Adaptation themes will be incorporated into the network’s workstreams over the next two years.
To better stimulate investment in climate resilience across Australia and New Zealand, the Investor Group on Climate Change (IGCC) has developed its ‘Road to Resilience’ strategy.
The guidance will underpin the IGCC’s work from September 2023 to December 2025 to support investors, policymakers and companies in Australia and New Zealand in driving economy-wide climate-focused adaptation developments and mitigate the costs of the physical impacts of climate change in the coming decades.
The strategy’s key objectives include integrating physical risk and resilience into existing climate-related activities, developing a shared understanding of physical climate risks among stakeholders, advocating for investable adaptation-focused policy, and mobilising private capital into resilience and adaptation measures.
IGCC has outlined what good performance should look like across these objectives.
For example, investors should be demonstrably advocating for policies and targets that increase the climate resilience of high-risk regions, incentivise investment in adaptation and resilience and support disclosure standards.
IGCC members have been encouraged to “refine” the strategy, “take ownership of it and look for practical ways to implement and improve it within your organisation”.
“Physical risk represents an increasingly severe risk for investors, with the escalating climate and natural capital crisis leading to elevated risks of damage from extreme weather events, supply chain disruptions, stranded assets, productivity impacts, insurance unaffordability, just transition impacts, and potential economic instability,” said Robyn Parkin, Head of Sustainability at Ethical Partners Funds Management.
“It is clear investors and financial markets are not yet fully understanding or pricing in physical risk into valuations or portfolio construction.
“Investors, however, have a pivotal role to play, and a key responsibility to ensure that we better integrate physical risk into our analysis, policy advocacy, capital allocation, and engagements with companies.”
IGCC will now integrate physical risk and resilience across its Investor Practice, Policy and Advocacy, and Corporate Engagement workstreams.
In June, Australia and New Zealand agreed to tackle climate change collaboratively alongside other Pacific countries to ensure regional resilience. Climate and finance ministers from both countries will convene annually and establish a joint working group to support climate-related policy implementation.
“This is the start of an ongoing conversation,” the IGCC strategy said.
“It underpins a programme of work that IGCC will deliver in its role of connecting, collaborating, and advocating on behalf of investors.”
Funding, knowledge gap
Failure to invest in climate resilience leaves institutional investors open to direct and indirect physical risks, the IGCC strategy noted.
The investor network pointed to its 2023 net zero survey, noting that 22% of investor respondents have assessed physical risk across their whole portfolio, compared to 43% for transition risk. Further, only 9% have implemented a response to their physical risk exposure. Fifty-four percent of respondents said they were actively considering physical risk assessments.
The climate resilience “blind spot” has also been previously identified by Emmanuel Faber, Chair of the International Sustainability Standards Board (ISSB), and Mark Carney, UN Special Envoy for Climate Action and Finance.
The Intergovernmental Panel on Climate Change’s (IPCC) most recent Synthesis Report highlighted the greater need for climate resilient development, noting that every increment of global warming will result in rapidly escalating hazards.
International adaptation finance flows to developing countries are ten times below estimated needs, according to the UN’s 2022 Adaptation Gap report. Estimated annual adaptation financing needs sit between US$160-340 billion by 2030 and US$315-565 billion by 2050.
There are initiatives attempting to bolster capital flows towards climate adaptation and resilience.
Last year, the Climate Bonds Initiative launched the Global Resilience Programme to identify credible and science-based resilience-focused investment opportunities, mobilise finance toward these opportunities, and accelerate the speed and growth of investments by ensuring a supportive policy and regulatory environment.
At COP27, the Sharm El Sheikh Adaptation Agenda was published, outlining a strategy to drive public and private investment toward achieving 30 adaptation outcomes by 2030 across food and agriculture, water and nature, oceans and coastal, human settlements, and infrastructure systems to enhance resilience for four billion people highly vulnerable communities.
“This action plan that we’re launching today will be an accelerant,” said IGCC CEO Rebecca Mikula-Wright.
“It will help investors get up to speed on the least-understood risk in the economy.
“This strategy is designed for the real, system-wide adjustments that will make sure we’re not divesting, we’re investing in a climate resilient economy.”