Adaptation Finance Key to Avoid Stranded Net Zero Assets – GFI 

Policy rethink on capex and opex vital to spur adaptation investments, say experts. 

Net zero assets risk being stranded if barriers to climate adaptation and resilience are not addressed, Emma Howard Boyd, Chair of the UK’s Green Finance Institute (GFI) has warned.  

Boyd was speaking at the Organisation for Economic Co-operation and Development’s (OECD) Forum on Green Finance and Investment 2023 on a panel focused on scaling up finance for climate adaptation and resilience, where she noted that for many years the topic has not been discussed sufficiently.  

She noted how just last week (28 September) the White House held its first ever Climate Resilience Summit where it released a National Climate Resilience Framework. “If that doesn’t make people in the world of finance sit back and think that this is something to be focused on – I don’t know what else will.” 

Boyd, who has been asked by the Mayor of London Sadiq Khan to conduct a review of the city’s resilience to climate shocks, warned that if adaptation and resilience investments do not grow “net zero [assets] are at risk of being stranded”.  

Last week, Teesta Urja, the second largest river hydro power project in India, suffered massive damage due to flooding. Sunil Saraogi, its Executive Chairman, said such was the force of the water that the dam at Chungthang was washed away in just ten minutes. 

According to Boyd, national climate adaptation programmes must be aligned with investment plans. “We need to learn at speed from the net zero debate,” she said. 

Policy rethink  

Also speaking on the panel, Gavin Templeton, Managing Director at climate-focused asset manager Pollination, said that carbon markets were providing a “facilitation mechanism” to be investing in resilience, such as mangrove restoration projects to sequester carbon and revive nature.  

He added that public policy and regulation would need to evolve to help investors feel comfortable financing adaptation and resilience investments, noting that these types of assets would require high operating expenditure.  

“Investors who build assets are incentivised to reduce the amount of operating (opex) and capital expenditure (capex) to maximise their IRR [internal rate of return] on exit.”  

Templeton noted that climate adaptation and resilience assets would likely have a lot of opex over their  lifetime.  

“Maybe there’s a role here for public policy and regulation to ensure that when assets are being built, the capex is adequate to face the scenarios that we face as a planet,” he said. “I’m not sure that’s happening yet but it doesn’t seem too difficult.”  

Fellow panellist Ginette Borduas, Partner and Head of ESG & Sustainability at asset manager Meridiam, agreed that policy and investment needed a rethink to catalyse adaptation and resilience investments. 

Further, she noted that such investments could be over a 20 to 40-year time frame. “We used and exploited resources to develop and now we have to plan and rethink differently,” she said.  

Michael Mullan, Senior Policy Analyst at the OECD, spoke to public investment into adaptation and resilience, noting that around US$18 billion worth of funding was currently going into the former.  

In a special keynote concluding the panel, Dr Rania Al Mashat, Minister of International Cooperation for Egypt, said: “If we are able to invest more into adaptation and resilience, we can save countries from needing as much losses and damage funding.” 

According to the European Parliament, by 2030 losses and damages are estimated to cost developing countries between US$290 billion and US$580 billion annually, rising to between US$1.1 trillion and US$1.7 trillion by 2050.  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2023 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap