By Juliana Degani and Karen Tanaka
Climate disasters are known for the catastrophic material and financial damage they cause. As well put by David Attenborough, famous British environmentalist and naturalist, with the warming of the planet, climate events will be increasingly intense and difficult to predict, representing a great risk to the financial sector. This is one of the topics covered by adaptation to climate change and was addressed in the panel Finance & Investment of Climate Adaptation Summit (CAS) 2021.
It is clear that the economic benefits of being well prepared for disasters outweigh the costs of bearing their consequences. According to the Global Commission on Adaptation (GCA), the benefits exceeded the costs of investing in resilience by up to four times. Emma Howard Boyd, Chair of the British Environment Agency and British Commissioner of the Global Commission on Adaptation, found that investments focused on containing flooding and coastal erosion made by England prevented enormous physical damage during Storm Christoph that hit the United Kingdom in January , with every pound invested avoiding the cost of five pounds in property damage.
Investing in resilience is the best way to ensure financial and economic stability, especially for the countries that will be most affected by the climate emergency: countries with emerging economies. Now is the ideal time for the financial sector to unite behind a massive global effort, aiming to overcome the following challenges enumerated by Howard: a) understanding the financial impacts of climate shocks; b) discover the total benefits arising from preventive action and; c) understand the best possible allocation of financial capital to manage risks and capture opportunities.
The implementation of mitigation, adaptation and resilience measures can represent opportunities and not just risks. Andrew Steer, President and CEO of the World Resources Institute (WRI), said there are opportunities in the finance-driven adaptation agenda. According to Steer, the economic recovery after the coronavirus pandemic is a great opportunity to commit to adaptation and resilience, generating new jobs, for example. Mari Pangestu, Managing Director of Development Policy and Partnerships at the World Bank, reinforced that the World Bank's efforts to implement resilience and adaptation are present in all projects, including community-based programs that focus on coral reef recovery, tourism , reforestation and land restoration, for example, creating jobs and stimulating the economy of the countries targeted by the programs.
The long-term vision focused on opportunities was the common thread in all the speeches of the panelists present at CAS2021. The President of the European Bank for Reconstruction and Development (EBRD), Odile Renaud-Basso, highlighted the importance of increasing stakeholder awareness and improving climate risk disclosure processes, paying due attention to the involvement of the financial sector. The President of the European Bank also mentioned the implementation of Taskforce for Climate-related Financial Disclosures (TCFD) in the institution's activities since 2018, stating that the objective of the initiative is to share learnings with the broad public. While these good practices are not publicized, check out the CEBDS TCFD recommendations here. You Green Resilient Bonds, the first initiative of its kind and led by the EBRD, were introduced at the end of the President's speech, signaling a new type of possible green bond, which should have great support from the private sector (to find out more about green bonds, click here).
It was also discussed that the implementation of business models resilient to climate impacts present a better return than non-resilient models. John Haley, CEO and Director of Willis Towers Watson, brought this private sector perspective to the panel. The CEO argued that in five years there will no longer be talk of resilient investments, because all investments will already be resilient. This is the signal for the global private sector to engage with the initiative, given the urgency and vast window of financial opportunities present.
Finally, the importance of acting on present opportunities was the concluding theme. At Kristalina's exhibition Georgieva, Director of the International Monetary Fund (IMF), summarized the points mentioned by the other panelists in a panoramic analysis of the current situation and what should be done. The powerful phrase “If you don’t like the pandemic, you won’t like the climate crisis (…). And the crisis is already among us” he opened his speech. To achieve this, it is necessary to adopt climate and financial resilience, take advantage of low national interest rates to transform economies into green economies, implement carbon markets around the world and stabilize emissions prices at levels that support the green transition (best way to accelerate the control of climate risks, according to Georgieva – to find out more, click here); make climate risk disclosure processes mandatory and avoid false green investments (called green wash).
All sectors of the economy must be present and the state's role in supporting the initiative is essential. It is clear to the IMF that the required levels of investment in financial and climate resilience are far from being achieved without a substantial increase in allocated capital. It is necessary to create the framework ideal for the green financial transition of the private sector and the participation of companies in the sector is essential.
The panel Finance & Investment This year's Climate Adaptation Summit, in short, presented a real concern about private sector involvement in green transition financial initiatives. The agenda of transparency and Disclosure of climate risks has received special attention, along with possible risks and opportunities related to climate change (find here the risks and opportunities of the Brazilian market). We can conclude that 2020-2030 is the decade for climate action and will define whether the Paris Agreement (PA) commitments will be met by 2050. To learn more about the Brazilian private sector's contribution to the AP, click here.
