A panel of industry leaders at a Coalition for Climate Resilient Investment (CCRI) event have called for a systemic shift in the way projects are financed to build resilience to climate change.
With $90 trillion in infrastructure investment needed globally over the next decade to achieve global growth expectations, speakers argued that investment choices now will have a profound impact on the long-term social and economic resilience.
The vulnerability to global shocks and stresses has been made all the more clear in recent months by the COVID-19 pandemic, they added.
Specialists on the panel included senior representatives from the World Economic Forum, Aberdeen Standard Investments, S&P Global Ratings, HSBC and DWS.
Together, they identified three specific weaknesses as critical barriers to a more climate-resilient economy.
Firstly, CCRI panellists argued that more support is needed for longer-term incentive structures, such as regulation and cost of capital, which reward the integration of physical climate risks in investment decision making.
Next, better data and analytical tools are needed to properly assess and price climate risk, and to translate exposure into cash flow modelling.
And finally, the experts called for a collaborative approach focused on building consensus in areas such as analytical methods and financial materiality.
“As we recover from this pandemic, we have a unique opportunity to create a greener and more resilient global economy with governments and the private sector working hand in hand as a force for good,” said International Environment Minister Lord Zac Goldsmith, who opened the event.
“The UK will continue its global leadership in tackling climate change ahead of hosting COP26 next year,” he continued. “The Coalition for Climate Resilient Investment and other partnerships are now more important than ever to help developing countries access the finance they need for adaptation and resilience.”
John Haley, Willis Towers Watson CEO and CCRI Chair, also commented: “COVID-19 has certainly tested our determination to advance our mandate in what has been a hugely challenging period.”
“Despite the human and economic crisis attached to it, COVID-19 also constitutes a unique opportunity to ensure that climate risk is embedded in stimulus plans and decision making more broadly. Our ultimate goal is that, by advancing more efficient investment decision making practices, we will see lives and economies in developing and developed regions become more resilient.”
Carlos Sanchez, Director of Climate Resilience Investment at Willis Towers Watson, further stated: “Properly integrating physical climate risks in investment decision making is a major opportunity. Resilient assets are expected to financially outperform non-resilient assets.
“Against conventional wisdom, resilient assets are not more expensive assets, but instead more efficient, reliable sources of long-term secure cash flows to investors. Most critically, these assets are certified to fulfil their function of sustaining social and economic activity in the face of growing incidence of climate risks.”