Adaptation to climate risk in developing countries could require as much as $300 billion a year by 2030. Yet annually less than 6% of climate finance currently flows toward adaptation. Meanwhile, the private sector has, until now, not been incentivized to fund projects to build resilience, such as defenses against natural disaster and infrastructure that is strong enough to withstand more extreme weather events while maintaining operational efficiency.
The most vulnerable regions and populations badly need investment in resilience to begin, in ways most appropriate to their conditions, vulnerabilities and geographies. Dedicated efforts should also be made without delay to avoid capital flight from those regions as protection against climate risks becomes less insurable.
As demonstrated across the world by recent flooding events in Europe, the U.S. and Australia, climate extremes are causing damage beyond many worst-case scenarios. And the threat is no longer limited to countries outside the Organization for Economic Co-operation and Development.
Though costly, resilience building, like the green energy transition, has upside potential, including new business opportunities, job creation, reduced vulnerabilities – especially in developing countries – and enhanced long-term risk-adjusted returns on assets.
For these reasons and more, COP26 is a once-in-a-decade opportunity that we must seize. We must also demonstrate on a global stage the collective ambitions of governments and the private sector to build climate change resilience into financial systems that will support the road to net zero.
COP26 looks to unite in order to avert, minimize and address the loss and damage already occurring from climate change. The global pandemic has brought even more focus on the need to strengthen resilience and manage risk, while delivering a clear lesson on the cost of underestimating the impact of climate change.
Resilience will be a central feature of the summit, recognizing that climate change cannot be fully mitigated by mid-century. A key summit aim must be to advance global metrics for national exposure to physical climate risks because, even if we were to cease emissions today, global warming will continue to increase. While mitigation efforts should include both developed and developing countries, it is especially urgent to ensure support for those most vulnerable to climate risks.
The current mispricing of physical climate risks in decision making continues to undermine our ability to understand the true cost of climate change. The Coalition for Climate Resilient Investment (CCRI) launched in 2019 as a private-sector-led initiative to address the climate challenge by helping investors to better understand and manage climate risk. The idea behind CCRI is that by properly pricing climate risk in financial decision making, investors will be encouraged to build infrastructure that is more resilient and capable of withstanding the present and future impacts of climate change as we head toward net zero by 2050.
Ensuring that climate risks are embedded into the heart of investment decision making, CCRI is fast emerging as a central initiative in the global climate risk and investment arena and it is increasingly recognized by national governments, regulators and investors.
But even for a global coalition such as CCRI, which is made of over 120 members and $20 trillion in assets, this is an incredible challenge to take on. To put the scale of the task into perspective, after 30 years of multilateral climate talks, less than 1% of private finance is currently dedicated to adaptation and resilience, while climate finance for small-island developing states to build resilience has significantly declined.
Despite this, CCRI has made significant strides in developing innovative and practical solutions to advance climate change adaptation and resilience, thanks to the collaboration and dedication of coalition members. And we look forward to presenting the advances we’ve made at COP26.
At CCRI, we believe our work is so valuable because it demonstrates that private finance can be mobilized at scale to support adaptation and resilience efforts in the most vulnerable countries and that there are concrete business opportunities to turn this existential challenge into a win-win proposition for all. This is why we fully endorse the UN Secretary General António Guterres’ plans to use COP26 as an opportunity to call on the private sector to increase the share of their adaptation and resilience finance to at least 50% of total climate finance.
Such a fundamental shift will produce the conditions for CCRI and its partners to deploy solutions at scale and at pace. Ultimately, this will provide the supply needed to re-engineer the global development and climate system, creating the incentives that public institutions, multilateral development banks and others need to fully engage in adaptation and resilience. And with the global adaptation gap widening – between developed and developing countries – we have a responsibility to make this change happen sooner rather than later.