The private sector starts to invest in climate adaptation

By ishwarkimmins – Jul 22, 2021

“WE’RE GOING To make a lot of money, “says Ken LaRoe, CEO of Climate First Bank, Florida. It may seem an unsightly boast to traditional bankers who row traditional loans. However, lenders aim to profit by funding green refrigeration, construction remodeling, and other investments designed to help borrowers adapt to climate change. “In Florida, the hardening of the storm is getting huge, which will be a great lending opportunity for us,” La Roe believes.

The need for such spending is clear.The· United Nations Environmental plans are likely to increase annual adaptation costs in poor countries alone from about $ 70 billion today to $ 140 billion to $ 300 billion in 2030, doubling nominally by 2050. I think. Individual investors seem to have to be more involved. According to the Climate Policy Initiative, an expert body, it contributed only 2% to global adaptive spending in 2018. Indifference reflects, among other things, the lack of reliable data on climate risk and the perception that adaptation results in low returns. However, as La Roe’s enthusiasm suggests, mood can change.

There is reason to think that investing in climate adaptation will pay off brilliantly just because it can cost a company without such an investment. A 2019 study by asset manager BlackRock claimed that real estate would be hit particularly badly by the effects of climate change. In addition to the imminent damage caused by storms and floods, it has been pointed out that insurance coverage costs and reductions, rising energy prices, installation costs for backup generators and other emergency systems, and falling real estate prices in vulnerable areas. I did.

In hurricane-prone Florida, insurance data research shows that new buildings that comply with stricter building codes are much less damaged and can benefit $ 3.50 per dollar at additional compliance costs. understood. Recent report by the World Commission on Adaptation (GCA), NGO Among the valuable companies, including Bill Gates, we have identified $ 1.8 trillion in investments that could generate a net return of $ 7.1 trillion by 2030.

So it makes sense that reinsurers are also playing the drums. Swiss Re believes that investing before a climate disaster is much cheaper than paying to fix it later. Munich Re’s Boffins co-authored a recent treatise, linking adaptation and insurance to reduce premiums and reduce initial costs in 25 years, for example by restoring coral reefs and reducing damage from subsequent storms. Showed that it can be multiplied by 6.

A torrent of investment in climate adaptation can turn into a torrent as companies are forced to disclose climate-related risks... The· EU We are heading for compulsory disclosure. In the United States, President Joe Biden issued an executive order with the same policy in May, and the Securities and Exchange Commission will soon announce relevant proposals.

Investors are paying more attention. “If not protected from climate risk, economic gains may decline in the future,” said Vivek Pathak of the International Finance Corporation, the World Bank’s private sector. Natalie Ambrosio Preudhomme of Four Twenty Seven, an advisory firm, points out the emergence of resilience bonds whose earnings must be directed to climate adaptation as they fit into the “investment strategy of many large institutional investors.” The 2019 issue by the European Bank for Reconstruction and Development has been oversubscribed.

Investment funds that focus on resilience are also emerging. Sanjay Wagle, co-founder of private-equity fund Lightsmith Group, is investing in technologies such as geospatial imaging, meteorological analysis and precision agriculture. On July 19, US private equity fund Generate Capital, which focuses on sustainable infrastructure, said it raised its balance sheet to about $ 10 billion and raised $ 2 billion. Fund boss Scott Jacobs claims that “we will not accept lower returns for investments that benefit from resilience.” He points out the durable electrical “microgrids” of his company in Texas and California. It maintained power flow and continued to be profitable during sub-zero weather and recent power outages caused by wildfires.

You may find that utilities are keen on the resilience of all of them. Mr. Weagle said he spends more than $ 1 billion annually with Pacific Gas and Electric, a Northern California utility that has been forced into bankruptcy mainly due to failure to prepare for wildfires and weather-related shocks. Contrast with Edison of. Resilience. The BlackRock report analyzed the climate exposure of 269 American utilities and found that the most resilient of them were trading at a premium. “We believe this premium can increase as risk worsens and investors pay more attention to risk,” he concluded. Adaptation skeptics should note that the lead author was now Biden’s chief adviser, Brian Deese.