Targeted investments are required to save our cities from the climate-related risks flagged by the IPCC.
The effects of climate change aren’t limited to distant ice caps. In fact, if there’s one thing the latest Intergovernmental Panel on Climate Change (IPCC) report has shown us, it’s that climate change is happening much closer to home.
The IPCC’s latest findings are a concerning continuation of its report last year, reinforcing the fact that the lives of an increasing number of people in cities around the world will be negatively impacted by heat waves, storms and floods.
“Climate change is undoubtedly already upon us, and cities are seeing huge changes,” says Roland Hunziker, Director of the Built Environment at the World Business Council for Sustainable Development (WBCSD).
For example, 11% of the global population living in cities are already at high risk from flooding, the IPCC report warned. In the mid-term, up to a billion people living in low-lying cities will be at risk from coastal-specific climate hazards, it said. If the global mean sea level rises by 0.15 metres compared to 2020 levels, the number of people affected will increase by 20%. This will double and triple if sea levels rise by 0.75 or 1.4 metres respectively.
The number of people living in cities continues to grow. The IPCC noted that the global urban population living in megacities (inhabited by more than ten million people) will make up 16% of the urban total by 2035 – the equivalent of 862 million people across 48 agglomerations.
“The effects of climate change are magnified in cities: heat stress, air pollution, water scarcity and heavy precipitation,” says Lucian Peppelenbos, Climate Strategist at asset manager Robeco.
It’s therefore vital that cities are built or renovated to be more sustainable and resilient in the face of climate change-induced extreme weather events.
“As climate impacts worsen – and they will – scaling up investments will be essential for survival,” said António Guterres, Secretary-General of the United Nations, speaking at a press conference launching the IPCC’s latest findings.
But, as highlighted in a 2019 paper published by research and innovation lab AidData and UN-Habitat, working out where and how to invest is complicated, with a number of hard and soft costs for investors to consider.
It makes practical and economic sense to invest in more resilient physical urban infrastructure, with investors projected to save US$4.2 trillion by doing so, according to a World Bank report.
However, investors must also think about how else they can invest to contribute to the development of more sustainable cities, experts say. For example, the poorest local communities are expected to feel the ramifications of climate change more than wealthier communities, thus investing in ways to protect them is paramount.
Adapting to a new world
As well as continuing efforts to mitigate climate change, by driving down the emissions of the construction sector and its value chain, investing in the adaptation of buildings is a core component of transitioning to more sustainable cities. Investors must focus on both existing and new builds, experts say.
Positively, adaptation planning and implementation has continued to increase across all regions, the IPCC said. The report also found that climate resilient developments in urban areas support the adaptive capacity in more rural places, maintaining peri-urban supply chains of goods and services and financial flows.
“However, the focus has been on how to build back better after a climate-induced event has already occurred,” says WBCSD’s Hunziker. “Investors need to think about ways to reduce a built environment’s vulnerabilities before such events take place,” he notes, advocating holistic assessments by investors.
“How likely is it these buildings will experience cuts in electricity and water access? How strong are the materials used? What extreme weather events will these cities most likely be subjected to?” Hunziker asks.
Proactively infusing resilience into the design and retrofitting of new and existing buildings will save on repair costs later down the road, the IPCC report said. For example, buildings in coastal cities can be installed with water resistant floor and wall materials, and electrical wiring circuits and plugs can be raised.
Extreme climate-related events can reduce a property’s value by between 5-20%, according to the UN Environment Programme Finance Initiative (UNEP FI). Last year, UNEP FI published guidance outlining the kinds of resilient buildings needed to cope with new climate extremes.
Collaborative initiatives are emerging to encourage more investment in climate adaptation.
For example, a global network of mayors across nearly 100 cities have formed C40 Cities. They are working to implement adaptation and resilience measures to protect their communities and prevent the worst impacts of climate change. Projects cover early warning weather systems, more flood-resistant drains, and flood barriers.
Although there has been notable progress, there continues to be a “lack of [multi-stakeholder] agreement on metrics and indices to measure urban adaptation investment, impacts and outcomes”, the IPCC report noted. This reduces the scope for joined-up climate-related action across interconnected sectors and places.
Further, investors must look to balance both mitigation and adaptation concerns when backing sustainable renovations or new builds, a 2021 report by the Global Alliance for Buildings and Construction (GlobalABC) noted. For example, new cooling systems for buildings are necessary during a heatwave, but, unless they are sustainably designed from the outset, these systems will contribute to emissions and undermine mitigation efforts, the report said.
An example of balancing mitigation and adaptation is the Canada Water Masterplan redevelopment project in London’s Docklands. Superannuation fund AustralianSuper has invested £290 million into the 53-acre net zero site, which will provide 3,000 homes, workspaces for up to 20,000 workers, and open spaces protecting wetlands and woodlands.
Reducing emissions nonetheless continues to be an important part of establishing sustainable cities.
KBI Global Investors looks for investment opportunities in companies working to make buildings more energy efficient, according to Colm O’Connor, Portfolio Manager of the firm’s Energy Solutions Strategy. “These public-listed companies are involved in solutions including energy storage and smart metering,” he tells ESG Investor.
NGO ShareAction’s research has highlighted that all new buildings need to be net zero by 2030, with existing building stock achieving net zero by 2050 at the latest. Investors should be working to “ensure their real estate holdings are aligned with this pathway”, says Jana Hock, Senior Research Officer for Climate Change at ShareAction.
As populations in developing economies continue to grow, around three billion people will need adequate and affordable housing by 2030, presenting asset owners with ample investment opportunities.
“Growing urbanisation and climate change create complex risks, especially for those cities that already experience poorly planned urban growth, high levels of poverty and unemployment, and a lack of basic services,” said Debra Roberts, IPCC Working Group II Co-Chair.
Limitations in climate adaptation are most pronounced in rapidly growing towns and cities and smaller settlements without a dedicated local government, the IPCC report noted.
The over one billion people around the world currently living in informal housing are the most vulnerable to floods, heatwaves and storms, and will therefore benefit the most from increased access to climate-resilient resources and infrastructure, according to Lubaina Rangwala, Programme Head, Urban Development and Resilience with the Sustainable Cities and Transport team at the World Resources Institute (WRI) India.
“Heavy rainfall can be catastrophic to someone living in a slum, as opposed to being an inconvenience to an individual living in a sturdy building,” she tells ESG Investor, adding that climate change isn’t just destroying homes. “There is a huge impact on the physical health, livelihoods and mental wellbeing of poorer communities as well,” Rangwala says.
Investors should therefore look to support the development of affordable solutions, she notes.
In India, installed air conditioning is the kind of luxury poorer communities don’t have access to. As the country experiences more frequent heat waves, it’s vital that there are options available to them. “Community cooling shelters could be an interesting and worthwhile investment opportunity to consider,” Rangwala says.
Sanitation is also an important area that needs more investment, she adds. From a climate adaptation and vulnerability perspective, it’s vital that sanitation is prioritised to prevent the outbreak of disease following an extreme climate event.
In 2010, the Green Climate Fund was established by 194 governments to assist developing countries in adaptation and mitigation practices countering climate change.
Launched in 2001 and having allocated over US$850 million contributed by governments so far, the Adaptation Fund also aims to give developing countries full ownership of the small-scale, localised adaptation projects it funds.
UN-Habit runs the RISE UP: Resilient Settlements for the Urban Poor programme, which builds on projects supported by the Adaptation Fund, integrating climate concerns into urban planning and sectoral programmes by working with member states and global partners, such as the Local Governments for Sustainability (ICLEI).
Asset managers are also launching infrastructure-focused products that will fund climate adaptation projects around the world.
Last year, Aviva Investors launched its Climate Transition Real Assets fund. As well as targeting net zero by 2040 or sooner, the fund is offering investors access to nature-based solutions alongside real estate and infrastructure. It also aims to drive a positive social impact through its infrastructure and real estate investments, providing job opportunities and training, as well as procuring goods and services locally.
As well as investing in technological innovation and man-made solutions to tackle the climate adaptation of cities, investors can also consider nature-based solutions (NbS).
“NbS are ready-to-go, (often) low-tech and low-cost solutions for people, planet and prosperity,” according to a 2021 UNEP report, which was produced in collaboration with the Italian Presidency of the G20.
These can be as simple as planting more trees along city streets to provide more shaded areas. But it can also include installing or replenishing forests, wetlands and green belts around built environments, as well as promoting the development of green roofs, non-motorised transport, and green, blue and hybrid infrastructure.
The GlobalABC report has outlined ways in which new buildings can incorporate NbS designs, such as natural ventilation, day lighting and rain harvesting.
The IPCC said that there is “considerable scope” for the wider application of NbS. Green and blue infrastructure investments and natural area conservation in cities can incorporate NbS at scale to reduce temperature shocks, provide natural flood defences and other resilience benefits, the report noted.
However, Inger Andersen, Head of UNEP, emphasised that the natural world needs to be protected and strengthened if it’s to “do the job it spent millions of years perfecting”.
“We need to conserve mangroves, coral reefs and nature’s other defences. We need to protect and restore wetlands for nature and incorporate wetlands in our cities,” she said.
Further, there are currently a number of barriers to upscaling NbS in cities, the UNEP report noted, including a lack of multi-level governance, business models and financing, and insufficient valuations of nature as assets.
The IPCC report has called for more place-based analysis of the efficacy of NbS in reducing climate impacts across varying urban environments and future climate scenarios. Only then will the true “cost effectiveness” of investing in NbS as a method of disaster risk reduction be better understood.
“Climate change has become extremely erratic in most cities and we are going to have to use nature to our advantage as much as possible,” says WRI’s Rangwala. “And that will require investors recognising the value of NbS and for them to work with governments to encourage contractors and developers to build in ways that utilise natural resources.”