1、Driving Finance Today for the Climate Resilient Society of Tomorrow for the Global Commission on Adaptation About This report was prepared by Climate Finance Advisors for the United Nations Environment Programme Finance Initiative (UNEP FI) and the Global Commission on Adaptation (GCA) as a contribu

2、tion to a series of technical background papers on finance for adaptation and resilience supporting the GCAs inaugural flagship report scheduled for September 2019. UNEP FI Global Commission on Adaptation Climate Finance Advisors United Nations Environment Programme Finance Initiative (UNEP FI) is a

3、 partnership between United Nations Environment and the global financial sector created in the wake of the 1992 Earth Summit with a mission to promote sustainable finance. More than 200 financial institutions, including banks, insurers, and investors, work with UN Environment to understand todays en

4、vironmental, social and governance challenges, why they matter to finance, and how to actively participate in addressing them. The Global Commission on Adaptation was launched in The Hague on 16th October 2018 by 8th UN Secretary General Ban Ki-moon. The Commission launched with the mandate to encou

5、rage the develop- ment of measures to manage the effects of climate change through technology, planning and investment. Secretary General Ban Ki-moon leads the group with co-chair of the Bill insurance companies and other providers of financial “risk transfer” mechanisms; rating agencies and other n

6、eutral arbiters of credit risk assessment for investors. Financial system constituents The paper uses this term to broadly encompass financial governance bodies, financial institutions, and diverse addi- tional influential actors, such as rating bodies. Financial system governance bodies The paper u

7、ses this term to represent a collection of enti- ties that help to govern and guide the financial system and are responsible for the safety and soundness of financial markets and the economy at large. These include entities that promote and enforce regulations, but also entities that create standard

8、s and guidelines for the financial sector, and importantly those that play a key role in developing incen- tives that can promote, accelerate, and catalyze investment faster than the markets might otherwise act. Hazards The potential occurrence of a natural or human-induced physical event or trend o

9、r physical impact that may cause loss of life, injury, or other health impacts, as well as damage and loss to property, infrastructure, livelihoods, service provi- sion, ecosystems, and environmental resources.4 Hazards related to physical climate risk include events that are linked to gradual globa

10、l warming and extreme weather events, such as intense storms, flooding (coastal and river), water scarcity, heat and temperature stress, drought, and wildfires, among others. Investment in resilience An investment whose primary objective or function is to increase resilience to protect against or cr

11、eate greater capacity to recover from the direct and indirect physical impacts of climate change.5 Liability Financial liabilities, including insurance claims and legal damages, arising under the law of contract, tort, or negli- gence because of other climate-related risks. Driving Finance Today for

12、 the Climate Resilient Society of Tomorrow Commonly used terminology in this paper 5 Physical risk Physical risks can be defined as “those risks that arise from the interaction of climate-related hazards (including hazard- ous events and trends) with the vulnerability of exposure of human and natura

13、l systems, including their ability to adapt” (Batten et al., 2016). Two main sources of physical risks can be identified: gradual global warming and an increase in extreme weather events.6 Physical risks resulting from climate change can be event-driven (acute) or longer-term shifts (chronic) in cli

14、mate patterns. Physical risks may have financial implications for organizations, such as direct damage to assets and indirect impacts from supply chain disruption. Organizations financial performance may also be affected by changes in water availability, sourcing, and quality; food security; and ext

15、reme temperature changes affecting organizations property, operations, supply chains, transport needs, and employee safety.7 Acute physical risk Those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods.8 Chronic physical risk Longer

16、-term shifts in climate patterns, such as changes in precipitation patterns and sustained higher temperatures, that may cause sea-level rise or chronic heat waves.9 Resilient investment An investment that is protected against or can recover from the impacts of climate change.10 Transition risk Trans

17、itioning to a lower-carbon economy may entail extensive policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed, and focus of these changes, transition risks may pose varying levels of financial and rep

18、utational risk to organizations.11 Value at risk Quantifies the size of loss on a portfolio of assets over a given time horizon, at a given probability. Estimates of VaR from climate change can be seen as a measure of the potential for asset-price corrections due to climate change. Vulnerability The

19、 propensity or predisposition to be adversely affected. Vulnerability encompasses a variety of concepts and elements, including sensitivity or susceptibility to harm and lack of capacity to cope and adapt. Driving Finance Today for the Climate Resilient Society of Tomorrow Foreword 6 Foreword Financ

20、ial institutions are taking an increasing number of mitigation actions to prepare for a low-carbon future. These actions range from divesting from or engaging with firms that are highly dependent on the use of fossil fuel, to accelerating investment in green technol- ogies, where, for example, solar

21、 build-out represented 38% of all new generating capacity added in 2017.12 However, even if we fully deliver on the mitigation objectives of the Paris Climate Agreement, we will end up with between +1.5C and +2C of warming, which is double the warming we see today. Even in that best-case scenario, t

22、he physical impacts of climate change will be significant and potentially disruptive. Climate change is already affecting our economy, our society and our environment and these material impacts will continue to increase even if we manage to hit mitigation targets. It is therefore of paramount import

23、ance that adaptation to climate change is considered as important as reducing carbon emissions. Yet the gap between the financing required for adaptation and the funds currently available continues to grow. According to the 2018 Adaptation Gap Report, the annual costs of adaptation could range from

24、US$140 billion to US$300 billion by 2030 and from US$280 billion to US$500 billion by 2050. Furthermore, the physical impacts of climate change are likely to have a disproportionate impact on the poorest countries, regions and sectors of society. This is why the Global Commission on Adaptation was c

25、onvened in 2018 to elevate the political visibility of climate adaptation and to encourage bold solutions such as smarter investments, new technologies and better planning. Financial institutions have a key role to play in unlocking investment for a climate-resilient economy. An evolving landscape o

26、f adaptation investment opportunities are emerging, which will allow for both a societal impact and financial returns. For example, specific microfinance and microinsurance products could deliver investments in climate-resilient farms and businesses. Targeted savings products aimed at promoting clim

27、ate resilience could be made available to vulnerable populations, while transfer and remittance facilities will help to facilitate emergency funding to communities affected by climate change-driven events. Financial service companies are also in a position to raise awareness and build capacity aroun

28、d climate risks. Governments could incentivize investment in adaptation through the use of blended finance instruments or other forms of public-private financing models that facilitate scale and pooling or diversifying of risks. Furthermore, integrating climate resilience into project development ma

29、kes investments both robust and long term, which is a clear advantage for private investors. Offshore wind farms in tropical regions that are able to survive hurricane or typhoons, for example, or investments in low-cost products to cool buildings, such as roofing materials or paint, would provide c

30、lear investment opportunities. Driving Finance Today for the Climate Resilient Society of Tomorrow Foreword 7 Finally, systemic changes, including physical risk disclosure and the integration of climate change assessments in investment decision-making will help to mainstream adaptation and build a m

31、ore resilient financial sector. This report provides a thorough analysis of the current situation, identifying the barriers that restrict the financial systems resilience and limit financial flows to adaptation-related investments, while underlining the potential opportunities that we highlight abov

32、e. We are pleased to endorse this reports concrete and ambitious recommendations, which, if fully implemented, would make a real difference in unlocking financial flows for adaptation. We sincerely hope that the partnership between UNEP FI and the Global Commission on Adaptation will continue to dev

33、elop over the coming years and help to deliver the actions and initiatives necessary to build a more resilient financial sector. Peter Damgaard Jensen CEO, PKA Ltd Commissioner, Global Commission on Adaptation Chair, the Institutional Investors Group on Climate Change Eric Usher Head, UNEP Finance I

34、nitiative Driving Finance Today for the Climate Resilient Society of Tomorrow Executive summary 8 Executive summary There is no doubt that the world is warming, and the consequences of this warming are and will increasingly be far-reaching. Addressing the adaptation needs that result from this warmi

35、ng and aligning those with the 2015 Paris Agreement is perhaps the biggest invest- ment opportunity of this generation. In doing so it will be imperative to align the financial system to this challenge in order to truly “unlock” the necessary capitalboth private and publicthat can support investment

36、 in adaptation and resilience. But efforts to date fail to reflect the urgency communicated in recent reports by the Intergovernmental Panel on Climate Change (IPCC) and other scientific bodies. With increas- ing evidence that climate impacts are already occurring and accelerating, further delay pre

37、sents enormous, potentially catastrophic risks to the financial systemand, indeed, the global economy. The financial sector is built around evaluating and managing risks of all kinds as the basis of making investment decisions. To date few in the financial sector are incorporating physical climate r

38、isks into investment decision making. Knowledge of how physical risks from climate change impacts risks and opportunities is rapidly evolving, but clear risk management practices are still nascent. Identifying the financial implications of climate risks will create enormous opportunities for profita

39、ble investment by all types of investors, including both public and private finance. However, the same understanding may also trigger potential capi- tal shifts or flight from the poorest and most vulnerable communities and countries, those most in need of investment in adaptation and resilience. Th

40、e absence of clear ownership of climate risk in many sectors has also led to expectations of publicly funded assistance following natural disasters, further discouraging investment in resilience. This paper reviews barriers and opportunities for financing resilience and adaptation by all actors acro

41、ss the financial system but chiefly targets financial system constituents, including policymakers and financial actors, and the actions required of each.13 While the challenges and potential solutions are wide ranging, key needs fall into several categories: Climate risk management and climate risk

42、disclosure; Harmonization of practices and terminology; and (re) Allocation of capital towards climate resilience, adaptation and overall sustainability. Many efforts to bring about the changes in the financial system that are needed to integrate climate risks in decision making have been initiated,

43、 but the reality today is that the neces- sary rules, regulations, standards, and best practices remain nascent and weakly defined. While specific to different segments and actors within the financial system, five broad categories of barriers to scaling up financing for adaptation and resilience sum

44、marize the challenge: Inadequate support and/or incentives to act; Weak policies and conventions in the financial industry; Market barriers; Operational gaps at the institution level; and Low technical capacity for climate risk management. The range of adaptation investment opportunities, while very

45、 large, faces additional barriers in the perceived lack of private benefits and the immaturity of business models. Driving Finance Today for the Climate Resilient Society of Tomorrow Executive summary 9 Aggressive additional public and private commitments will be needed to address the growing adapta

46、tion financing gap. Closing the gap will require comprehensive policy reforms, enhanced incentives, and partnerships involving governments and policy makers, financial institutions, businesses of all forms, and communities at risk. This paper was developed as part of a collection of background paper

47、s on the topic of finance to contribute to the Global Commission on Adaptations “Action Tracks” to be presented in September 2019. This paper focuses specifically on two key constituents important for transforming financing flows towards adaptation and resilience: i. Financial System Governance Bodi

48、es; and ii. Financial Actors. This paper presents six recommendations, supplemented by illus- trative actions, which can facilitate and accelerate financing for adaptation and resil- ience. Collectively, they offer a program that is ambitious, actionable, and can directly impact how finance can be u

49、nlocked for adaptation and resilience: Accelerate and promote climate-relevant financial policies; Develop, adopt, and employ climate risk management practices; Develop and adopt adaptation metrics and standards; Build capacity among all financial actors; Highlight and promote investment opportunities; and Use public institutions to accelerate adaptation investment. Each of these are efforts which can be undertaken in parallel by both policy makers and financial institutions, and if implemented will result in the acceleration of financing flows and investment for adapt