources to pay out if there is a major disaster, companies like MunichRe have a unique incentive to understand and predict these trends.

Additionally, this understanding has resulted in reinsurers being at the forefront of warning businesses and the public about the rise in extreme weather events due to climate change.

A MunichRe release in September 2010 noted it had analysed its catastrophe database, “the most comprehensive of its kind in the world” and concluded, “the only plausible explanation for the rise in weather-related catastrophes is climate change.

NOAA researcher Adam B. Smith agrees, citing climate change as a primary culprit in the frequency of these severe weather and climate events.

“Climate change is playing an increasing role in the increasing frequency of some types of extreme weather that lead to billion-dollar disasters,” Smith wrote in a blog post. “Most notably the rise in vulnerability to drought, lengthening wildfire seasons and the potential for extremely heavy rainfall and inland flooding events are most acutely related to the influence of climate change.”


Cover photo by Marcus Kauffman on Unsplash: Big Fall Creek Road, Lowell, United States, during the Jones Fire in August 2017.

Learn more about the role of NOAA’s NCEI data by clicking here and watching our video below:

Video: Mobilizing finance for climate-resilient infrastructure

Video: Mobilizing finance for climate-resilient infrastructure

In September, the Standing Committee on Finance (SCF) organized its annual forum to communicate and exchange information among bodies and entities and with other key stakeholders dealing with climate change finance in order to promote linkages and coherence.

The objective of this year’s SCF forum was to identify gaps in mobilizing and accessing finance for climate-resilient infrastructure and to provide high-level policy inputs and recommendations on how to scale up investment in climate-resilient infrastructure. In particular, it assessed trends in climate-resilient infrastructure, gaps and barriers and explored measures to close the gaps in climate-resilient infrastructure financing.

Recordings and documents to all sessions can be found on the UNFCCC website: LINK.

The video provides a summary of the main themes discussed by participants at the forum:


Cover photo by Piotr Chrobot on Unsplash.
Adaptive financing for increased disaster resilience – An opportunity for the private sector

Adaptive financing for increased disaster resilience – An opportunity for the private sector

By Katy Mixter and Laura M. Hammett

In 2016, natural disasters caused $175 billion in damages globally, according to MunichRE. Much of this destruction is caused by weather-related disasters, which were responsible for over 90 percent of global disaster damages from 1995-2015, according to a recent United Nations report. These weather-related disasters are those that are seeing marked increase in frequency and magnitude due to climate change. And as exposed populations rise, the damages from such events are also rising.

The scale of such destruction requires massive financial resources to catalyze and sustain recovery after disaster events, much less to address long-term climate adaptation and risk-reduction schemes. However, as traditional means of disaster aid fall short and needs go unmet, there is a need for a fundamental shift in post-disaster financing and room for the private sector to fill the funding gap.

Post-disaster financing falls short

Aid funding provided by governments, international NGOs, or humanitarian organizations often does not go where it is most needed or falls short. Following Hurricane Maria’s 2017 ravage of Puerto Rico, United States federal aid appropriations are expected to only cover around a third of the projected need for the island.

It is not only aid that is falling short. In 2016, MunichRE cataloged $175 billion in damages globally, but only 30 percent of those damages were covered by private insurance. Even though such assets were protected, the scale of these claims alone poses a huge risk to the insurance industry, which took a $35 billion loss in 2016. And often, disaster-insurance schemes (such as the National Flood Insurance Program in the United States) are backed by public resources that can be limited when many claims are filed.

Also, recent disasters show that insurance-claim processes can be lengthy and require policy-holders to find alternative means of financing reconstruction until money arrives.

An opportunity for the private sector – Adaptive Financing

Gaps in aid relief as well as preemptive insurance programs leave an opportunity open for additional innovation to meet post-disaster financing needs. The private sector has the opportunity to develop more tools to support disaster reconstruction and fill the gap that governments and international NGOs leave behind.

The limitations and opportunities for such innovation are addressed in our recent report published by Yale Center for Business and the Environment. The answer we propose is for banks to consider ways to offer economies affected by disasters more adaptive financial products.

Financial products include everything from mortgages to loans. Generally, financial institutions create fixed products and the customer chooses which works best. For example, a mortgage is a product which a client can typically buy with set terms. However, if a client wants to change the fixed terms of their contract, they have to refinance.

In contrast, if banks can figure out creative ways to offer flexible products, they could adapt these products to changes in customer needs. Imagine a loan product which could have the length of repayment automatically extended at no extra cost if the payee needs to request such an extension after a disaster. This could save the payee and bank from the pain and losses of default. Or a company could create a suite of products that have been preemptively designed for various disaster scenarios so that after an emergency, the most appropriate one could immediately be rolled out in a local market. This could help customers get back on their feet and bring in new business for participating banks.

There are many challenges to creating financial products given the complications that arise after a disaster. For example, it can be hard for financiers to assess risk and return in these uncertain environments using current risk-assessment models. In addition, it can be difficult to establish trust between financiers and recipients after a disaster. Therefore, creative solutions must be found to overcome these barriers.

The report dives into these and several other challenges and offers solutions suggested by experts throughout the field. Most importantly, to create such processes, financial institutions must create flexible supporting processes that allow finance providers to make ongoing adjustments to products in response to changing client needs. This requires a redesigned product-development process as well as a strong understanding of the specific challenges presented by disaster recovery.

Creating such financial products is neither easy nor straightforward, but companies that succeed can benefit from customer/supplier loyalty, enhanced brand reputation, and valuable experience that can push the capabilities of the organization and spur new internal innovation. We hope stakeholders can partner across the public, private and nonprofit sectors to incite change and adapt financial offerings in a time that is increasingly defined by disasters.

The report is available on the Yale Center for Business and the Environment website.

Click here to download it.


About the authors

Laura M. Hammett – Climate Adaptation Specialist with the United Nations Development Program (UNDP)

Contact: Laura.hammett(a)yale.edu or lmhammett(a)gmail.com

Laura M. Hammett is an urban resilience and climate change adaptation specialist whose research and professional experience span the intersection of sustainable land use planning, international development, climate policy and finance, and disaster risk management. Laura has worked to advance resilience programs at the US Air Force and United Nations World Food Programme, and she served as a community development Peace Corps Volunteer in Albania. Ms. Hammett recently completed a Masters of Environmental Management at Yale University and currently works with the United Nations Development Program to advance climate adaptation programming in Asian countries.

Katy Mixter – Consultant with the Boston Consulting Group

Contact: Katy.mixter(a)yale.edu or kamixter(a)gmail.com

Katy Mixter is a graduate of Yale’s School of Management and School of Forestry and Environmental Studies (MBA/MEM). She has focused on the intersection between finance, environmental sustainability and development, working at organizations ranging from the Connecticut Green Bank to The UN Development Program. Prior to returning to school, Katy worked on Citibank’s Corporate Sustainability Team, helping support the company’s environmental policies, operations, financings and strategy. She now works at the Boston Consulting Group in Australia.

 

Cover photo by Roosevelt Skerrit (public domain): A road in the Roseau area, Dominica, is littered with debris, uprooted vegetation and felled poles and power lines from Hurricane Maria.
Cities turn to crowdfunding to finance climate adaptation projects

Cities turn to crowdfunding to finance climate adaptation projects

By Caroline Fouvet

Cities are developing ever more inventive ways to finance projects that build climate change resilience. In the Belgian city of Ghent, citizens can directly contribute to climate adaptation initiatives thanks to a crowdfunding platform. Residents submit ideas for resilience projects and obtain co-funding from online donors to implement them. So far, two adaptation projects have received successful financial backing: one provides urban farming for residents of a social housing district while the other aims to transform stone facades into vertical gardens, to fight the urban heat-island effect.

Such initiatives may be part of a trend towards a diversification of funding streams to help kick start adaptation projects, according to a report by the European Environment Agency, Financing urban adaptation to climate change. The report analyses eleven cities’ financing strategies for adaptation, and shows identifies a range of strategies being employed to raise capital for climate resilience building.

As urban populations around the world continue to grow, cities require a huge amount of investment in new infrastructure. However, many cities are struggling to find sufficient capital to fund the adaptation initiatives at the levels required to protect their citizens from climate impacts such as extreme heat and flooding. While city officials recognise that adaptation measures provide good value for money in the long run, they challenge to raise capital remains.

The report’s authors draw three main conclusions from initiatives underway in European cities. First, it recommends identifying cross-sectoral funding derived from a range of sources. For instance, money allocated to water management and urban revitalisation projects can also be used to contribute to adaptation, as many such projects relate to climate-resilient infrastructure. Initial public investments, along with private sector funding, were also found to be a good way for municipalities to launch adaptation projects without imposing a burden on public budgets.

Secondly, the report highlights a need for capacity building of city government, planners and other stakeholders to help them identify new financing streams. City officers need to understand the available financial options and how to demonstrate adaptation projects’ creditworthiness. This remains challenging, as investors often look for direct, short-term financial returns – a fact that may explain why most adaptation measures are not financed through loans.

However, other initiatives are capitalising on the fact that investments in adaptation can save money by limiting the impact of climate-induced catastrophes. The nascent resilience bonds market for example provides a mechanism for borrowing that would allow disaster-prone cities to have the protection of insurance and benefit from lower premiums thanks to their investments in resilience. Concretely, those cities would be eligible to insurance savings (via coupon reductions) when undertaking climate resilient works for instance, as these would decrease the probability of severe climate damages.

Lastly, adaptation measures must be integrated into city development strategies and urban planning. This will increase financing partners’ confidence to make climate adaptation investments. Communicating that climate adaptation is a priority for city governments also helps to ensure active involvement of officials, planners and other decision makers. In Malmö, Sweden, city officials held workshops and meetings about the adaptation plans of the new harbour district. Engaging a stakeholder partnership process is a way to ensure that the final realisation of the urban development reflects the city’s vision and ensures broad ownership.

City decision makers are faced with a wide range of opportunities when it comes to climate adaptation finance, notwithstanding they face considerable challenges to understand and co-ordinate financial flows from such diverse channels. However with the right support, new inventive finance mechanisms can be harnessed to build the climate resilient cities of the future.


Read the full report by clicking here.

Cover photo by GukHwa Jang on Unsplash
Using scenarios in corporate disclosure of physical climate risk

Using scenarios in corporate disclosure of physical climate risk

By Laura Canevari, Robin Taylor, and John Firth

The Task Force on Climate-Related Financial Disclosures (TCFD) and the Bank of England (BoE) held a conference: ‘Climate Scenarios, Financial Risk and Strategic Planning’, in London on October 31st and November 1st 2017. Acclimatise experts attended and have prepared this briefing note to advise those involved in preparing responses to the TCFD’s recommendations. The event explored how scenarios can assist companies to understand and evaluate climate change risks and opportunities. Insights on the importance of scenarios, key attributes, and principles for their use were discussed and are summarised in this briefing note. Conference presenters focussed on transition risk, leaving key issues concerning the use of scenarios in physical risk assessment unexplored. This was an omission on the part of the organisers, but perhaps understandable given the added complexity of assessing the risks of a changing climate. In this note we provide an insight into the role of scenarios in physical risk assessment as an introduction to a topic deserving its own conference.

Importance of scenarios

Corporates and financial institutions are beginning to respond to the TCFD recommendations, assessing both risks and opportunities, in preparation for reporting and disclosure.

“Scenario analysis is a critical forward-looking tool to address challenges and acquire key information”, Mary Shapiro, Special Advisor to the Chair, TCFD & Former Chair, US Securities and Exchange Commission.

The TCFD recommendations strongly advocate for the development and use of scenarios when analysing climate risk. To that effect, a Technical Supplement has been developed alongside their recommendations, titled ‘The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities’. As noted by Andrew Blau, Director of Deloitte Advisory Strategic Risk, “scenarios are powerful tools that that allow for the exploration of different plausible futures in the face of uncertainty”. The uncertainty around both the impacts of a changing climate, and the policy and regulatory responses, present significant new challenges when compared with other environmental problems facing society – a point highlighted by Lord Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. The scale of the effects stemming from physical impacts of climate change and from policies formulated to promote a lower carbon economy is enormous. How the world will respond to these new drivers of change is still uncertain. Traditional models and forecasting tools fall short when it comes to dealing with complex problems with such considerable unknowns.

Scenarios can help corporates and financial institutions broaden the horizons in their planning processes whilst increasing their flexibility and adaptability. Andrew Blau also considered how the development of scenarios can challenge users to develop ‘outside-in’ thinking, embrace diverse perspectives, and take the long view. The reward for these efforts is the ability to examine how a company’s strategies may perform, offering an improved view of changing risks and opportunities going forward. Scenarios can play a significant role in helping corporates ’ develop their own view of the world, but it is important to understand what they can and cannot offer within the context of disclosure and as a strategic business-planning tool.

Exploratory narratives, not descriptive predictions

A vital point highlighted by many presenters during the course of the conference was that scenarios are hypotheses, not predictions of what the future may look like. They provide a narrative, either qualitative or quantitative, which ‘describes a path of development leading to a particular outcome’ (TCFD Recommendations Technical Supplement). “[Scenarios] should be thought of as a means for discourse on important variables such as policy and technology possibilities in the future”, noted Dr Elmar Kriegler of the Potsdam Institute for Climate Impact Research (PIK).

Which scenarios to use?

At the conference, companies such as Shell and BHP Billiton showcased how they have developed and deployed a variety of scenarios to help think through various energy transitions. Shell discussed how they make use of different types of scenarios: from published ‘context exploring’ scenarios used to consider external issues that may affect their business, to ‘decision-centered’ scenarios, which are part of their internal decision-making processes. It was also noted that scenarios can either be borrowed from other organisations or developed internally.

Scenarios are not forecasts; they are explorations of possible futures, and multiple scenarios can be created to revise alternative views. Presenters referred to the importance of exploring several scenarios to gain different insights and noted that there are thought to be over 100 transition pathway scenarios.

A general set of principles for the use and development of scenarios emerged from the conference, which could help guide organisations through scenario selection.

Principles to bear in mind around the use of scenarios

The development of scenarios will require board level leadership and a continuing resource/time commitment by companies. Scenario development is iterative, and scenarios will need regular resets to ensure they reflect the present-day jump-off point. On day two of the conference, held under Chatham House rules, presenters identified a number of key principles for companies to bear in mind when developing and using scenarios, including:

  • Use multiple sources for data and narratives, and search out insights from new sources.
  • Ask: what do I have to believe for this scenario to be plausible?
  • Be sceptical of scenarios that look like the past.
  • Use the most up to date data and reference sources.
  • Ensure your scenarios reflect the variety in spatial, political, social, regulatory and environmental factors within the countries and sub-national areas in which you operate.

Physical risks are not yet being given due prominence compared to transition risks

The conference was notable for its focus on transition to low- carbon energy pathways, and the use of scenarios to help companies assess their transition risks. There was, however, very limited discussion of physical climate risks and the use of physical risk scenarios to explore implications for the performance of corporates and financial institutions.

Acclimatise sees a few key reasons for this. It is notable that there is more guidance in the TCFD recommendations on transition risks, and verifiable and auditable metrics for transition risks are already available and easier to evaluate within the context of business models in all sectors. It is also easier to adjust transition risk scenario outputs to fit into existing business and financial risk appraisal systems. Finally, there are many published comprehensive transition risk scenarios from multiple sources, e.g. International Energy Agency (IEA), Deep Decarbonization Pathways Project (DDPP).

Scenarios exploring the impacts of a changing climate (physical risk) for corporates and financial institutions are less well developed. We have a robust and authoritative science evidence base produced by the Intergovernmental Panel on Climate Change (IPCC) setting out possible changes in our climate. There are also several excellent sector impact models together with integrated assessment models (IAMs), which use climate model outputs to explore risks at the sectoral, system and spatial levels over time. These models, however, do not cover all sectors and geographies in a comprehensive, consistent way,

and there are knowledge gaps. For instance, while the ‘transportation’ and ‘materials and buildings’ industrial sectors are highlighted for disclosure by TCFD, there is a lack of comprehensive assessments of physical risks facing these sectors. Further, physical risks to specific investments in these sectors will be determined by the location, design, condition, and operation of physical assets.

The development of metrics which enable adaptation and resilience to be evaluated over time and across sectors is an emerging area of knowledge, and best-practice has not yet been established. These issues create challenges for corporates and financial institutions in using the available information to populate their own business scenarios, or to use scenarios produced by third parties, as envisaged by the TCFD. Progress on the development and application of physical risk scenarios falls short of what is required, as demonstrated by the lack of presentations and discussion on physical risk at the conference. Developing physical risk scenarios is complex due to the inherent challenges in trying to understand and evaluate the physical risks and opportunities generated by a changing climate. Impacts from physical risks may also only become apparent over longer time frames, sometimes spanning periods that go beyond the current strategic thinking of corporates and financial institutions. Yet, understanding and addressing the materiality of physical risks, and identifying opportunities will be a vital piece of determining the overall success and long-term sustainability of these organisations, and will be a crucial step for building the resilience of corporate portfolios, as noted by Dr Fiona Wild, Vice- President Sustainability and Climate Change, BHP Billiton.

Acclimatise – experts in physical risk for responding to TCFD recommendations

Acclimatise has worked on physical climate risk and adaptation with corporates and financial institutions for over a decade, helping them identify and respond to physical risks and to take advantage of emerging opportunities generated by a changing climate. We have witnessed the corporate, societal and environmental benefits stemming from the promotion of resilience-building strategies.

At present, we are supporting a Working Group of 16 international banks through a pilot project organised by the United Nations Environment Finance Initiative (UNEP-FI) to meet the TCFD recommendations and develop a harmonised process for the banking sector. We are helping the Working Group develop scenarios and analytical approaches to better understand physical risks and their impact on assets and investment portfolios. We believe the ability of firms to embrace risks and opportunities, and factor them into strategic planning will improve their performance, and create a more resilient banking sector, able to meet the evolving needs of customers as they respond to a changing climate.

Acclimatise is also working for the European Bank of Reconstruction and Development (EBRD) and the Global Centre of Excellence on Climate Adaptation (GCECA) to develop risk, opportunity and strategic metrics for the financial services sector to assist in TCFD disclosures. A major conference will be held on 31 May 2018 to present the results of this work.

While many tools, data sets, studies, and reports exist to analyse physical risks for fixed assets, aggregating these across a portfolio, sector, or country requires a fresh approach. With our guidance, corporates and financial institutions can begin to embark on their TCFD journey.


To discuss how your organisation can meet TCFD requirements, and assess and disclose physical climate risks and opportunities, please contact Laura Canevari: L.Canevari(a)acclimatise.uk.com

Further information:

  • The TCFD was established by the Financial Stability Board in response to a request by the G20 Finance Ministers and Central Bank Governors who recognised the potential implications of climate change for the global financial system. The TCFD recommends corporates and financial institutions assess both risks and opportunities, in preparation for reporting and disclosure. Disclosure is recommended in four areas: governance, strategy, risk management, and metrics and targets. The TCFD recommendations, which were issued in June 2017, have helped bring climate risk to the corporate reporting agenda, and many cor- porates and financial institutions are now taking action to include climate risks and opportunities in the annual financial reporting. Documents from the TCFD, including the recommendations, technical supplement, and annex on implementation can be located here: www.fsb-tcfd.org/publications

  • United Nations Environment Finance Initiative: www.unepfi.org
  • Global Centre of Excellence on Climate Adaptation: www.gceca.org

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Cover photo by William Bout on Unsplash.
Funding COP23’s ambitions – Don’t forget the intermediaries

Funding COP23’s ambitions – Don’t forget the intermediaries

By Neil Walmsley

This week representatives of the world’s leading economic, social and political institutions will convene in Bonn to begin their annual attempt to hammer out agreements and action plans that will avert a climate catastrophe. Over the course of two weeks, thousands of ideas, projects, research pieces and proposals will be debated and discussed, ultimately feeding into the creation of a new set of global action plans and initiatives. Billions will be pledged and committed to their delivery by donor governments and philanthropy.

The sheer scale of investment required for projects around the world that will simultaneousy reduce greenhouse gas emissions while protecting against unavoidable climate impacts dwarfs whatever can be pledged at Bonn. Massive financing will be needed from the private sector if even a fraction of the envisaged projects are to be delivered.

The global financial sector and broader private sector is increasingly aligned and committed to delivering this agenda. Many financial institutions have established dedicated funds and programmes for investing in projects that specifically address climate challenges, ranging from smaller venture capital funds that aid entrepreneurs develop new technologies, to much larger low-carbon infrastructure projects such as huge windfarms or electric public transport systems.More traditional (i.e. non-climate specific) funds are using new tools and process to take into account climate considerations when making their investment decisions, ensuring projects are designed to minimise their carbon impact and/or be as resilient to climate change as possible.

Theoretically, there should be more than enough money swilling about in the global financial system to meet global climate ambitions, several times over. Yet we are still seeing only a fraction of what is needed being invested. There is, however, one problem: Good projects. Or more precisely, good projects in the eyes of investors.

Fundamentally the problem is that the vast, vast majority of projects aimed at tackling climate change are not created with the investor in mind. This is not a criticism of the projects themselves, many of which could provide a wide range of benefits and often have quite a strong underlying business. They are usually not, however, prepared in such a way that an investor would consider ‘bankable’.

A ‘bankable’ project is one that meets certain requirements and standards that investors need to see if they are able to put money into it. These requirements and standards vary depending upon the type, size and scale of the project and the individual investor (whether a bank, private equity firm, venture capital fund, etc), but tend to involve detailed analysis of the business model, potential risk and return on investment, legal considerations and agreements, as well as a detailed business plan and financial track record of the organisation setting up the project.

Putting together a proposal that meets these requirements is no easy task, and for larger projects can take months (or even years) to prepare with the involvement of expensive consultants and advisors. The time and cost of this process increases significantly, the earlier in the project preparation life-cycle the project is in. This is well beyond the capacity and resources of many of the organisations developing these projects, such as local governments and NGOs, particularly in developing countries. As a result,many potentially fantastic projects end up being abandoned or sit in limbo indefinitely as they wait for philanthropists and donor agencies to step in and pick them up.

Over the past several years, a number of organisations and programmes have emerged specifically designed to help projects overcome these barriers and secure financing. Project Preparation Facilities (PPFs) provide support to prepare a project for investment, funding the necessary studies and providing consultancy support to create a bankable proposal for investors. The amount of upfront funding and support they put in is often only a tiny fraction of the total project cost (e.g. $250,000 – $1m on a $50m-$500m project), but can help to rapidly accelerate the deployment and financing of these projects.

Many work with specific groups, such as cities (CDIA, C40 Cities Finance Facility, Climate-KIC LoCaL programme), National and Regional Governments (PIDG) or individual organisations (Climate-KIC Demonstrator and Scaler programmes). In Mexico City, the C40 Cities Finance Facility is helping to secure $120m in financing for a fleet of 100 electric buses, helping to decarbonise the public transport sector and provide a financing structure other cities in Mexico can emulate. Climate-KIC provides funding and technical assistance to cities across Europe to help find financing solutions for key projects through their Low Carbon City Finance Lab. On adaptation, EBRD has established several financing facilities focusing on adaptation technology developments in Eastern Europe and countries such as Tajikistan, while EIB’s Natural Capital Finance Facility helps find investment for a range of ecosystem-based adaptation projects across Europe.

Most of these are funded by donors and development banks, though many also fund themselves through adding their fee into the final investment package or taking equity in the project.

As a result of the actions of these programmes, projects are being realised which would never have happened otherwise. Having been involved in creating one facility (the C40 Cities Finance Facility) and supporting the development of another (Climte-KIC LoCaL), I have seen first hand the catalytic impact these programmes have.

If the ambitions of COP23 and the Paris Agreement are to be realised, intermediary organisations are going to need to play a big role in unlocking private sector finance to pay for the necessary projects. I hope these programmes get the recognition and support they deserve, allowing them to continue their important work.


The article was originally published on Resilient Cities Finance and is shared with the author’s permission.

Cover photo by Alexis Tostado on Unsplash
ADB to double Asia-Pacific climate change funding by 2020

ADB to double Asia-Pacific climate change funding by 2020

By Georgina Wade

The Asian Development Bank (ADB) announced it will more than double its annual climate finance to over $500 million between 2017 and 2020 for its Pacific developing member states, a move that is in step with a global push to reduce greenhousegas emissions and climate change risks.

The decision came with the adoption of two agreements: firstly, the Government of Fiji applied for a $42 million loan to improve water and sanitation services across the island state whilst ensuring that vital infrastructures are climate resilient. Secondly, signing an agreement with the Green Climate Fund for a $31 million contribution to strengthen Fiji’s domestic approach to climate change. Both agreements were signed leading up to the United Nations Climate Change Conference (COP 23), which Fiji is presiding over.

With this major investment, ADB Vice-President Stephen Groff expects Fiji’s water supply will expand by 40,000 cubic meters per day and broaden the sanitation network for an additional 4,500 households to access improved sewerage by 2023.

Of the $6 billion ADB expects to spend on tackling climate change by 2020, $4 billion will go towards mitigation efforts focused on the integration of renewable energies and the building of sustainable transportation systems. The remaining $2 billion will be used for adaptation efforts through increase resilience in agriculture, infrastructure and disaster planning.

Takehiko Nakao, president of the ADB, said climate change is better handled as a regional issue and highlights that “nowhere is tackling climate change more critically than in Asia and the Pacific, where rising sea levels, melting glaciers and weather extremes like floods and droughts are damaging livelihoods and taking far too many lives.”

Six of the ten most vulnerable nations to climate change are in the Asia Pacific region, the ADB said, making it highly susceptible to climate disasters.


Cover photo by Maksym Kozlenko/Wikimedia (CC BY-SA 4.0): Streetscape of Suva, Fiji.
EBRD & Global Centre of Excellence on Climate Adaptation join forces to strengthen financial sector resilience

EBRD & Global Centre of Excellence on Climate Adaptation join forces to strengthen financial sector resilience

The European Bank for Reconstruction and Development (EBRD) is partnering with the Global Centre of Excellence on Climate Adaptation (GCECA) in a joint initiative to help strengthen the resilience of the financial sector to the impacts of climate change.

Investors and businesses are becoming increasingly aware of the need to understand and manage the risks associated with climate change. In order to explore options for addressing these issues, the EBRD and GCECA will organise a conference entitled “Towards a Resilient Financial Sector: Disclosing Physical Climate Risk & Opportunities”, to be held at the EBRD’s London Headquarters on 31 May 2018.

The conference will bring together the financial, technical and policy perspectives to shape market action on climate resilience. The focus will be on improving financial sector awareness of climate risks and their impacts on investments, as well as facilitating the emergence of climate risk and resilience metrics, and identifying ways on which investors and businesses can integrate climate change intelligence into their business strategies and investment planning.

Announcing the cooperation Josué Tanaka of EBRD said: “We are very pleased to partner with the GCECA, the first international institution with a specific focus on climate change adaptation. Building climate resilient economies requires broad market action by businesses and investors, alongside effective government policies. We see great opportunities for working with the GCECA and a wider range of other stakeholders to enable businesses and investors to realise the value that can be created through building climate resilience.”

“We are grateful that the Paris Agreement has put Climate Adaptation on a par with mitigation but there is a long way to go. Understanding Climate Adaptation is crucial if we want to put paper into practice.” Christiaan Wallet, Operations Director of GCECA

The announcement was made today in Bonn at the COP23 climate conference which this year is focussing on the implementation of the 2015 Paris Agreement on climate change. The EBRD is organising four panels on key climate issues and Bank representatives are also taking part in many more events.

The EBRD is a major investor in climate finance in many of the 38 emerging economies where it works, a driving force in energy efficiency projects, a pioneer in the development of renewable energy sources and an increasingly important player in adaptation to climate change, having signed almost 180 climate resilience investment since 2011. Under its Green Economy Transition (GET) approach, the EBRD aims to dedicate 40 per cent of its annual investment to green finance by 2020 and is well on the way to achieving this objective.

The Global Centre of Excellence on Climate Adaptation helps countries, institutions and businesses to adapt to a warming climate, which is increasing the frequency of natural disasters and causing economic disruptions. It is bringing together international partners, including leading knowledge institutes, businesses, NGOs, local and national governments, international organisations and financial institutions. A technical secretariat has been created and funded by the EBRD.

As member of the technical secretariat, Acclimatise will be closely involved in this project working together with EBRD and GCECA.


Cover photo by Reginar on Unsplash: Station Utrecht Centraal, Utrecht, Netherlands
Climate Change poses risks to Maryland’s Retirement and Pension System

Climate Change poses risks to Maryland’s Retirement and Pension System

By Nathan Hultman and Alan Miller

Pension funds, unlike commercial banks, have to manage returns for the long term so as to ensure they fulfill the promises made to employees who may be decades from retirement.  Thinking about the future – and new financial risks – is therefore one of their most important responsibilities. Recent hurricanes and wildfires in the United States have underscored that climate change has become a new source of major financial risk—which will almost certainly grow in coming decades.  To date, however, the Maryland pension fund has been slow to respond comprehensively to this challenge, even as tidal flooding has become a regular feature in parts of Annapolis just blocks away from government offices.

The Maryland State Retirement and Pension System (SRPS) currently manages over $47 billion in assets on behalf of 380,000 members across numerous state and local government agencies. State pension funds such as Maryland’s invest funds in a broad swath of the global economy. Climate change poses real risks to those investments in a number of ways, including direct impacts from weather events, loss of competitiveness for companies in affected industries, and legal liability for the mismanagement of such risks. These risks create a vulnerability for Maryland and all other states with long term obligations to their residents and employees.

Pension funds in other jurisdictions have begun addressing both these risks resulting from climate change impacts and policies. In June of this year, a task force of international financiers under the auspices led by former New York mayor Michael Bloomberg also issued a report highlighting these risks and the need for greater disclosures. Maryland’s SRPS did contribute to some early thinking with other pension funds about how to deal with climate change in investment decisions, and has taken some initial steps to engage in proxy voting. However, more can and should be done – starting now – both individually and in concert with other pension funds and long-term asset holders, institutions collectively managing about $100 trillion.

In a study[1] we recently co-authored, we identified some of the areas for potential improvement. The Maryland SRPS could, for example, learn from other states’ pension management practices and incorporate these into the System’s framework. The California Public Employees’ Retirement System (CalPERS) and the New York State Common Retirement Fund (NYSCRF) have commissioned reports to analyze their portfolio’s climate risks and approved climate change resolutions for five major energy companies this year along with other shareholders. Other tools they have used include proxy voting to place climate change risk management experts on corporate boards and shifting capital to companies with lower emissions or investing in green bonds.  They are also looking at the opportunities for good returns from green energy technologies and products that enhance resilience to climate impacts.

There are also known industry best practices for managing climate risk through clarifying investment guidelines and philosophy with respect to climate change, risk assessment, active ownership, asset reallocation, and transparency. The Maryland SRPS has initiated some of these best practices but has considerable room to do more. On transparency, for example, the Asset Owners Disclosure Project gave SRPS a “D” ranking for 2017 meaning “Bystander,” tying for 218th out of 500 asset owners indexed. We also recommend that the Maryland SRPS clarify its investment principles, undertaking a comprehensive climate risk assessment, and increasing corporate engagement and transparency. But the first and most critical step is to openly acknowledge the significance of the risks and an intent to address them seriously.

At a time when the national government has abandoned climate change leadership, the actions of states and financial institutions matters more than ever.  Maryland should be leading on this issue, because of the risks to our investments as well as our own vulnerability to climate change. These few basic steps can further advance our state as a national leader, and reflect the best scientific understanding of the risks that climate change presents to Maryland’s investments.


Nathan Hultman is the director of the Center for Global Sustainability at the University of Maryland. Alan Miller retired as a Specialist in the Climate Business Department at the International Finance Corporation in December 2013 and is now an independent consultant and Acclimatise Associate.

[1] “Climate Change Risk and the Maryland State Retirement and Pension System.” Center for Global Sustainability, University of Maryland, October 2017. Available at http://www.cgs.umd.edu/publication/

Cover photo in public domain. Article published with authors’ permission.