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The push to mainstream investments in adaptation and resilience

Watch for guidelines from a new working group of the Climate Bond Initiatives in June.

Although the tipping point to irreversibility is a dozen years away, climate change is already costing companies hundreds of millions of dollars. AT&T alone incurred $627 million in costs from natural disasters and related revenue credits to customers in 2017, according to a Barron’s report. To prepare for future impacts that could be even more expensive, the corporate sector must start spending big bucks now on adaptation and resilience, experts in the field argue.

Some of those experts are advising the Climate Bond Initiative (CBI) on how to help companies finance climate-related improvements with bonds that have clear standards for achieving resiliency aims and revenue streams that can be linked to the projects. To develop these standards, the CBI in November established the Adaptation and Resilience Expert Group (AREG), which expects to deliver its findings in June.

"There was a suggestion [in climate change mitigation circles] that somehow the fact that we needed to start adapting meant that we had not done enough to mitigate greenhouse gas emissions, and it’s true, we have not done enough to mitigate greenhouse gas emissions," said Joyce Coffee, AREG lead and CEO of Climate Resilience Consulting. "Therefore, we are already experiencing climate-related risk, and so it’s time to go ahead and make adaptation and resilience a prominent part of portfolios."

The massive California wildfires that killed dozens and prompted Pacific Gas & Electric to file for bankruptcy are just one of the climate risks that already have manifested. Sea level rise is another. The latter risk can be mitigated with seawalls, which provide just one example of resiliency projects. Other examples include desalination plants, road and runway elevation, porous pavement to absorb stormwater, wild brush clearing, drip irrigation, drought-resistant seeds and backup energy storage.

We are already experiencing climate-related risk, so it’s time to go ahead and make adaptation and resilience a prominent part of portfolios.
The group Coffee leads has two aims. The first is to make climate resilience a mainstream feature in all green bonds. The second is to reduce friction in the market for green bonds focused on resilient outcomes. That involves, among other things, providing investors with clear principles and standards they can rely on when they go to market looking for financial products built around adaptation and resilience.

"There are many, many assets under management looking for good projects, but we have yet to do a good job of creating climate resilience projects that are attractive to those assets," she said. "One of the major barriers to that is that many projects that are currently considered climate resilience that are in the pipeline for a city, for instance, are not bankable. They don’t have enough revenue generation implied in their current plan to make them attractive to the investment community."

To fix that, issuers, which include governments as well as corporations, need to make sure they have a revenue stream associated with each of their resilient projects — and that may require getting creative.

Coffee pointed to San Francisco, which plans to elevate its existing seawall to prepare for both earthquakes and sea level rise — using, in part, funds from driver’s license fees. "They found a revenue source that relates to the seawall because obviously, the seawall [enhancements] will help protect a lot of roadway," she said.

Getting investors comfortable with adaptation and resilience bonds will require clearing a couple of other hurdles as well.

One is that without a unique measure such as greenhouse gas emissions, investors find it difficult to quantify the benefits the projects funded by resilience bond proceeds are delivering, Coffee said. That can make them hesitate when they consider putting money into such investments.

The other is that investor time horizons don’t typically match the time horizons of projects focused on resilience and adaptation, she added. Investors, even those putting funds into assets with longer horizons, such as real estate, tend to think shorter term when they deploy their funds, maybe 10 to 20 years. But climate change adaptation and resilience is a long game. We have 12 years to head off the 2-degree-Celsius temperature gain that will make climate change irreversible, the United Nations warned last year. If we fail, projects that don’t have adaptation and resilience built in will face elevated risk.

In the meantime, many current investments in everything from bottling plants to coastal real estate to electricity infrastructure are at risk as extreme weather events increase in frequency and impact. Companies, investors and governments all have a stake in building resilience and adaptation, so they may want to consider submitting comments to the AREG when it issues its call for input in April. 

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