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Europe Not Ready For Climate Shocks, IBM Accelerator Targets Urban Resilience, and More
The first European Climate Risk Assessment makes the case for bigger and better adaptation and resilience policies
Louie Woodall
March 11, 2024
AI-generated via DALL-E
European Climate Risk Assessment says the continent’s unprepared for climate shocks and has to ramp up adaptation, IBM Sustainability Accelerator targets urban resilience, the saga of the UN’s Loss & Damage network rumbles on, and a parametric flood insurance data service stars as Innovation of the Week.
Last week, Climate Proof analyzed what the US Securities and Exchange Commission’s long-awaited climate risk disclosure rule means for adaptation and resilience investment. Check out the article HERE and become a premium member to receive features like this every Thursday.
Europe Not Ready For Climate Shocks
Europe faces assault from a variety of climate shocks. A new report says the continent is not prepared to handle them.
The European Environment Agency’s inaugural European Climate Risk Assessment identifies 36 distinct climate shocks that have the potential to severely impact the continent, for example by compromising food and water supplies, undermining energy security and financial stability, and degrading the health of the general population and outdoor workers. Of these 36, the Agency says 21 “need more action now” with eight being “particularly urgent.” These eight urgent risks concern: coastal ecosystems, marine ecosystems, damage to biodiversity/carbon sinks due to wildfires, flood impacts on infrastructure, crop production, European financial solidarity mechanisms, heat stress, and damage to the built environment due to wildfires.
Unsurprisingly, the assessment says climate adaptation is core to responding to these shocks. Among its priorities for action, the Agency says the European Union (EU) should produce guidance on “systems- and network-centred methods to support systemic adaptation of critical infrastructure.”
Closing data gaps is another concern, since Member States “urgently need greater clarity about the location and characteristics of critical infrastructure, and its exposure and vulnerability to climatic hazards.” This speaks to a common theme in the adaptation space — the need for reliable, asset-level data, one which geospatial startups and tech firms are racing to address.
The interrelationship between climate mitigation and adaptation is made explicit in the report. Indeed, the Agency recommends that EU climate and energy policies “better integrate climate adaptation into the planning and implementation of measures in the energy sector” to promote grid reliability and prevent setbacks to the bloc’s decarbonization goals. This is a nod to growing concerns that low-carbon energy providers – and fossil fuel fired-plants that are transitioning – could be knocked out of operation by extreme weather and chronic physical shocks.
The Agency lists a number of concerns related to the European economy and financial system, too. Specifically, it says climate risks that manifest at a sector and regional level could “catalyze a systemic financial shock” that would likely erode the bloc’s adaptive capacity.
From my read, it seems as though the immediate concern is for the public sector, where climate shocks threaten to crimp tax revenues, increase deficits, and lower credit ratings. Existing EU solidarity funds are also being stretched, the assessment notes.
However, the private financial sector is also under pressure. The assessment notes how insurers operating in Europe are raising premiums and exiting certain regions and lines of business, developments that could “amplify economic losses” from climate shocks. It further claims that financial institutions could see more borrowers default on their loans and portfolios drop in value from exposure to climate risks.
Exposure to physical climate impacts and related adaptation needs are not systematically assessed
The assessment calls for better integration of “physical climate risks and adaptation needs” in existing financial institution disclosure and due diligence frameworks to help guard the financial system. Significantly, it claims that “exposure to physical climate impacts and related adaptation needs are not systematically assessed,” leaving policymakers and the industry with significant blindspots.
Interestingly, it also says that existing assessments and stress tests done to date (think of the European Central Bank’s various exercises) “are likely to underestimate the cascading and compounding risks from climate change both in the EU and internationally, and the tail risks associated with rare extreme events.”
This suggests that the climate-related financial risk assessment approaches so far are not fit for purpose, and that financial institutions which believe they are “safe” from climate shocks may be in for a rude awakening.
The Agency’s assessment adds to the growing pile of official literature highlighting the disparity between the scale of the climate threat and the size of our collective response to date. It also hammers home the message that piecemeal adaptation measures just won’t do. Big, structural changes have to be made, which will take a long time to come to fruition. This being the case, the time to act is now, the Agency says, if sufficient adaptation measures are to be in place for when the worst climate impacts arrive decades into the future.
IBM Splashes Out on Urban Resilience
Last week, we talked about the buzzy “urban resilience” space and the technologies aimed at hardening cities against climate shocks. Advanced data and analytics are key to this, meaning there’s an opportunity for Big Tech to throw its weight around.
IBM is not letting this opportunity pass it by. Last Wednesday, the company announced a US$45mn commitment of cash and in-kind donations to the IBM Sustainability Accelerator, a social impact program that deploys IBM tech and expertise to tackle environmental threats across the globe. This comes hand-in-hand with a new request for proposals (RFP) on “technology-driven projects to advance city resiliency.” Each year, the Accelerator chooses around five projects to inject technology and AI solutions into a new sustainability topic area. This year, it’s resilient cities.
IBM wants proposals from nonprofit and governmental organizations that could benefit from cloud and AI solutions, data science-enabled insights, and expert consulting. The Accelerator’s capacity to offer this support will be boosted by a new strategic collaboration with professional services giant EY, which will quarterback the RFP selection process and provide access to coaching and development to program participants.
Projects could include AI foundation models and geospatial analytics, weather and climate forecasting to help project impacts on urban infrastructure, and asset management for public services.
Products and services created through the program could close some of the climate data gaps recognized by urban resilience researchers and unlock capital for better targeted adaptation and resilience solutions in this space.
UN Loss & Damage Network Powers Up
Ok, ok, I appreciate there are differences of opinion as to whether “Loss & Damage” (L&D) and climate adaptation overlap or not. Strictly speaking, L&D is understood to mean the impacts of climate change that occur in spite of – or in the absence of – adaptation efforts.
Perhaps, then, L&D should be out-of-scope for Climate Proof. But wait – if L&D can be minimized via effective adaptation measures, at least in some circumstances, then the two themes are symbiotic.
This is all to justify our covering the latest developments regarding the Santiago Network, one of the many offshoots of the UN Climate Change Conferences. The network was established in 2019 at COP25 in Madrid, and its overall objectives and remit shaped at subsequent summit meetings.
In a nutshell, its purpose is to catalyze “technical assistance” that supports efforts to avert, minimize, and address L&D in developing countries.
In January, the UN General Assembly authorized two UN agencies to co-host the network, and earlier this month they agreed on a way to move the network forward, meaning that nearly five years on from its initial establishment it finally has a home.
Here’s what the accompanying press release says:
“Emphasizing collaboration and coordination, the network connects vulnerable developing countries with providers of technical assistance – including entities from civil society, non-governmental organizations and the private sector – with knowledge and resources to address climate risks and take impactful actions at the local, national and regional levels.”
It’s not hard to imagine public and private investors alike being tapped by the Santiago Network to provide this “technical assistance.” It’s also probable that the learnings on L&D and addressing climate risks uncovered by the network will be of use to adaptation investors and service providers operating in the developing world.
So adaptation purists be warned — neglect the L&D world, and you may be turning your back on a wealth of climate risk knowledge that could make your lives easier.
💡Innovation of the Week💡
Floods can be farm killers, and devastating to countries with agricultural economies. Insurance offers a means for farmers to bounce back from inundations. However, it’s rarely available to those most in need of it.
In Africa, 99% of smallholder farmers are not insured against natural disasters, meaning floods can destroy both lives and livelihoods. This was true of 2019’s Cyclone Idai, which cost US$2bn to recover from across Mozambique, Malawi, and Zimbabwe.
One challenge is the difficulty modeling flood risk across vast agricultural regions; another is managing claims. These factors have limited the issue of flood insurance products across the continent. However, they also make the sector ripe for disruption.
Floodbase is a data provider and reporting agent for the insurance sector, which teams up with re/insurers and other organizations to design, underwrite, and monitor commercially viable flood insurance products. The company was recently awarded a grant by USAID, the international development agency, to enable parametric flood insurance programs in Mozambique and Malawi, and bring much needed adaptive capacity to the countries.
Parametric insurance products are triggered when natural disasters exceed a predetermined level of ferocity. This allows for fast payouts, because insurers and claimants don’t have to fuss with calculating actual incurred losses.
Using the USAID grant, Floodbase will partner with Global Parametrics — a provider of climate risk solutions — and African Risk Capacity Limited (ARC Ltd.), a specialist insurer, to develop the pilot programs. Together, they will demonstrate the scalability and sustainability of parametric flood insurance, and hope to drive greater take-up of these programs across emerging markets.
This is a tangible example of how cutting-edge data and analytics can actually lower the risk to institutions of providing certain financial products. Organizations that provide insurance services, like ARC Ltd., have limited capital, and any approach that allows them to stretch it further to facilitate climate resilience should be welcomed.
Once again, it’s also an example of public financing facilitating climate risk management. The USAID grant was made as part of President Biden’s PREPARE initiative, which aims to deploy US$3bn of adaptation finance annually by fiscal year 2024. It’s the largest ever US pledge to reduce climate shocks impacts to the most vulnerable.