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Corporate Adaptation Plans Fall Short, Network Rail's Climate-Proofing Investment, and More
S&P Global research shows just 21% of companies have adaptation plans
Louie Woodall
April 08, 2024
AI-generated via DALL-E
Few companies have adaptation plans in place, and those that do have significant gaps, UK’s Network Rail to invest £2.8bn in climate resilience, California’s water plan underscores challenges of dealing with multiple climate shocks, a story of maladaptation in Lincolnshire, England, and Aon’s Climate Risk Monitor is Innovation of the Week.
Last week, Climate Proof unpacked the findings of Mazarine Ventures’ climate adaptation technology survey of venture capitalists and other early-stage investors. Check out the article HERE and become a premium subscriber to receive features like this every Thursday.
Analyzing Adaptation Plans
“Proper preparation prevents poor performance.” It’s the rationale that underpins the whole concept of planning. Creating and implementing well thought-through plans is particularly important when it comes to navigating an uncertain, climate-adjusted future — one in which governments, businesses, and communities are likely to grapple with more intense and frequent extreme weather events and chronic stressors.
This thinking has yet to permeate the private sector, however, according to new research by S&P Global. The ratings firm surveyed companies from around the world to gauge the take-up of “adaptation plans.”
It turns out few have even got started on these blueprints for managing physical climate risk. Just 21% of companies polled said they have an adaptation plan, and less than half of these will be implemented in the next ten years. Many plans are riddled with gaps and oversights too, making them of dubious utility. For example, in 48% of plans physical risks either went unassessed or underestimated. Sixty-nine percent of plans did not quantify the costs of adaptation, either.
Only 21% (1,459) of the 6,871 companies responding to the 2022 CSA reported they have an adaptation plan
Companies that do not take action to climate-proof their assets and operations could be in for a world of pain. S&P estimates that climate shocks like droughts, extreme heat, and flooding are going to be top hazards for around half of companies in 2030 in the absence of adaptation measures. Organizations in the forest and paper products, pharmaceuticals, chemicals, agribusiness, and metals and mining sectors are most at risk. S&P further estimates that companies with lots of fixed, long-life physical assets and those dependent on the natural environment are most likely to see financial impacts from physical risks.
It turns out companies in these sectors are also more likely to have adaptation plans in place. They are most common in the utilities and energy sectors with 40% and 30% of companies in these industries, respectively, having drafted them. Adaptation plans were less common among health care, communications, information technology, and consumer discretionary firms.
The S&P adaptation plan analysis is based on 6,871 responses to the company’s 2022 Corporate Sustainability Assessment (CSA), as well as deep dives on 130 public corporations’ adaptation plans. The CSA being two years’ old may mean the report lowballs the current number of firms with adaptation plans in place, though it is unlikely to be much greater today than the 21% reported.
S&P’s method for assessing adaptation plans is innovative. The company assessed each plan across eight “components”: physical risk scenarios, timelines, financial planning, prioritization, costing adaptation and resilience measures, implementation, monitoring and evaluation framework, and metrics and targets. This schema could be useful for investors doing their own due diligence on companies’ adaptation and resilience readiness, helping them determine which entities are on top of their physical risks, and which are lagging.
UK Network Rail Pours £2.8bn into Climate Resilience
Keeping the trains running on time is only going to get tougher as climate risks bite. Network Rail, the UK’s state-backed railway owner and infrastructure manager, wants to be sure it’s ready to handle them.
Last week, the organization unveiled a five-year £45bn (US$57bn) rail improvement plan. This includes £2.8bn to harden the network against extreme weather, especially rainfall and flood-related shocks. Funds have been earmarked to recruit “drainage engineers”, tasked with improving the rail network’s ability to handle torrential rain and flood water, and to build or repair 600,000 meters (2 million feet) of drains.
Network Rail will also invest in “‘smart’ movement sensors” to provide early warning to engineers of potential landslides, new surveillance systems in high flood risk areas, and cutting-edge rainfall forecasting tech.
Much of the remainder of the £45bn will go toward replacing and upgrading existing railway infrastructure, the day-to-day maintenance of assets, and other necessary operational expenditures. Interestingly, £1.8bn will be squirreled away in a “risk fund” to “cope with unforeseen events”, which may include big climate shocks.
The plan arrives against a backdrop of increased maintenance costs for the network. The latest plan includes a 6% increase in maintenance expenditures over and above the last five-year funding period.
The rail improvement plan is a leading example of public investment in climate adaptation and resilience. Network Rail’s income largely comes from the UK and Scottish governments, with some coming from track access charges extracted from train operators and commercial activity.
Cali’s Climate Resilient Water Plan
The Golden State is a study in climate extremes. Large parts of California have been inundated by torrential downpours these last two winters, with Los Angeles experiencing its wettest February since 1988 this year. Slow-moving atmospheric rivers are the culprits, which are likely becoming more intense because of climate change.
However, the state is also subject to crippling droughts. This time last year, 44% of California experienced drought conditions. Right now, it’s barely 5%, but the western US remains highly vulnerable to ‘megadroughts’ — extended periods of extreme dryness.
California Governor Gavin Newsom wants the state to be prepared for more parched times to come. His updated water plan details changes to how water will be collected, stored, and transported to cope with escalating climate extremes.
Climate Impacts are Affecting All Water Sectors Across California
Among the highlights, the plan calls for boosting the capacity of California’s water systems by repairing old dams and pipelines, strengthening watershed resilience, and enhancing “natural infrastructure” through ecosystem restoration and the identification of critical groundwater basins. The plan also highlights the multiple climate risks the state’s water system is exposed to — from wildfires to coastal flooding.
The plan is part of a series of interlocking initiatives to protect and upgrade the state’s water infrastructure. California also has a water resilience portfolio strategy, focused on improving water supplies, strengthening natural ecosystems, and building infrastructure to store and move more water, and a water supply strategy.
The variety and complexity of government efforts to address water security in the Golden State is testament to the scope and scale of the challenge facing Californians. They also highlight the vast potential for private businesses and public benefit organizations to get involved in mitigating water-related risks up and down the state.
Maladaptation in Action
Here’s an article worth your time from the UK’s Daily Telegraph. It underscores the danger of maladaptation — those activities intended to protect against climate risks that end up hurting more than they help.
The report follows the trials of Lincolnshire farmer Henry Ward, whose lands have been submerged by flood waters since last October. He says that the UK’s Environment Agency spent £3.5mn (U$4.4mn) fixing a breach in the banks of the Barlings Eau river after his fields were first inundated in 2019. However, these repairs apparently didn’t go far enough, making necessary a further £450,000 (US$570,000) expenditure on flood protections that may have a lifespan of just three-years.
Ward says such quick-fix flood solutions are a waste of money, and that his lands would be better used as a floodplain or converted into wetlands. “It will cost less in the long term than constantly fixing the riverbank,” he says.
The article is a useful reminder that climate adaptation and resilience can’t always be achieved on the cheap. Large-scale, long-term investment is needed in some regions if “business-as-usual” is to continue — or to overturn “business-as-usual” entirely.
💡Innovation of the Week💡
Translating global climate model outputs into useful data for financial institutions is an ongoing challenge, one that has launched a clutch of climate tech startups, including Climate X and Sust Global.
It’s also one that established players are striving to overcome. Aon, one of the world’s largest providers of risk management services, has stepped up to the plate with its own solution — Climate Risk Monitor (CRM).
The new tool enables organizations to understand their current and future exposure to chronic climate stressors — including drought, heavy rain, extreme temperatures, and wildfire — at the portfolio and asset level. The assessments are informed by popular climate scenarios developed by the Intergovernmental Panel on Climate Change (IPCC), and the CMIP6 generation of climate models.
CRM offers physical climate risk metrics for climate hazards at a 25km (16m) scale resolution, a fairly granular level that can help companies understand the exposure and vulnerability of geographically scattered assets.
Aon sees CRM being used by risk managers to guide their property insurance purchases and to inform risk-transfer strategies. Insurers themselves can leverage the tool to tailor their coverage by geography and climate peril, and to sharpen their pricing.
It’s another example of a major firm finding new ways to make public- and semi-public climate data decision-useful for corporate clients, and using climate tech to complement their existing advisory services. It’s a popular area for climate adaptation and resilience companies of all sizes, and one poised to grow as climate impacts worsen for blue chip firms around the world.