Time to put risk management at the heart of climate change preparedness

Now that climate change has become a reality, how will our cities and SMEs adapt to its impact? How will they manage the new economic, social and environmental risks? What are the challenges and obstacles that are slowing down resilience efforts? These are the primary questions raised this summer with some 1,100 SME directors and urban leaders from major cities in 18 countries across Europe, the Americas and Asia. The AXA Group and the United Nations Environment Programme Finance Initiative’s Principles for Sustainable Insurance (UNEP FI PSI) have published the results of the first international study on how cities and SMEs are working to become more resilient to the consequences of climate change. By 2030, 60% of the world’s population will be living in cities, which will be at the core of the climate conundrum. Experts predict the cost of climate change could account for some 20% of global GDP by the end of this century, with much of the bill being footed by cities and businesses alike. What is more, the reports reveals research from the Penn Schoen Berland (PSB) Institute shows urban leaders and SMEs believe we have already come too far to fully mitigate the threat of climate change. As this new reality has increasingly been acknowledged, cities around the world have developed and built adaptation strategies to make their infrastructure and populations more resilient to the climate change-related challenges they will increasingly face.hide“A key factor for a city’s resilience is a strong local economy, driven by resilient businesses. With this in mind, urban leaders stress the need for businesses of all sizes to focus on how they intend to meet the challenge of long-term climate change,” concludes the report. Looking specifically at the SME sector, the research also shows, however, that many SMEs are severely under-prepared to deal with its effects. Only 26% say they have a strategy or plan in place to deal with potential climate-related risk; 65% are worried about climate change in relation to their business, with this figure rising to 75% among SMEs from emerging markets, where communities have been most affected to date; and as a result, SMEs feel vulnerable and only a quarter believes their business is well prepared to withstand the impact of climate change. So what role for insurers? The report says: “The insurance industry, recognised as a leader in risk assessment, has a major opportunity to step forward to advise SMEs on how to assess climate risks and support them in the development of resilience plans: 62% of SMEs believe insurance companies are a credible source of information on climate change. “Indeed, the industry has the opportunity to instigate behavioural change among businesses at the local level through education and awareness, as well as through the pricing and design of products but also services that incentivise resilience measures. Overall, 74% of SMEs believe that insurance companies can help reduce climate-related risks.” “This report shows that certain cities have made great strides to become climate-resilient. But much remains to be done,” said Henri de Castries, Chairman and CEO of AXA. “We hope the findings outlined in this report will provide useful insights for public authorities and businesses alike to better plan for the consequences of global warming. “And it is our conviction that, thanks to its expertise in risk modelling and prevention, crisis management and better repair, the insurance industry of which AXA is one of the driving forces will become a decisive partner in this global effort to develop resilience to climate change,” he added. “This pioneering report, capturing the views of city leaders and SMEs from across the globe on climate risks, could not have come at a better time,” said Butch Bacani, Programme Leader of the UNEP FI PSI. “It also shows how the insurance industry can work together with cities and SMEs in helping build resilient and sustainable communities and economies. “The vision of the UNEP FI Principles for Sustainable Insurance (PSI) Initiative is of a risk aware world, where the insurance industry is trusted and plays its full role in enabling a healthy, safe, resilient and sustainable society. “As we approach the 2015 UN Climate Change Conference in Paris, the insurance industry has another exceptional opportunity to demonstrate leadership in supporting the SDGs. In this context, the insurance industry can lead the way in placing sustainable development at the heart of risk management and in placing risk management at the heart of sustainable development.” Cities around the world are already being forced to adapt to the challenges that climate change poses. Urban leaders state failure to do so will be fatal for the most immediately vulnerable communities. While levels of resilience vary from city to city, there is a unified aim among urban leaders to ensure their cities are better prepared to withstand the impact of climate change. Resilience efforts often include, but are not limited to, emergency response planning. Urban leaders stress the need to be both prepared to respond to disasters as and when they happen, and to be equipped to withstand the more long-term, pervasive effects of climate change. While the measures cities implement are unique to the challenges they face, there are common elements of resilience planning across geographies. In most cases, risk assessment is the first stage of the adaptation process. The report suggests data used to map risks and identify priorities comes from a range of sources, with academic research playing an important role in both developed and emerging markets. In many cities, local universities have been at the forefront of strategy planning, providing historical data and measuring change in the local area, as well as predicting future events and pinpointing vulnerabilities. In emerging markets, the lack of access to specific data and information on risk is a challenge. Many rely on assistance from international networks or partners in developed markets. Risk mapping is seen as a core strength of the insurance industry and is an area in which the industry could be playing a more active role. In the report, urban leaders stress the need to adapt essential infrastructure, such as sewer and drainage systems, housing, energy, food supplies, water supplies and transport networks. Having robust infrastructure is crucial to the resilience of urban areas and the safety of their inhabitants. The immediate risks to key infrastructure posed by extreme weather events highlight the need to develop responses such as improved drainage systems for roads or back-up power systems. However, city planners also point to the need to adapt to longer-term changes to the climate, namely more extreme temperatures and increased precipitation. While Africa as a continent is generally considered to have a benign natural catastrophe environment, it is vulnerable to flooding across large areas. Development of flood defences to protect inhabited areas from flooding caused by extreme weather events and increased rainfall is required. Cities face a number of flooding challenges including coastal flooding, rising river levels, flash rainfall and groundwater run-off (both coastal and inland cities face this challenge). To minimise the damage flooding can cause, municipalities are responding by looking at a range of different ways to identify and protect the areas that are most vulnerable and densely populated, important economic zones, and areas that hold essential infrastructure. Methods of flood defence can include the development of “natural” barriers (for example mangroves, coral reefs or more green space to absorb rainfall), as well as the development of flood barriers. Urban leaders say resilience and adaptation strategies are often reactive rather than proactive as regards climate change-related emergencies. This is a pattern reflected in the behaviour of SMEs: those that have already been impacted by climate change are more likely to be engaged with adaptation and resilience. According to the report, a key challenge facing urban leaders is to engage the private sector locally and demonstrate to them the mutual economic and social benefits of integrating resilience into their business strategies. Another hurdle very present in emerging countries—particularly in parts of Africa—is the fact that cities have grown so quickly that coordinated action becomes more difficult. One issue is the expansion of informal housing and townships, which often lack official recognition and lie outside the influence of city or national government, concludes the report.

Time to put risk management at the heart of climate change preparedness

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