A “colossal” mobilisation of investment capital is needed quickly to find solutions to mitigate climate change and increase economic resilience, according to the Coalition for Climate Resilient Investment (CCRI), formed by investors, banks, insurers and governments in 2019 to help factor climate risks into investment decision-making.
In its first report since launching, the CCRI says “systemic market failures” in climate resilience must first be addressed to unlock the scale of private finance needed. This requires adequate quantifying and pricing of physical climate risks.
The report also flags difficulties in comparing resilience options and failure by investors to adjust their expected returns or cost of capital to account for climate risks, as key drivers for underinvestment in climate resilience from the private sector.
The report says adaptation investment is lacking in both developed and developing countries, where the $80bn spent in 2019 on mitigation and adaption is dwarfed by the estimated $300bn needed per year by 2030. Investment in resilience for small, developing island nations has declined and exposes “a global ‘adaptation gap’ that is widening”, the report adds.
Carlos Sanchez, executive director at the CCRI, commented: “Even if we stop all emissions today, adaptation will still be necessary. For nations and investors to fund and build infrastructure that is more resilient and capable of withstanding present and future impacts of climate change, physical risks must first be properly priced upfront in financial decisions.”
With predictions of increased frequency in floods, heatwaves and higher sea levels, all countries must build resilience to mitigate the worst impacts, adds the CCRI.
“This is no longer a ‘vulnerable nation’ discussion,” said Sanchez. “Extreme weather is taking hold in every part of the world and causing damage beyond our worst-case scenarios. In response, we need a colossal and rapid mobilisation of investment capital to find solutions that will both mitigate climate change and increase our resilience to it.”
The CCRI says its work is focused on solutions that free up private finance to support adaptation and transition to low-carbon, resilient economies. It is also trying to develop a framework that integrates and prices physical climate risks into investment decisions.
Mark Carney, UN special envoy for climate action and finance and finance adviser to the UK for COP26, said: “The CCRI has a crucial role to play in the evolution towards investors integrating physical climate risks into their decision-making process. The coalition’s commitment to collaborate with other initiatives, such as the Task Force for Climate-Related Financial Disclosures, the development of practical solutions and consultation with global regulators is enabling a deeper and more pragmatic understanding of the climate transition challenge ahead of us.”
Andrew Holness, Prime Minister of Jamaica, said the CCRI is a unique collaboration in the development of practical solutions. “This will help vulnerable countries prioritise actions and investments to protect economic, social and ecosystem value from physical climate risks during the coming decades. As a climate-vulnerable small-island developing state, the principals and mandates of the Coalition for Climate Resilient Investment strongly resonate with Jamaica.”