New public-private partnerships driven by engineering, insurance, and finance sectors are needed to rapidly devise and deliver real climate adaptation and resilience, writes Atkins’ Philip Hoare
International commitments to limit global warming have resulted in a wealth of targets and pledges, yet spending has not kept pace with ambition, and finance for adaptation measures makes up just 20 per cent of climate finance overall.
Whilst the potential of Sustainable Finance from pensions and private funds grows exponentially, prioritising investment in resilience is vital over the next 20 years. More than one billion people now live in countries that lack the resilience to withstand the worst effects of climate change and from food insecurity to displacement, this is one of the most pressing issues facing society today.
The scale of investment in resilience is often greater than any one government can afford alone yet the lion’s share is currently borne by public funds, with the insurance sector picking up a significant portion of the costs following extreme weather events. This unsustainable model is still skewed towards post-disaster clean-up rather than forward-planning, and addressing this is central to future-proofing our cities and communities against the effects of climate change. The two critical questions are: how to identify the most cost-effective pathways to adaptation, and how to create the funding models that will facilitate this?
Prevention is better than the cure
There is overwhelming evidence that anticipating future hazards and building resilience is far more cost effective that post-disaster recovery. Whilst floods, droughts and heatwaves cause significant direct damage to cities, it is often the indirect costs of disruption, business losses and social impacts and that outweigh initial direct damages. For example, risk modelling conducted by the OECD estimates that in the event of the River Seine flooding in Paris, 35-85 per cent of business losses would be caused by disruption to transportation and electricity supply, rather than a flood itself.
What’s more, we know that investment now will avoid damages, deliver co-benefits, and can support economic recovery. The Global Commission on Adaptation estimated that a $1.8tr investment in areas such as early warning systems, climate-resilient infrastructure and water resources could generate $7.1tr of avoided costs and non-monetary social and environmental benefits. It is pinpointing where to focus this investment that is crucial.
Resilience at the core of planning
Adaptation to climate risk is more than reinforcing existing infrastructure or rolling out specific measures such as flood defence systems. Rather than incremental changes in systems, we need transformational changes in design, implementation and operation of our cities and communities, including the need to address and assess resilience at the very initial stages of project investment.
With advances in forecasting, modelling and risk assessment tools that enable detailed simulations at whole-city level, we now have the tools to anticipate future risks, pinpoint priorities for investment and put resilience at the centre of our strategic planning. Armed with this data, we can put in place transformational change and de-risk our infrastructure from the most damaging effects of climate change and catastrophic events, in turn making it easier to finance.
Removing the funding barrier
Finance is by far the biggest barrier to boosting resilience. We know that investing in prevention rather than the cure is more cost-effective, reducing the risk for instance companies and, consequently, the cost for governments, yet this outlay is too great for governments and insurers to shoulder alone. New funding models that enable private sector investment are urgently required to enable an acceleration in spending and attract Sustainable Finance towards resilience as well as decarbonisation projects.
The Department for International Trade’s Business of Resilience taskforce has been exploring this, looking at the role that cross-sector partnerships could play in mitigating climate change risks. Core to this is the triple ‘gap’ of infrastructure provision, the gap in capacity to manage risks internationally, and the protection gap between economic losses and those that are insured. Globally, this protection gap is 62 per cent, exposing millions of households and businesses to significant financial risk which would have major ramifications to local communities and economies. This triple gap must be closed if we are to mitigate losses and bolster global resilience.
The collaboration of engineering, insurance, financing, and technology would significantly accelerate the identification and understanding of future risks and disaster events. In turn, this collective expertise and data-sharing would identify the solutions and measures that could reduce their impact. Critically, these solutions must be combined with tailored insurance and finance products that would incentivise and enable investment.
This combined approach would provide a more integrated portfolio of measures to governments, cities, and organisations – increasing the availability of finance, addressing the lack of affordable insurance, and enabling them to fund critical adaptation and close the triple gap that poses such threat to our future economies. The taskforce is exploring how this might work in practice, leveraging the UK’s world-leading expertise in insurance, finance, technology, and engineering, but the principle of collaboration is one that is fundamental to solving these issues.
We know that global warming will have a material impact on billions of people over the next three decades, even if the international community does achieve its net zero targets by 2050: the costs to lives and livelihoods is too great to delay action any further. We must find new, sustainable models that unlock these pathways to adaptation and future-proof our infrastructure – our best hope is to create new partnerships between the public and private sector, driven by the engineering, insurance, and finance sectors, to rapidly devise and deliver real solutions to the very real and urgent challenges we face.
Philip Hoare is president of engineering consultancy Atkins.