Category: Finance

2020 Picks from the Acclimatise Article Archive – Financial Services

2020 Picks from the Acclimatise Article Archive – Financial Services

It’s that time of year again! The beginning of a new year marks a great time for dedicating oneself to resolutions, whilst also giving us an opportunity to reflect on the past year and the moments that shaped us. With that spirit of reflection in mind, we sifted through our network’s article archive and selected some of our favourites from the past year. We’ve sorted our favourite articles by topic, to make up a short, three-part series throughout the month of January. To kick things off, we bring you six articles related to climate adaptation for the financial services sector.

While 2020 was a big year in terms of newsworthy moments across the globe, there were also many significant developments within the financial services sector. In September, the United Nation’s Environment Programme Finance Initiative (UNEP FI) released a report on Phase II of its Task Force for Climate-related Financial Disclosures (TCFD) Banking Program with Acclimatise. The new report, “Charting a New Climate”, provides financial institutions with a state-of-the-art blueprint for evaluating physical risks and opportunities. A new learning paper was also launched, one which provides insights on the lessons learnt from implementing Green Climate Fund (GCF) Readiness projects in the Caribbean and aims to inform future Readiness efforts in the region or globally.

Despite the grave conditions many economies are facing due to 2020’s COVID-19-induced lockdowns, expectations for corporates and financial institutions on climate risk analysis and disclosure have not slowed. In fact, climate risk and reporting mandates only appear to be increasing. 2021 will see a continued focus on climate risk analysis in the private sector, in the lead up to the 26th Conference of the Parties to the UN Framework Convention on Climate Change (UNFCCC). 

Acclimatise has now been acquired by Willis Towers Watson, where we offer joined up services on both physical and transition related-risk analysis.

Launch of “Charting a New Climate: State-of-the-Art Tools and Data for Banks to Assess Credit Risks and Opportunities from Physical Climate Change Impacts

By Acclimatise News

UN Environment Programme Finance Initiative (UNEP FI) has released a report on physical climate risks and opportunities from Phase II of its Task Force for Climate-related Financial Disclosures (TCFD) Banking Program with climate risk advisory and analytics firm, Acclimatise. The report, “Charting a New Climate”, provides a state-of-the-art blueprint to support financial institutions to navigate the changing physical climate risk landscape.

Read the full article here.

Why climate resilience bonds can make a significant contribution to financing climate change adaptation initiatives

By Maya Dhanjal

There is a rising cost associated with economic damages related to climate change with 2019 being the most expensive year to-date and expected to only get worse. Governments who are mainly responsible for providing this funding are strapped in their ability to mobilise and manage emergency funds. Resilience bonds provide a unique opportunity to hybridise principles in debt securities and insurance policies and ultimately divert available funds into climate-resilient projects that will enhance adaptive capacity, particularly for long-lived infrastructure assets that have to face the test of time and a changing climate.

Read the full article here.

GCF readiness efforts in the Caribbean: Learning from Practice

By Acclimatise News

A new learning paper by Acclimatise provides an insight on the lessons learnt from implementing Green Climate Fund (GCF) Readiness projects in the Caribbean and aims to inform future Readiness efforts in the region or globally.

Read the full article here.

Expectation for corporates and financial institutions on climate risk analysis and disclosure continue to evolve and grow 

By Robin Hamaker-Taylor

As 2020 comes to a close, this article summarises major developments expectations for corporates and financial institutions on climate risk analysis and disclosure in the last quarter of this year. 

Read the full article here.

New report: Protecting low-income communities through climate insurance

By Will Bugler

Since 2015, the InsuResilience Investment Fund (IIF) has worked to build the climate resilience of poor and climate-vulnerable households as well as micro, small and medium enterprises, by increasing climate insurance coverage. A new report “Protecting low-income communities through climate insurance”, takes stock of its experience and achievements to date. 

Read the full article here.

Financing and de-risking nature: The next frontier for financial institutions

By Laura Canevari 

Nature and biodiversity have gained the spotlight this year, becoming the next frontier for financial services. Earlier this year, the Task Force on Nature-related Financial Disclosure (TFND) was launched under the leadership of the Global Canopy, UNDP, UNEP and WWF, aiming to redirect financial flows towards nature-based solutions and nature-adding activities.

Read the full article here.


Climate chaos batters global insurance industry

Climate chaos batters global insurance industry

By Kieran Cooke

The climate crisis is exacting a rising price from the worldwide insurance industry, a relief and development agency says.

LONDON, 11 January, 2021 – The economic cost of the climate crisis keeps on rising, as the world’s insurance industry is now acutely aware. As the world digests the news that 2020 was the joint hottest year on record, two reports attempt to assess how many billions of dollars are being lost as a result of an ever-warming planet.

Christian Aid, the UK and Ireland-based charity, lists what it considers to be the 15 most serious climate-related disasters in 2020, and seeks to quantify them in financial terms.

“Covid-19 may have dominated the news agenda in 2020, but for many people the ongoing climate crisis compounded that into an even bigger danger to their lives and livelihoods”, says Christian Aid.

Six of the ten most costly disasters happened in Asia, many of them associated with an unusually prolonged and wet monsoon season. The charity estimates that floods in China cost US$32 billion, while extended rains in India cost US$10bn. Cyclone Amphan, which in May hit the Bay of Bengal region – one of the world’s most densely populated areas – caused losses valued at US$13bn.

“Covid-19 has an expiry date, climate change does not, and failure to ‘green’ the global economic recovery now will increase costs for society in future”

In Africa, unusually heavy rains and changing wind patterns are considered to have been the main factors behind devastating infestations of locusts, which caused an estimated US$8.5bn of damage to crops in Kenya and other East African countries.

In its latest update on locust breeding and movement patterns, the UN’s Food and Agriculture Organisation warns that swarms are likely to continue devastating crops across the Arabian peninsula and in East Africa in the weeks ahead.

Christian Aid says its calculations of financial losses resulting from climate crisis-related events are likely to be an underestimate. “Most of these estimates are based only on insured losses, meaning the true financial costs are likely to be higher”, the report says.

Insurance is a very unequal business: much of the property and economic infrastructure of the developing world is not insured, with the bulk of cover being in the US, Europe and other leading economies.

Australian toll

Swiss Re is one of the world’s biggest insurance groups. Its preliminary estimate of global insurance losses as a result of both what it terms natural catastrophes and man-made disasters in 2020 amounts to US$83bn, up 40% on the previous year. A large chunk of those losses resulted from claims related to extreme weather events in the US.

“Losses were driven by a record number of severe convective storms (thunderstorms with tornadoes, floods and hail) and wildfires in the US”, says Swiss Re. Wildfires in Australia were another contributing factor.

The group says climate change is likely to exacerbate what it calls secondary peril events, as more humid air and rising temperatures create extreme weather conditions, which in turn will result in more frequent wildfires, storm surges and floods.

“While Covid-19 has an expiry date, climate change does not, and failure to ‘green’ the global economic recovery now will increase costs for society in future”, says Jerome Jean Haegeli, Swiss Re’s chief economist– Climate News Network


This article was originally published on The Climate News Network.
Cover photo by Iwoelbern, via Wikimedia Commons.
New report: Protecting low-income communities through climate insurance

New report: Protecting low-income communities through climate insurance

By Will Bugler (Acclimatise) & Andrew Eil (Climate Finance Advisors)

Since 2015, the InsuResilience Investment Fund (IIF) has worked to build the climate resilience of poor and climate-vulnerable households as well as micro, small and medium enterprises, by increasing climate insurance coverage. Today, at a side event of the InsuResilience Global Partnership’s 4th Annual Forum, it has launched a new report “Protecting low-income communities through climate insurance”, which takes stock of its experience and achievements to date. As the first fund of its kind to raise private capital to invest in climate insurance markets in developing countries, IIF’s report shares valuable lessons relevant tor impact investors, insurers, policy makers and other relevant entities involved in building resilience using insurance and disaster risk finance.

Authored by Acclimatise and Climate Finance Advisors, the report is based on an analysis of reporting data, interviews and survey responses from IIF’s investee companies. It shows how IIF has developed a unique model that allows it to invest in companies across the entire insurance market value chain, helping to build new networks that support climate insurance market growth in developing countries. In its first six years, the IIF has extended climate insurance cover to 25 million poor or climate vulnerable people in developing countries.

Contributing to climate resilience

The report begins by placing the IIF’s work in the context of the wider challenges of closing the climate finance gap and increasing insurance market penetration in developing countries. Climate-driven extreme events have doubled from an average of under 300 events per year in the 1980s to over 600 per year since 2010. This has continued to drive economic losses, affecting practically all sectors. According to Swiss Re, the last decade has been the costliest on record with economic damages from natural disasters totalling over USD 2 trillion. However, as the report notes, current investments worldwide are insufficient to prepare for such impacts. In fact, according one UN estimate, climate adaptation finance totalled an average of $30 billion in 2017-2018,[1] well below the $210-300 billion needed per year between 2010 and 2030.[2]

As noted in the 2015 Paris Agreement, insurance can play an important role in building resilience to climate change and it impacts, allowing people to withstand the financial impacts of disasters and invest in adaptation measures. However, the majority of economic losses generated by climate-related extreme events are not covered by insurance, resulting in a substantial protection gap of $280 billion in 2017 and 2018. Whilst this gap has narrowed in recent years in upper-middle and high-income countries, there has been little progress in lower to middle-income countries, where the protection gap persistently exceeds 95 percent (see map below).

To close the adaptation finance gap and increase access to climate insurance products in developing countries, private sector investment is crucial. The IIF uses a blended finance approach, raising public capital with high risk tolerance complemented by grant resources, and leveraging it to attract private investors. So far, the IIF has raised $166 million (approximately $100 million of which in private capital) and invested $133 million in 21 companies around the world.

Figure 1: Property and casualty insurance premiums per capita. Source: Munich Re in InsuResilience Investment Fund’s ‘Protecting low-income communities through climate insurance’ report.

Overcoming barriers to climate insurance penetration

IIF, managed by BlueOrchard, was initiated by KfW, the German Development Bank, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). It has a mandate to improve access to and the use of insurance in developing countries and, in so doing, reduce the vulnerability of MSMEs and low-income households to extreme weather events. To achieve this, IIF’s investee companies must overcome several important barriers such as high transaction costs of delivering climate insurance, difficulties distributing products to large numbers of poor and climate-vulnerable clients, low levels of awareness of and trust in insurance, and regulatory challenges associated with earl-stage climate insurance markets.

To overcome these challenges, IIF’s innovative blended finance approach combines aspects of a conventional investment fund with traditional donor grantmaking and technical assistance programmes. It has established a unique model that promotes a whole-value-chain approach to investing, careful selection of investee companies, and a high level of technical support provided by the Fund itself. It does this by operating two sub-funds: A Debt Sub-Fund and an Equity Sub-Fund. The Debt Sub-Fund invests in companies that distribute climate insurance products, such as micro finance institutions, whilst the Equity Sub-Fund invests in climate data and service providers, insurers and reinsurers.

This whole-value-chain approach to investing recognises that a thriving ecosystem of climate insurance entities is essential for long-term climate insurance market development. Service providers cannot exist without insurers and aggregators to buy their products, insurers in developing countries require a healthy pool of distributors to extend insurance to low-income communities, and new technologies from data and service providers underpin the market and are essential to take climate insurance products to scale. Climate insurance entities also interact with financial institutions such as retail banks and reinsurers in critical ways; these interactions are reflected in the business models of many of IIF’s investees and contribute to the development of the climate insurance ecosystem.

Other elements of IIF’s support for its investees to launch and grow climate insurance products are the Technical Assistance Facility (TAF) and Premium Support Facility (PSF). Through the TAF, IIF has undertaken 25 technical assistance projects supporting companies with activities ranging from business planning, and corporate structure, to product development and marketing. To help climate insurance products gain a foothold in the market, the IIF also provides temporary subsidies for insurance premiums through its PSF, making its investees products more affordable.

Figure 2: How the IIF supports entities across the insurance value chain. Source: InsuResilience Investment Fund’s ‘Protecting low-income communities through climate insurance’ report.

Encouraging results

Recent interviews and surveys with IIF’s investee companies have shown that the Fund has delivered significant benefits to their companies. Investees reported that IIF’s involvement has helped them to: develop new and improve existing climate insurance products, tailoring them for specific clients; scale their operations, allowing them to expand into new markets and reach more clients; reduce transaction costs by making capital investment in new technology and strategic planning; and improve business governance and reputation which has enabled them to access new investment.

Many of IIF’s investees are yet to launch or have only recently launched their climate insurance products. This status, coupled with the challenges they face when scaling products in developing countries, serves to explain why reaching large numbers of IIF’s target beneficiaries takes considerable time. Despite the long runway to large-scale impact, IIF has already demonstrated that its investments increase access to climate insurance for poor and climate-vulnerable people. At the end of its first year of operation in 2015, the IIF had approximately 1,700 beneficiaries, a number which had grown to 25 million by September 2020.

With IIF’s model now well established, the Fund expects to make a further 12 to 15 investments in companies in the coming years. Through these new investments and the further growth of its existing investees’ climate insurance offerings in maturing markets, the IIF expects to reach between 90 and 145 million beneficiaries by 2025.

Building resilience

The report also features evidence that the climate insurance products released by IIF’s investees have had a positive impact on the lives of its beneficiaries. Eight IIF investees reported paying out a total value of $4.75 million to clients, from over 18,000 claims, since 2015. The report found that access to climate insurance allowed beneficiaries to recover more quickly from climate related shocks and gave other benefits including improved access to credit in order to invest in their businesses. Interviews conducted by impact measurement company 60 Decibels, with 120 beneficiaries of one of IIF’s investees – Kashf Foundation – found that claimants were over twice as likely to have recovered to their pre-shock levels of welfare compared with those who did not make a claim.

Overall, the report finds that IIF has successfully established a model that can raise both public and private capital, provide investor returns, and achieve real benefits for poor and climate vulnerable communities. Ultimately, IIF’s successes are founded on the quality of its relationship building with its investees and with other institutions in its target countries. Whilst this approach is not quickly

scalable, it does provide a real and lasting impact in building resilience through climate insurance.

Download a copy of the report here.

For more information about the IIF and its work contact: info@blueorchard.com


[1] Climate Policy Initiative, 2019. Global Landscape of Climate Finance 2019. https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2019/

[2] UNEP, 2018. The Adaptation Gap Report 2018, Nairobi: United Nations Environment Programme.


Adaptation Fund Accelerates Climate Responses through its Pillars of Action, Innovation, and Learning and Sharing

Adaptation Fund Accelerates Climate Responses through its Pillars of Action, Innovation, and Learning and Sharing

Washington, D.C. (December 3, 2020) – New Adaptation Fund grants are scaling up sustainable land and water management practices in Rwanda to adapt to extreme rainfall, applying innovative approaches to establish emergency water access stations to address drought in vulnerable urban areas of Chile, and disseminating knowledge of effective coastal management practices in Senegal.

These are among the newest types of grants offered by the Fund through its five-year strategy focused on the pillars of ActionInnovation and Learning and Sharing. They are offered to vulnerable countries above and beyond its regular country projects to help address the urgency and scale of climate change, and rapidly growing demand for the Fund’s work.

The UNFCCC convened a special Dec. 3 event during the Climate Dialogues that featured global- and country-level climate leaders discussing the importance of the Fund’s contributions to serving the Paris Agreement through these novel approaches and its concrete work on the ground that continues to empower the most vulnerable. The Fund’s advances in contributing to climate action will be assessed next year by the Subsidiary Body for Implementation, which helps guide progress in addressing countries’ adaptation needs and building momentum for enhanced action on the ground.

“We are extremely proud of the growth and ability to adapt of the Adaptation Fund, with programmes in more than 100 countries including now close to 115 concrete projects on the ground, pioneering Direct Access modality that builds country ownership in adaptation, and additional grant pathways that are helping countries build resilience to climate change as well as environmental, health and economic risks that are even more profound in the context of the COVID-19 pandemic,” said Mr. Ibila Djibril, Chair of the Adaptation Fund Board.

Since its creation in 2001 and launch in 2007 the Adaptation Fund has been delivering effective adaptation projects and programs to the most vulnerable to climate change while building an essential role in the international climate finance landscape.

It has pioneered innovative climate finance modalities such as Direct Access and Enhanced Direct Access that build national adaptive capacities and has accredited 32 national implementing entities (NIEs) to date, half of which are in small island developing states or least developed countries. Several were accredited under the Fund’s streamlined accreditation process for smaller entities, which opens doors to nations that otherwise may not have been able to access needed climate finance.

In all, the Fund has accredited 52 implementing entities with the capability to identify and implement crucial adaptation projects across the globe. Its readiness programme organizes workshops, webinars, technical assistance and south-south cooperation grants to help guide entities through the accreditation process, as well as share project experiences to further effective adaptation practices on the ground.

The Fund has grown rapidly to nearly 115 concrete adaptation projects and nearly US$ 800 million committed to:

  • Serving 27 million total beneficiaries (including over 9 million direct beneficiaries);
  • Training 458,000 people in climate resilience;
  • Preserving 407,000 ha of natural habitat;
  • Protecting 162,000 meters of coastlines, and;
  • Establishing 408 Early Warning Systems, among other adaptation measures.

In addition to its concrete projects, it is implementing the new tools and grants through its five-year Medium-Term Strategy begun in 2018. These include action grants that are scaling up effective projects; small and large innovation grants through AF’s Innovation Facility that are fostering and accelerating innovation by testing new adaptation tools and technologies and building an effective scalable base; and learning grants that are disseminating knowledge in adaptation – all with the aim to enable transformational impact.

These small grants (up to US$ 250,000 each) are currently available to NIEs, with several scale-up, innovation and learning grants having already been awarded and underway. Another US$ 10 million in innovation grants were also recently launched through the Adaptation Fund Climate Innovation Accelerator — funded by AF and implemented by UNDP and UNEP/CTCN — and are available to a wider range of stakeholders, including governments, community groups, entrepreneurs, civil society, young innovators, and others.

In late October 2020, the Fund’s Board further approved a window for large innovation grants up to US$ 5 million each and a dedicated funding window for Enhanced Direct Access (EDA), which builds on Direct Access by empowering NIEs to directly identify and fund local adaptation projects. It will build on pioneering AF-funded EDA projects in South Africa, Costa Rica, Federated States of Micronesia and Antigua and Barbuda.

Similar to the Fund’s window for regional project funding, all of these new funding windows are offered to countries on top of regular country project funding.

The Adaptation Fund serving under the Paris Agreement increases opportunities for communities to adapt to the adverse effects of climate change. With this development, the Adaptation Fund can build on its enviable track record of delivering innovative finance for concrete action on the ground. We must continue to strengthen these efforts and enable the Fund to provide greater access of needed adaptation finance to developing countries,” said Mr. Daniele Violetti, Director, Means of Implementation, UNFCCC.

All the while the Fund continues to empower the most vulnerable groups, including women, youth, indigenous groups and others, while promoting human rights, biodiversity, inclusion and transparency through all its programmes.

Breaking Ground in AdaptationIts projects are often the first on the ground in many vulnerable places throughout the world and are creating valuable models that have been scaled up and replicated with financing from other climate funds. This has happened in several instances, with Fund projects in Senegal, India, Rwanda, Colombia, Georgia, Maldives, Pakistan, Ethiopia and others later being later scaled up or replicated by other funds.

Many AF-funded projects have also been adapting to help directly with Covid-19. In India, women’s self-help groups stitched thousands of needed masks for isolated Himalayan communities, while in Sri Lanka local seamstresses working in garment factories produced needed protective equipment for hospitals. Self-sustaining greenhouses helped thousands of family members in Uzbekistan under quarantine, while project farmers contributed to food security in Ghana, and family brigades in Honduras safely planted trees and restored ecosystem resources.
Other projects are helping to build broader resilience to climate change and the pandemic at the same time through their inherent adaptation measures. In Costa Rica, an AF-funded project is empowering farmers to diversify production for their own supplies and to sell in local markets, while clean water facilities have been established to provide on-site access to villagers in Lao PDR who were previously accustomed to walking long distances for water.

The Fund also adapted early on in the pandemic to arrange virtual meetings and project visits, knowledge products and project flexibility.

“The Adaptation Fund continues to receive high demand for projects and support, and has been very adaptive and responsive to countries’ needs as we continue to effectively serve the Paris Agreement on the eve of its 5th anniversary, through the Fund’s tangible actions on the ground, growing strategic pillars of Action, Innovation and Learning, and empowering country ownership in adaptation,” said Mr. Mikko Ollikainen, Manager of the Adaptation Fund.

The Board received record highs in new proposals for its March 2019 Board meeting as well as its June 2020 intersessional review period, and has an active project pipeline of about US$ 280 million. It also approved a record US$ 188 million in new projects last year. This led to the Board deciding recently to increase its resource mobilization target for 2020 by a third to US$ 120 million, while noting more would be welcome and needed for projects in the pipeline.

Since it began formally serving the Paris Agreement nearly two years ago, the Fund solidified its institutional arrangements and received a record 11 contributions from national and regional governments in 2019 — including the first multi-year commitment to the Fund. In conjunction with the 5-year anniversary of the Paris Agreement, the Fund will convene a virtual Adaptation Fund Contributor Dialogue for Ambition in Adaptation Finance Dec. 14, where governments are expected to speak about new contributions for the Fund.


This press release was originally published on the Adaptation Fund website.
Cover photo by Leona Keyl.
Supporting countries in improving their forecasting: A new brief on how the Systematic Observations Financing Facility works

Supporting countries in improving their forecasting: A new brief on how the Systematic Observations Financing Facility works

Set up by the World Meteorological Organization (WMO), the Systematic Observations Financing Facility (SOFF) provides a new way to upgrade our global weather and climate forecasting systems for a fraction of the cost compared to current investment plans. This new information brief outlines how the SOFF will work and describes the process by which this new way of investing benefits all of the global community.

Many countries lack the resource and capacity to produce regular and detailed observations, and to share them with the global community. This significantly limits the accuracy of weather and climate forecasts made for their local areas, and therefore limits the plans they can put in place to adapt and become more resilient to climate change and extreme weather events. This is because weather prediction models’ outputs are reliant upon the quality of data input – if you have low quality or infrequent observational data for an area, then the outputs are likely to be limited.

Whilst improvements have been made to other types of earth observation methods, such as from satellites, surface-based observational coverage is not consistent across the globe and has not received as much investment. This has spurred the creation of the Global Basic Observing Network (GBON). GBON sets out the standard for observations, ensuring that data are of acceptable frequency and coverage, and shared in a timely and consistent way across the global community. However, not all countries are able to meet this basic standard – or if they can, they may struggle to sustain it due to the resource and capacity needs for making surface-based observations.

This brief describes how SOFF will act as the mechanism by which countries – in particular, 68 SIDs and LEDCs – can be supported in covering their ‘GBON gap’ and in sustaining compliance with the GBON requirements. This includes both financial and technical assistance, delivered in new ways. Internationally agreed metrics guide investments (GBON), and data exchange is used as a measure of success, which also create local benefits and provide a global public good.

SOFF will only cost $400 million in its first 5 years – a fraction of the $2.5 billion currently invested just in the Alliance for Hydromet Development member’s projects. Yet SOFF is predicted to result in a 10-fold increase in radiosonde observations (observations that are taken by suspending measuring equipment under a large balloon that will ascend to high altitudes) and a 20-fold increase from weather stations.

The mechanism of SOFF’s financial and technical assistance has been carefully designed so as to ensure investments are made wisely, and that success is measured by how well data is being shared – the crucial element of improving global forecasts. This design also ensures that countries’ contributions are sustained and increase the benefits for the entire global community.

Image: A diagram of the SOFF outcomes, phases, and operational partners. 


This information brief is one of several produced by the World Meteorological Organization in collaboration with Acclimatise. They are based on the work of the SOFF working groups that brought together 30 international partners to jointly develop the SOFF concept and design.

You can learn more about SOFF and read the other briefs here.


New Information brief explores the Global Basic Observing Network (GBON) gap

New Information brief explores the Global Basic Observing Network (GBON) gap

In 2019, the World Meteorological Congress and its 193 member countries agreed to establish the Global Basic Observing Network (GBON), setting out an obligations and clear requirements for all members to acquire and exchange the most essential surface-based observational data at a minimum resolution and timeframe level. Achieving compliance with the GBON requirements requires sustainable investments and strengthened capacity in many countries. Spearheaded by the World Meteorological Organisation (WMO), the Systematic Observations Financing Facility (SOFF) is being established to meet these needs.

This new information brief explains the GBON gap analysis undertaken by the WMO for each of its 193 Members and how to calculate it. The gap analysis provides a quantitative estimate of the number of surface-based observing stations that will need to be installed, rehabilitated or upgraded, and exchange data in order to meet the GBON requirements.

Preliminary findings indicate that Small Island Development States (SIDS) and Least Developed Countries (LDCs) are currently far from meeting the GBON requirements, largely due to a lack of infrastructure and capacity. In order to close this gap, about 2000 new and/or rehabilitated stations need to become operational which, in turn, will lead to massive increases in exchanged observations. SOFF provides a new way to help close the GBON gap by ensuring upgrades to weather and climate forecasting systems for a fraction of the cost compared to current investment plans.

This information brief is one of several produced by the World Meteorological Organization in collaboration with Acclimatise. They are based on the work of the SOFF working groups that brought together 30 international partners to jointly develop the SOFF concept and design.

You can learn more about SOFF and read the other briefs here.


Cover photo by Duncan Bullock
Landmark legal case sees Australia’s biggest superannuation fund commit to strong action on climate change after 25-year old Brisbane man sues

Landmark legal case sees Australia’s biggest superannuation fund commit to strong action on climate change after 25-year old Brisbane man sues

By Will Bugler

Australia’s largest super fund, Rest, has agreed to test its investment strategies against various climate change scenarios and commit to net-zero emissions for its investments by 2050, after a legal case brought by a 25-year-old man from Brisbane. Mark McVeigh sued Rest in 2018 for failing to provide details on how it will minimise the risk of climate change. The landmark case represents the first time a superannuation fund has been sued for failing to consider climate change.

Mr McVeigh alleged Rest had breached Australia’s Superannuation Industry Act and the Corporations Act, after it failed to provide him with information on how it was managing the risks of climate change. These risks include physical climate risks that threaten Rest’s investments, and also transition risks which arise from the decarbonisation of the global economy.

Climate change is a ‘material, direct and current financial risk’

Australian law requires trustees of super funds to act with “care, sill and diligence to act in the best interest of members – including managing material risks to its investment portfolio”. In its settlement Rest agreed that its trustees have a duty to manage the financial risks of climate change.

In Rest’s statement about the settlement it said: “The superannuation industry is a cornerstone of the Australian economy — an economy that is exposed to the financial, physical and transition impacts associated with climate change.” and went on to emphasise that “climate change is a material, direct and current financial risk to the superannuation fund”.

Rest also agreed to take immediate action by testing its investment strategies against various climate change scenarios, publicly disclose all its holdings, and advocate for companies it invests in to comply with the goals of the Paris Agreement.

Mr McVeigh’s lawyer, David Barnden, head of Equity Generation Lawyers, said the case still sets an important precedent globally. “This outcome should represent a significant shift in the market’s willingness to tackle climate risk—a shift which should set a clear precedent for the industry in Australia, and also pension funds around the world,” he said. Mr Barnden is also representing 23-year-old Katta O’Donnell, who is suing the Australian Government for failing to disclose the risks that climate change could have on government bonds.

Growing momentum behind regulation

The latest cases in Australia are part of a global movement towards stricter regulation governing the financial risks posed by climate change (see Acclimatise’s timeline charting the rise of climate law). In 2015, for example, France introduced laws mandating climate disclosure for institutional investors and asset managers and in 2017 the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure published recommendations for corporate climate disclosures. In 2019, National Instrument 51-102 Continuous Disclosure Obligations set out new requirements for firms reporting in Canada to disclose material risks in their Annual Information Form.

The implication of landmark cases such as the Rest settlement, is that super funds, pension funds, banks and other investors will increasingly require companies to understand and manage their climate risks. Earlier this year, Acclimatise worked Working with Asia-Pacific’s largest law firm, MinterEllison to produce a primer on physical climate risk aimed at Non-Executive Directors. The primer was published by Chapter Zero a global voluntary programme that connects and supports Non-Executive Directors to improve oversight and action on the issue of climate change.

Download the primer here.


Cover photo by Sippakorn, on Pixabay.
Financing and de-risking nature: the next frontier for financial institutions

Financing and de-risking nature: the next frontier for financial institutions

By Laura Canevari

Nature and biodiversity have gained the spotlight this year, becoming the next frontier for financial services. Earlier this year, the Task Force on Nature-related Financial Disclosure (TFND) was launched under the leadership of the Global Canopy, UNDP, UNEP and WWF, aiming to redirect financial flows towards nature-based solutions and nature-adding activities.

The TNFD is informed by a number of recent publications that help to increase our understanding of nature-based risks and record widely the scale of loss that economies globally would experience if we don’t steer towards a future that nurtures nature. In this article, we review the recent findings of these initiatives and their recommendations for financial institutions on how to implement adequate strategies to work with nature.

The economic impacts of global environmental change

The rate of loss of biodiversity and ecosystems degradation is staggering. As noted by IPBES in their Global Assessment Report on Biodiversity and Ecosystem Services, seventy-five percent of the global land surface is significantly altered, 66 percent of the ocean area is experiencing increasing cumulative impacts, and over 85 percent of wetlands (area) has been lost. The average abundance of native species in most major terrestrial biomes has fallen by at least 20 percent. Land use change, climate change, pollution and the increasing material demands exerted by the human population are among the main drivers of nature’s degradation and loss. Yet, without ecosystems services and the biodiversity that sustains it, economic prosperity as a whole is at risk. In fact, according to the World Bank (2020) over half of the world’s GDP is generated in industries that are directly dependent on nature and its services.

The Global Futures Report estimates that the costs to the economy from the loss of nature in a “business-as-usual scenario” could reach US$10Tn by 2050, compared to a potential net gain of +US$490bn under a future scenario guided by the preservation of nature. This is a net drop of 0.67% of GDP per year by 2050. While significatively indicative, these results only reflect the effects that a business-as-usual vs a “global conservation” scenario would have on six major ecosystem services modelled, namely: Pollination; Coastal protection; Water yield; Timber production; Fish production; and Carbon sequestration. Hence, we must recognise that the true impacts of nature loss (and gains secured from protecting it) could in fact be much higher (and in some cases, irreversible).

It therefore should come as no surprise that over the past 5 years the World Economic Forum’s annual Global Risks Report (GRR) ranks biodiversity loss and ecosystem collapse as one of the top five risks in terms of likelihood and impact in the coming 10 years. What’s more, the 5 top risks according to the latest WEF survey are all environmental.

Biodiversity-related financial risks defined

In order to swiftly incorporate nature-related risks within existing ERM (enterprise risk management) and ESG (environmental, social and governance) processes and within investment decision-making, and financial and non-financial reporting, several publications recommend aligning nature-related risks with existing risk categories. In particular, WEF’s “New Nature Economy” Report and the Global Canopy and Vivid Economics report “The Case for a Task Force on Nature-related Financial Disclosures” recommend to align nature risk categories to the the Task-Force for Climate Related Disclosures (TCFD) framework. Accordingly, the classification of biodiversity-related financial risks into financial risk types is best laid out in PwC and WWF´s “Nature is too big to fail[” and is reproduced below in Figure 1.

Fig. 1: Classification of biodiversity-related financial risks into existing financial risk types. Source: PwC and WWF (2020) Nature is too big to fail

Steps to de-risk nature

Financial institutions (FIs) must start to consider the risks and opportunities stemming from the ecological limits of nature. However, and as noted in the WWF and AXA “Into the wild” 2019 report, integrating nature into investment strategies can vary according to the type of strategies followed by financial institutions and the asset classes taken into account. Sustainability indexes (such as Dow Jones Sustainability Index) can prove a useful tool to monitor nature-related issues and for acquiring information on corporate sustainability. However, the market today does not provide a comprehensive list of sustainability trackers to enable a diversified sustainable passive strategy. Some investors following a more active qualitative approach (generally within niche dedicated impact funds) are already integrating environmental considerations, but remain unable to internally calculate their exposure to nature risks.

According to WWF and AXA, the most effective way to integrate nature-related issues into investment decisions would be to quantify them in order to derive natural capital costs from corporate information. This can be done through a three-step approach consisting of:

  1. Formulating a description of corporate activities and environmental impacts on the basis of financial and sustainability reports.
  2. Integrating data from life cycle databases and models extracted from a global environmental-energy-economic model.
  3. Computing natural capital costs in monetary terms based on valuation factors, which determine the monetary costs per environmental impact (i.e. societal costs, solution costs, and potentially avoided costs).

Complementing this information on costs with the likelihood of their occurrence provides then a perspective in terms of risks.

Biodiversity- related target-setting by the finance sector.

Either directly or indirectly, businesses rely on nature and ecosystem services. Yet, dependency on nature can vary considerably between different industries and sectors. Equally, the negative impact of companies on the natural environment differs significantly from sector to sector. The Beyond Business as Usual report, published by UN Environment Programme, UNEP Finance Initiative and Global Canopy earlier this year identified a series of priority sectors that financial sector needs to consider in terms of industries with highest dependencies on the environment and those causing the largest negative impacts, here summarised in Table 1 below.

Table 1. Priority sectors for biodiversity target-setting by financial institutions

The industries in Table 1 all have either potentially high material dependencies and/or potentially high intensity impacts on biodiversity and ecosystem services. This makes them more likely to be material from a financial perspective to institutions, including banks, investors, and insurers, and means that activities—loans, investments, or insurance—expose financial institutions to biodiversity-related risk.

Ways forward

One way for financial institutions to start integrating nature risks in their decision-making is to use the list of priority sectors presented in the previous section to guide the systematic assessment of biodiversity risks and opportunities in their own activities. Moreover, they can start to explore existing tools to assist the evaluation of nature-risks such as ENCORE, the Natural Capital Toolkit, as well as explore metrics from the Global Footprint Network and Trase Finance.

Moreover, financial institutions need to become more familiar with  innovative biodiversity financing tools with high potential to attract capital, such as corporate sustainable timber bonds, corporate green commodity debt funds and ecosystem-based carbon offset bonds. For a full list of innovative investment instruments to finance nature, see the World Bank’s “Mobilizing private finance for nature” recently released report here.

Last but not least, financial institutions should also engage with emerging initiatives such as the Natural Capital Coalition, by signing the Natural Capital Protocol for financial institutions, and with the new Task Force on Nature-related Financial Disclosure.


Cover photo by Crystal Mirallegro on Unsplash.

Nobel prize-winning economics of climate change is misleading and dangerous – here’s why

Nobel prize-winning economics of climate change is misleading and dangerous – here’s why

By Steve Keen

While climate scientists warn that climate change could be catastrophic, economists such as 2018 Nobel prize winner William Nordhaus assert that it will be nowhere near as damaging. In a 2018 paper published after he was awarded the prize, Nordhaus claimed that 3°C of warming would reduce global GDP by just 2.1%, compared to what it would be in the total absence of climate change. Even a 6°C increase in global temperature, he claimed, would reduce GDP by just 8.5%.

If you find reassurance in those mild estimates of damage, be warned. In a newly published paper, I have demonstrated that the data on which these estimates are based relies upon seriously flawed assumptions.

Nordhaus’s celebrated work, which, according to the Nobel committee, has “brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth”, gives governments a reason to give climate change a low priority.

His estimates imply that the costs of addressing climate change exceed the benefits until global warming reaches 4°C, and that a mild carbon tax will be sufficient to stabilise temperatures at this level at an overall cost of less than 4% of GDP in 120 year’s time. Unfortunately, these numbers are based on empirical estimates that are not merely wrong, but irrelevant.

Nordhaus (and about 20 like-minded economists) used two main methods to derive sanguine estimates of the economic consequences of climate change: the “enumerative method” and the “statistical method”. But my research shows neither stand up to scrutiny.

The ‘enumerative method’

In the enumerative method, to quote neoclassical climate change economist Richard Tol, “estimates of the ‘physical effects’ of climate change are obtained one by one from natural science papers … and added up”.

This sounds reasonable, until you realise that the way this method has been deployed ignores industries that account for 87% of GDP, on the assumption that they “are undertaken in carefully controlled environments that will not be directly affected by climate change”.

Nordhaus’s list of industries that he assumed would be unaffected includes all manufacturing, underground mining, transportation, communication, finance, insurance and non-coastal real estate, retail and wholesale trade, and government services. It is everything that is not directly exposed to the elements: effectively, everything that happens indoors or underground. Two decades after Nordhaus first made this assumption in 1991, the economics section of the IPCC Report repeated it:

Economic activities such as agriculture, forestry, fisheries, and mining are exposed to the weather and thus vulnerable to climate change. Other economic activities, such as manufacturing and services, largely take place in controlled environments and are not really exposed to climate change.

Truck driving along mountain road.
It’s surely obvious that industries such as transport will be affected by the climate crisis. Rodrigo Abreu/Unsplash

This is mistaking the weather for the climate. Climate change will affect all industries. It could turn fertile regions into deserts, force farms – and the cities they support – to move faster than topsoil can develop, create storms that can blow down those “carefully controlled environments”, and firestorms that burn them to the ground.

It could force us to eliminate the use of fossil fuels before we have sufficient renewable energy in place. The output of those “carefully controlled environments” will fall in concert with the decline in available energy. The assumption that anything done indoors will be unaffected by climate change is absurd. And if this is wrong, then so are the conclusions based upon it.

The same applies to the “statistical method”. As I explained in a previous article, this method assumes that the relationship between temperature and GDP today could be used to predict what will happen as the whole planet’s climate changes. But while temperature isn’t a particularly important factor in economic output today, climate change will do much more than simply raise individual countries’ temperature by a few degrees – the disruption it will cause is enormous.

The damage function

Nonetheless, these optimistic estimates were used to calibrate Nordhaus’s so-called “damage function”, a simple equation that predicts a small and smooth fall in GDP from a given rise in temperature. But climate change will not be a smooth process: there will be tipping points.

Nordhaus justified using a smooth equation by incorrectly claiming that climate scientists, including Tim Lenton from the University of Exeter, had concluded that there were “no critical tipping elements with a time horizon less than 300 years until global temperatures have increased by at least 3°C”. In fact, Lenton and his colleagues identified Arctic summer sea ice as a critical tipping point that was likely to be triggered in the next decade or two by changes of between 0.5°C and 2°C:

We conclude that the greatest (and clearest) threat is to the Arctic with summer sea-ice loss likely to occur long before (and potentially contribute to) GIS [Greenland ice sheet] melt.

The reason these mistakes are so significant is that, despite the flawed assumptions on which it is based, this work has been taken seriously by politicians, as Nordhaus’s Nobel prize recognises. To these policymakers, a prediction of future levels of GDP is far easier to understand than unfamiliar concepts like the viability of the ecosystem. They have been misled by comforting numbers that bear no relation to what climate change will, in fact, do to our economies.


This article was originally posted on The Conversation.
Cover photo by Axel Fassio/CIFOR
Webinar: Risk-Informed Investment for Macro-Economic Financial Stability

Webinar: Risk-Informed Investment for Macro-Economic Financial Stability

The UN Office for Disaster Risk Reduction (UNDRR) is hosting a webinar on Tuesday the 15th of September from 14:00-15:15 CET.

This is the first in a series of four webinars examining the case for risk informed investment as a critical element of macro-economic financial stability and the achievement of the SDGs. It will look at examples where we can draw lessons from progress to date, identify the gaps and explore opportunities to address them. This series builds on a report on the integration of disaster risk reduction and climate action into sustainable financing published by UNDRR in 2019 in the European context, and accompanies the development of a new global study to identify concrete actions, evidence and tools to integrate multi-hazard and systemic risk approaches into the implementation of the 2030 Agenda for Sustainable Development in support of more risk-informed investment and finance.

Speakers include:

Mami Mizutori – UN Secretary-General’s Special Representative for Disaster Risk Reduction

Steve Waygood – Chief Responsible InvestmentOfficer, Aviva Investors

Sirpa Pietikäinen – Member of the European Parliament

Felix Suntheim – Financial Sector Expert, IMF

Register here.