A New Climate Resilience Investment Calculus, Supreme Court Decision Threatens Climate Regs, and AI-Powered Adaptation Assessments

Programming note: Today’s roundup is slimmer than usual, due to yours truly being on vacation. Remember, there will be no post this Thursday. Normal service will resume on Monday 8 July!

Today in Climate Proof:

Finance:

• Spend a Dollar, Save Thirteen? The US Chamber of Commerce’s New Climate Resilience Calculus

Policy:

• Climate Rules in Jeopardy as US Supreme Court Undercuts “Regulatory State”

Tech:

• AI-Powered Adaptation Disclosure Analysis

Research:

• Another round-up of papers and journal articles on all things climate adaptation

Spend a Dollar, Save Thirteen? The US Chamber of Commerce’s New Climate Resilience Calculus

Adaptation and resilience (A&R) investment has a financial returns problem. Or more accurately, the perception of returns problem.  One of the oft-lamented issues preventing investors and corporates from spending on climate proofing is the lack of tangible, financial rewards for their troubles.

Of course, this framing has been repudiated by some adaptation zealots, who argue that the range of A&R investments is broader than neophytes give it credit for, including assets and activities that can and do produce financial yields (Listen to Sabrina Nagel’s turn on Climate Proofers for more).

Others make the argument for A&R investment by emphasizing how it can save companies money and prevent (or at least limit) financial losses down the line. I’ve been somewhat skeptical that this approach can encourage institutional investors to plow billions into climate-proofing, just because monetizing potential savings and/or risk reductions is a harder sell than simply producing revenues.

This doesn’t stop folks from trying, of course. A new study by the insurer Allstate, the US Chamber of Commerce, and the US Chamber of Commerce Foundation, claims that for every $1 spent on climate resilience and preparedness, communities can save $13 in damages, cleanup costs, and economic impact. 

This dollar figure was landed at by modeling 25 natural disasters — including hurricanes, floods, and wildfires. On average, this showed that resilience spending saves $6 in reduced damage and cleanup costs in the event of a climate shock, and $7 in post-event economic costs. The latter amount is arrived at by calculating positive impacts to jobs, workforce participation, GDP, and earned income for residents. Together, these two types of savings sum to the auspicious $13.

Moreover, the study suggests that A&R investments can have a payoff even if a disaster does not occur: “The more a community invests in disaster preparedness, the more jobs they’ll potentially create. That means the workforce grows, which then encourages more people [to] move to or remain in the area. The end result is increased production and incomes.”

The 25 disasters modeled vary in size, location, and severity. One assumed a Category 4 hurricane struck Miami, Florida. The authors concluded that US$10.8bn invested in resilience and preparedness would save 184,000 jobs, US$26bn of production, and US$17bn in income.

Another imagined a major wildfire striking Santa Fe, California. Here, the authors concluded that US$83mn in pre-disaster spending would preserve 388 jobs, around US$45 million in economic output, and more than US$20 million in income.

Across the modeled disasters, the study’s authors assumed a wide variety of preparedness and resilience measures. These include early warning systems, changed land-use practices and building codes, disaster risk reduction measures, and structural/material improvements to households and business properties.

The study is certainly interesting, and comprehensive in terms of the types and size of disasters modeled. Still, two things stood out to me: one, the fact there was no specific data on each type of A&R investment’s contribution to economic resilience; and two, the assertion that A&R investments would be a net positive to communities even if a disaster never struck, without any breakdown or discussion of potential opportunity costs. 

In other words, this is a study with the big picture in mind, rather than an exercise in precision.

Other Stuff

Programme for innovation in climate adaptation and resilience building solutions (PARS) approved by GEF Council (Global Environment Facility)

COP29 president anticipates climate finance breakthrough in Azerbaijan (Forbes)

Climate Rules in Jeopardy as US Supreme Court Undercuts “Regulatory State”

The US Supreme Court took a hatchet to the so-called “regulatory state” last week, and it’s likely bad news for President Biden’s efforts to climate-proof the economy.

In a 6-2 decision last Friday, the Court overturned a 40-year precedent that obliged judges to defer to federal agencies when it came to ambiguities in laws related to their areas of expertise. Lower courts have relied on the so-called “Chevron deference” doctrine for decades, which has enabled agencies to interpret their mandates and other powers granted by Congress without excessive judicial intervention. 

By scrapping Chevron deference, the Supreme Court has hamstrung federal agencies and curtailed the executive branch’s ability to implement and enforce regulation. Biden administration rules issued by the Environmental Protection Agency, Department of Energy, and Securities and Exchange Commission (SEC) designed to fight climate change and strengthen resilience could all be challenged in the courts, and their scope limited at judges’ discretion.

In her dissent against the majority decision, Justice Elena Kagan made clear the stakes of overturning Chevron deference:

“In one fell swoop, the majority today gives itself exclusive power over every open issue – no matter how expertise-driven or policy-laden – involving the meaning of regulatory law. As if it did not have enough on its plate, the majority turns itself into the country’s administrative czar.”

An early casualty of the ruling could be the SEC’s climate risk disclosure rule, which has been mired in legal battles since its official publication in March. The rule would force listed companies to disclose a wealth of data on their climate-related physical risk exposures and produce metrics useful to investors for understanding where to put dollars for adaptation and resilience measures.

Republican state officials and business groups had already challenged the rule on the grounds that environmental regulation is beyond the scope of the SEC — a spurious argument to my mind given the rule’s clear focus on investor protection, which definitively is within its remit.

Now, it’s possible that judges who are favorable to Republicans’ interpretation of the SEC’s remit could overrule the agency’s own position that it has the power, responsibility, and authority to implement the rule.

This is just one example, of course. Current and future agency rules intended to promote climate resilience in other areas — federal buildings, government procurement, public land maintenance — could all find themselves challenged down the line.

My immediate takeaway is that the agency beat down not only gives the judicial branch more power to interpret laws than it had before, it also puts greater pressure on Congress to pass laws with clear, unambiguous guidelines to agencies on how to implement them. Given the poor legislative record of recent Congresses, it’s hard to imagine how the Supreme Court decision will do anything but dramatically slow the production of important regulations, including those intended to protect Americans from climate shocks.

Other Stuff

Nature and climate at a crossroads — EU leaders to decide on EU top jobs and the Strategic Agenda (WWF)

White House picks winning climate agencies on climate, sustainability, and resilience (Office of the Federal Chief Sustainability Officer)

AI-Powered Adaptation Disclosure Analysis

The Resilient Planet Finance Lab had a busy London Climate Action Week. The initiative, a collaboration between the United Nations, Insurance Development Forum, and the University of Oxford, rolled out a battery of data and analytics to enhance adaptation and resilience investing in celebration of its one year anniversary.

The tools and analyses released include:

• A synthesis of 25 adaptation taxonomies from governments, companies, and other authorities

• A synthesis of adaptation and nature targets and metrics 

• A database of 111+ climate data sources that can be used to better understand climate hazards

For AI aficionados, the Lab’s head — Dr Nicola Ranger — also co-published a paper with the eggheads from the University of Zurich, Department of Finance on using large language models (LLMs) to assess how well corporate adaptation plans align with A&R goals.

It’s the latest in a series of LLM blueprints for analyzing companies’ climate disclosures. Academics have previously created chatReport, an LLM tool for benchmarking company reports against the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and written papers on using an LLM-based approach to assess company’s nature disclosures and climate transition efforts.

Conceptual framework for adaptation planning, developed by the Resilient Planet Finance Lab with expert input from the CFRF Adaptation Working Group

The paper includes the findings from an implementation of the LLM approach to the reports of companies belonging to the Nature 100, a list of firms targeted for action on nature restoration and preservation. These companies reported against 48% of the 65 A&R indicators proposed in the paper, though the breadth and depth of disclosure varied wildly — with some reporting only against six of the the indicators. 

The paper also features a “conceptual framework for adaptation planning.” This is a set of principles and disclosure elements that corporates can follow to integrate A&R into their transition plans – along the lines envisioned by the UK’s Transition Plan Taskforce.

Correction: An earlier version of this article said the LLM-based approach was developed with ETH Zurich. It was actually University of Zurich, Department of Finance.

Other Stuff

Scaling climate adaptation technology for a just transition (ESCAP)

Climate Risk and Early Warning Systems initiative builds momentum (World Meteorological Organization)

RESEARCH

Harnessing the opportunity for a climate smart and competitiveness livestock sector in Tanzania  (World Bank Group)

Climate change adaptation, risk and resilience: a global snapshot (Deloitte Australia)

Kids Are Particularly Vulnerable to Extreme Weather. What Are We Doing About It? (Inside Climate News)

Climate change and urban violence: a critical knowledge gap – analysis (Eurasia Review)

Thanks for reading!

Louie Woodall
Editor