Physical risk analysis

New report: Activating private capital for climate adaptation

Today, the Investor Group on Climate Change (IGCC) released a new report co-authored by ERM Energetics. Titled, Activating Private Investment in Adaptation. Turning capital flight risk into the next multibillion opportunity, the report centres on the challenge for Australia that, without adaptation, climate change will lead to capital flight.

As co-author Olivia Kember, ERM Energetics Principal Consultant, said “Mandatory climate-related disclosures, along with and increasingly sophisticated climate risk modelling tools may reveal dangerous levels of unpriced climate risk across the economy. This is something the market and the government can address together, but a disorderly process may trigger a race for the exits.”

With the release of Australia’s first National Climate Risk Assessment expected before the end of the year, and the first National Adaptation Plan due in 2025, the report contains recommendations on the actions governments and investors can take to prevent the flight of capital from locations and industries with a high exposure to climate change impacts.

Stephen Catchpole, ERM Energetics’ Finance Sector Lead and co-author said, “Climate-proofing the economy offers significant returns on investment, and the companies providing those climate-proofing services should become a fast-growing source of value over coming years. But this requires creating opportunities at levels beyond individual assets to build resilient systems and communities.”

He also said, “Adaptation measures must work to reduce risk to a level where Australia remains an attractive destination for private capital. In turn, this will enable businesses to continue to offer affordable insurance and loans, operate business services, and invest in critical infrastructure and other productive uses”.

The recommendations outlined in the report are grouped into 3 categories:

• Build a shared understanding of physical risk and resilience
• Establish regulations and incentives to support private investment in adaptation
• Facilitate innovation in resilience.

There is a clear reward for accelerating investment in adaptation and resilience. The country’s leading investors have already set targets to deploy tens of billions of dollars into resilience assets and upgrades. They see the opportunity for significant financial returns to their beneficiaries.

Australia’s policymakers have likewise put physical risk assessment and climate adaptation onto the already full public agenda.

However, considerable valuable action still needs to be taken. This paper steps into that gap, connecting the economic need with government goals and with investors’ considerable capabilities. 

ERM Energetics has deep expertise in physical risk analysis. Please contact us for advice.