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Climate Champions' Guide to Business Action for A&R, FEMA Sees Record Funding Requests, the World Bank's Resilience Rating System, and More
UN-backed guide illustrates corporate actions to further Sharm El-Sheikh Adaptation Agenda
Louie Woodall
March 25, 2024
AI-generated via DALL-E
The UN Climate Change High-Level Champions produce a guide on Business Action for Adaptation & Resilience, the Federal Emergency Management Agency receives a record-breaking amount in disaster resilience funding requests, the UN Adaptation Forum takes place, new research shows potential climate impacts on inflation, and the World Bank’s Resilience Rating System stars as Innovation of the Week.
Last week, Climate Proof unpacked the National Association of Insurance Commissioners’ ‘National Climate Resilience Strategy’, with commentary from top experts across sustainability advocacy and insurance industry groups. Check out the article HERE and become a premium subscriber to receive features like this every Thursday.
UN Climate Champions Push Adaptation Agenda
Translating global adaptation and resilience (A&R) goals into actions that businesses can get their arms around is a tall order. The UN Climate Change Conference in Dubai last year (COP28) impressed the urgency of adaptation onto policymakers, and yielded some headline-worthy calls for action from the investor space, but left a lot for private sector entities to process.
The UN Climate Change High-Level Champions, the team of power brokers tasked with enhancing the ambition and strengthening the engagement of non-state actors on climate, wants to help. Earlier this month, they published ‘Business Action for Adaptation & Resilience’ with consultancy PWC. It’s a guide connecting business action to the A&R goals expressed via the Sharm El-Sheikh Adaptation Agenda (SAA) — a list of 30-by-2030 targets that aim to bolster the resilience of four billion people worldwide.
The paper lists the kinds of actions businesses and financial institutions can take to advance the SAA targets across five key areas: food and agriculture systems, health systems, water and nature systems, coastal and ocean systems, human settlement systems, and infrastructure systems.
How businesses can leverage their business case approach to help achieve SAA outcomes
These lists may complement existing efforts to define A&R investment taxonomies, by flagging actions that fit into these classification systems. The paper includes real-world examples of such actions, too. These range from Raincoat, a developer of climate insurance solutions, providing financial assistance to Mexican farmers hit by climate shocks, to McCormick & Company, a food manufacturer, investing in the skills and adaptive capacity of 31,000 farmers in its supply chain.
Of particular interest to financial institutions, is a section on cross-cutting enabling actions to unlock A&R financing. These include well-worn recommendations, like blended finance facilities and parametric insurance for climate disasters. But there are also some recommended collaborative actions that Climate Proof would be interested to see unfold: including “the creation of platforms where businesses can connect with investors for adaptation funding” and “[engaging] in local and national policy interaction which evolve around adaptation funding.”
As an early-stage resource for company boards looking to engage on A&R, the Business Action for Adaptation & Resilience could come in handy. However, a more comprehensive mapping of business activities to the SAA targets is needed to entice companies that wish to make this agenda their north star. Making clearer linkages between the targets, actions that advance them, and business benefits could also help encourage companies to embrace the cause of adaptation.
Everyone Wants a Piece of FEMA
Local governments across the US are crying out for disaster resilience financing. How loudly? Here’s one factoid: the Federal Emergency Management Agency (FEMA) received almost US$8bn of funding requests in its last grant-making cycle — a record.
That’s far more money than FEMA has to hand. The agency’s Building Resilient Infrastructure and Communities (BRIC) program had US$1bn available for this cycle, and received US$5.6bn of requests across 1,233 sub-applications from every state, as well as tribal organizations and territories.
This continues the trend that each year more subapplications are submitted than funding is available.
Meanwhile, its Flood Mitigation Assistance (FMA) program attracted 424 sub-applications, requesting US$2.3bn. FEMA made only US$800mn available, plus an extra US$300mn through its Swift Current funding opportunity.
The appetite for disaster resilience funding reflects the increased burden climate shocks are having on state and local governments, and the dearth of available resources for climate-proofing activities at the local level.
However, while the FEMA data highlights a worrying climate resilience financing gap it also illustrates an opportunity for private enterprise. If this latest grant-making cycle is any indication, there’s a large market for cost-effective resilience solutions that can relieve some of the pressure on FEMA and state and local taxpayers.
Adaptation Committee Assembles!
Last week, the UN Adaptation Committee hosted its 2024 Adaptation Forum in Bonn, Germany. This nerdy shindig on all things relevant to advancing the Global Goal on Adaptation was attended by all the movers and shakers in A&R policy. Simon Steill, Executive Secretary of the United Nations Framework Convention on Climate Change was in attendance, as were representatives of the UN Adaptation Fund and the UN Office for Disaster Risk Reduction, which has been integral to recent A&R investment taxonomy work.
Topics discussed included the adaptation outcomes of COP28, progress on national adaptation plans, and implementing, monitoring, and evaluating adaptation measures. Many of the discussions are available on YouTube, and Climate Proof will do its best to surface relevant tidbits in forthcoming editions.
The forum followed the 25th meeting of the Adaptation Committee, which exists to spearhead the rollout of “enhanced action on adaptation.” By design, the Committee is concerned with the hard work of engaging national, regional, and international organizations, facilitating knowledge sharing, and providing technical support to countries that are party to the UNFCCC.
Relevant to A&R investors, however, is the Committee’s work gathering adaptation good practices for future COPs, which could illuminate investment opportunities down the road.
Climate Risks may Pump Inflation Higher
Inflation is the ultimate income-eater. An upward spiral of prices can lead to all sorts of economic and social dysfunction, as the immediate post-COVID period attests to.
It turns out climate change is likely to add fuel to the fire of inflation — specifically to food inflation — over the next decade, according to research out of the European Central Bank (ECB) and Potsdam Institute for Climate Impact.
Higher temperatures could add up to 3.2 percentage points to food inflation, and 1.18 percentage points to overall inflation per year by 2035, the research shows. The pain is likely to be felt across all countries — rich and poor alike — though hot regions and hot periods (i.e., summer) will see the strongest increases.
The cumulative marginal effect of temperature shocks on food and headline inflation
The research makes plain the risk of climate change to price stability, and therefore to central banks’ mission to keeping inflation in check. It also highlights the importance of making food systems resilient to heat extremes. Climate-proofing measures could support crop yields struggling against higher temperatures and take the edge off some of the projected inflation. Interestingly, the research found that “historical adaptation” to rising temperatures in agriculture “have been very limited”, suggesting there's plenty of room for improvement. As the paper concludes:
“Future adaptation to climate change through unprecedented technological changes … offers an opportunity to limit pressures on inflation in a changing climate. For example, planned adoption of space cooling could limit heat stress impacts on labour productivity and crop switching could limit agricultural productivity losses, two major channels of impacts with potential relevance to inflation.”
Those looking for a clear target for A&R investment and innovation: you couldn’t do better than this.
💡Innovation of the Week💡
Assessing the climate resilience of investment projects is a tricky task. Investors have to draw on specialist knowledge and conduct unorthodox due diligence to determine how climate-proof they are.
It would help if someone else did the hard work of defining what information has to be collected so investors could get on with the job of putting their cash to work.
The World Bank is obliging with its Resilience Rating System (RRS). The methodology, developed over a two-year period, is intended to help public and private entities judge a project’s resilience attributes.
It does so by providing a framework for analyzing both the resilience of a project’s design and the resilience outcomes it produces. The rating scale for each assessment dimension runs from C to A+.
To achieve the A+ rating for project resilience, the project in question has to conduct a climate and disaster risk stress test that incorporates an array of potential impacts. Following this analysis, the project has to be determined to still be economically and financially viable and able to achieve its intended development objectives. Furthermore, the project has to undertake a systematic exploration of risks it is exposed to and have contingency plans in place for dealing with unexpected shocks.
To earn the A+ rating for resilience outcomes, the project has to promote adaptation and resilience “beyond its immediate boundaries, outputs and timescale.” It must also monitor and track the progress of climate-proofing activities through at least one “climate adaptation indicator” and put the “wider system” in which the project belongs “on a resilient development pathway.”
These are some high-ambition goals, and it’s unclear from the document what projects would have to actually do to win the A+ rating. Indeed, the results of a pilot program show none of the 21 projects assessed were awarded the top rank, though nine received A-ratings for project resilience and 14 for resilience outcomes.
The World Bank offers some key lessons from the pilot that public and private investors in A&R could learn from. One of the most interesting is that climate resilience outcomes are often out of proportion to the amount of climate finance invested. In other words, a little money can go a long way. This finding is a product of the RRS’ broad definition of what “counts” as an A&R contribution, which in turn allows project developers to tell more compelling stories about the resilience benefits they supply. It’s a finding that may help spur public and private investment in resilience projects, particularly when they are undertaken for development, rather than financial, reasons.
However, another lesson underlines the ongoing difficulty investors have making the case for A&R investments. The RSS paper says that conducting the sort of climate and disaster risk stress testing necessary to earn the highest rating is a heavy lift, requiring “significant effort in terms of both time and technical capacity.” Though the World Bank has made its own open-source Risk Stress test (RiST) tool available, which can compute climate stress testing impacts on a project’s returns and/or net present value, its effectiveness depends on the availability and granularity of project-level and climate shock data.
It speaks to a common complaint in the A&R investment space. Identifying “bankable” projects depends on data, but getting that data is expensive and time-consuming, which puts potential investors off of projects before they even getting started. As the paper explains: “A lack of empirical information on climate impacts prevented some projects from achieving an A rating for the resilience of dimension, highlighting the challenges of conducting such analyses in data-poor environments.”
Enriching data-poor environments, therefore, is essential to getting more projects the highest RSS rating and in turn more interest from A&R investors.