Act now to tackle climate resilience funding gap urge experts

Businesses must plan for the escalating risk of climate change and invest in protection measures  in order to survive in the future says new research from Mott MacDonald and the Anglia Ruskin University Global Sustainability Institute (GSI). The report entitled “Climate change and business survival” projects that by 2035 investment of $200bn per year in resilience measures will be needed to combat losses worth $1trillion.

However the gap between current investment levels and the cost of climate change related damage is widening, finds the research, and by 2035 there could be an annual shortfall of $130bn meaning that new financing methods must be found.

“As we move into an era of increasing climatic volatility, public and private sectors must seek out new ways to share risk and unlock investment to make assets – and the businesses and societies they support – more resilient,” states Keith Howells, chairman of Mott MacDonald, in the report.

“Business leaders need to plan for extreme climate events just as they need to plan for the impacts of currency rate fluctuations, political elections, regulatory periods or economic cycles. What marks climate events above other business risks is that, while they are predictable, there is currently a lack of appreciation of their consequences.”

Climate change and business survival report

The report warns of the shock load that climate events place on insufficiently resilient assets triggering a potential collapse of the system functionality such as damaging infrastructure, disabling supply chains and causing cascade failures throughout interconnected assets. It points to events such as the failure of the rail line at Dawlish in south west England damaged by a storm in February 2014, during a record breaking wet and windy winter. “The damage cut off rail links with much of Cornwall and Devon for several weeks, and is estimated to have cost the economy £1.2bn,” says the report.

Businesses are expected to invest around one third of the required funding preventing around 50% of potential losses but the report calls for the development of new mechanisms to finance the $130bn shortfall. An example of this, says the report, is African Risk Capacity, an extreme weather insurance mechanism which helps African Union member states to rapidly recover from instances of drought. Individual countries pay into a pooled insurance fund that is wrapped with public sector funding, keeping premiums manageable and allowing reinsurance broker Willis to spread risk within the reinsurance market. 

The study also highlights that the current cost of remediating losses is on average four times the cost of protecting against climate impacts. “Investing US$1 to prevent US$4 in losses will yield a substantial benefit to the global economy, and this benefit will grow over time,” it says.