CCRI and Mott MacDonald incentivise climate investors

29-09-2022

CCRI and Mott MacDonald incentivise climate investors

Carlos Sanchez, executive director, CCRI.

Mott MacDonald and the Coalition for Climate Resilient Investment (CCRI) have launched what they describe as a pioneering approach that enables asset owners and investors to accurately understand the exposure of critical infrastructure to climate risks.

Developed to address the “massive” resilience gap in financing, the Physical Climate Risk Assessment Methodology (PCRAM) is a global practitioner’s guide that supplies the practical tools to identify and assess the resilience of infrastructure assets, they said.

PCRAM, which is the first of its kind, also clearly demonstrates the positive returns from investment in climate resilient assets that are essential to incentivise and scale up private sector engagement, they added.

Investment in resilience lags well behind the financing of climate mitigation, they say.

Climate Policy Initiative (CPI) data that show total spending on climate finance during 2019-2020 reached $632 billion, with mitigation finance accounting for $571 billion compared to just $46 billion on adaptation and resilience. That is “significantly less” than what is required to meet the challenges posed by climate change, according to the CPI.

“There is huge appetite from the private sector to invest in resilience. What has been missing so far are the tools to invest with confidence. Our methodology looks at specific infrastructure risks and how they will affect asset performance, life cycle and maintenance. We can then present a solid business case for resilient investment, unlocking the finance needed to protect vulnerable communities from the impacts of climate change,” Carlos Sanchez, executive director of CCRI, said.

For the first time, PCRAM also brings together climate data providers, resilience practitioners, asset managers and investors to assess and quantify physical climate risks.

Mott MacDonald tested the methodology on five real-world infrastructure assets, including a nearshore wind farm in South East Asia and a hydropower plant in Africa, with each case delivering a “resilience dividend”.

Denise Bower, executive director at Mott MacDonald, said: “We set out to create a framework that enable public and private sector infrastructure investors to assess their exposure to climate physical risks, quantify this exposure and improve their asset performance. What we found is that investing in resilience leads to better outcomes, better performance, less downtime, less maintenance and, most importantly, fewer negative impacts on the communities that infrastructure serves.

“All of this means a higher rate of return for investors and is a powerful tool for building the case for resilience. This is vitally important work. Even if we do manage to limit global warming to 1.5°C, we will still see decades of continued changes to our climate that will result in immense economic shocks and loss of life if we are not prepared.”

Douglas Peterson, president and chief executive officer of S&P Global, added: “S&P Global welcomes the leadership and cooperation fostered by the CCRI through its work with the private and public sectors, including the UN. The authors and contributors of this report have taken an important step forward on the path to allocating the capital needed to enhance the resilience of infrastructure assets.”

Rebecca Mikula-Wright, CEO of Investor Group on Climate Change, continued: “PCRAM is an essential building block for investors to increase the resilience of their own portfolios and the communities they invest in. Additionally, it repositions physical risk as not only cost minimisation (for loss and damage) but as an opportunity for value creation.”

CCRI currently comprises 125 institutions, including institutional investors, banks, rating agencies, engineering firms and insurance companies, representing $25 trillion of financial assets, as well as the governments of the UK, Jamaica and the State of California.

CCRI, Mott MacDonald, climate

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