Key asks outlined by Asian investor network to support resilience of portfolios.
Governments should ensure corporates publish decision-useful information on their exposure to the physical risks of climate change, an investor group has said, as part of their National Adaptation Plans (NAPs).
Firms should be required to provide “enhanced disclosure” of the location of physical assets associated with their operations, said the Asia Investor Group on Climate Change (AIGCC), pointing out that investors’ physical risk analyses are dependent on climate disclosure data from companies.
“Investors need to starting accounting for physical risks of climate change through assessments to ensure resilience of their investment portfolios,” said Rebecca Mikula-Wright, AIGCC’s CEO.
The proposal came in an assessment of investor requirements of NAPs published by the AIGCC’s Physical Risks Working Group.
The report added that disclosures and metrics covering systemic resilience and availability of production-weighted data would help investors to determine the adaptive capacity of companies. It said investors would need to work with data analytics providers “to ensure increased accessibility, consistency, and transparency of data products”.
The AIGCC, whose asset owner and manager members span 11 Asian markets and manage US$35 trillion in assets, recently published a guide to resources for assessing investors’ physical risks.
“We recognise that required data and analysis may not be readily available and companies would need time to achieve full disclosures over time,” the AIGCC said.
However, governments can play an important role in supporting the development of science to produce the data needed for physical risk assessments, members added.
The UN established the NAP process to help countries to reduce their vulnerability to the physical impacts of climate change by building adaptive capacity and resilience, and to integrate adaptation into new and existing policies and programmes, especially development strategies.
The process was established in 2012, but adaptation plans have somewhat lagged initiatives to mitigate climate change through transition to renewable energy sources. Partly in response to increased loss and damage from physical risks during 2022, the COP27 Presidency increased attention on adaptation efforts, partly through the Sharm El Sheikh Adaptation Agenda, which has targeted 30 adaptation outcomes by 2030.
The Intergovernmental Panel on Climate Change (IPCC) has previously said global financial flows for adaptation are “insufficient” to effectively address the impacts of climate change, especially in emerging markets and developing economies (EMDEs).
Transparency and “open processes” between private and public sectors will be core to upscaling adaptation solutions, the AIGCC said.
The group highlighted the importance of regularly conducting and communicating physical risk assessments, “particularly critical infrastructure, and risk mitigation measures to be taken”. Decision-useful information should be regularly presented to stakeholders, including investors, on assessments of material risks and/or opportunities.
National adaptation plans should also be developed based on multiple climate scenarios, the group said, including worst-case high future emissions scenarios referenced by the IPCC.
Vulnerable systems, groups and communities should be identified and accounted for in the development and implementation of NAPs, the group added.
Members of the finance sector need to be consulted as part of the NAP process, the AIGCC working group said, with a role created for a representative to serve as a point of contact to ensure maximum coordination with financial institutions.
“Alignment of public and private strategies to identify cross-border climate impacts and collaborate on adaptation planning would be crucial to addressing these inter-regional climate risks,” the document added.
It’s important for NAPs to develop public-private financing partnerships to fund adaptation commitments, the group said, noting that the role of public funding in de-risking, reassuring and attracting private investors in climate adaptation projects is “critical”.
“Creating a platform with a pipeline of ready-to-be-funded adaptation projects that has assurance of public funding support would enable easy flow of private finance into these projects.”
The AIGCC’s Mikula-Wright said Asia’s investors had to play a proactive role supporting countries’ adaptation efforts.
“Investors should step up in implementing adaptation strategies for the region through regional mechanisms like the NAP process […] to support the flow of private finance into adaptation and resilience projects such as the inclusion of action points on implementation of NAPs and financing options.”
Mikula-Wright said: “We need to see countries committing to more ambitious transition plans. Governments need to revisit and strengthen the 2030 targets in their national climate plans, as well as accelerate efforts to phase out or phase down the use of fossil fuels and accelerate the transition to renewable energy.”