Adapting to global challenges

Exploring investors’ climate adaptation policies and practices

The physical consequences resulting from climate change will affect everyone. Extreme weather events, such as cyclones, drought, heat stress and ooding, will increasingly impact human health, financial stability and ecological balance. Dealing with climate change effectively, means taking into account theconsequences. Physical climate impacts are occurringnow and will continue to increase in the near future. They will disproportionately burden the vulnerable. Investors will have to develop comprehensiveadaptation strategies that manage these physical risksand ideally also consider social and environmental factors.

This study gives a brief overview of the current stateof affairs regarding the climate adaptation policies andpractices of investors. It nds that investors yet have little understanding of how the physical risks affect them and that they lack guidance and tools on how to adapt to these changes.

Disclosure of physical risk information is a rst step towards building adaptive strategies. Investors should not only ask fo climate risk data from investee companies, but also disclose relevant informationthemselves. The Taskforce on Climate-related FinancialDisclosures (TCFD) is recognised as a game changer with regard to disclosure.

The various characteristics of different climate hazards,with different impact in different geographies and for different counterparts, make it extremely complex to disclose, assess and manage physical climate risks.

Even though the availability of physical climate risk datais increasing, underreporting is a challenge. Investorshave the opportunity to engage with portfolio companies to improve data availability. This will enhance the qualityof physical climate risk assessments.

The currently evolving approaches to assess and manage physical climate risk are rst steps in the direction of guidance and tools for investors to act upon these risks. Frontrunner investors in real estate and infrastructure have begun assessing the physical risks of their direct investments.

Disclosure, management and adaptation effortsmainly take a nancial investor perspective and do notnecessarily include socio-environmental impact. Dataand impact indicators are needed and need to be part of the risk-return-impact analyses of investors to realizereal world climate adaptation. Besides the challenge of impact indicators, directly investing in climate adaptation solutions is often already challenging for investors from a risk/return perspective only.

More public private cooperation between investors, companies, civil society, science and governments is needed to develop investable opportunities andindicators, that will be the foundation for comprehensiveadaptation strategies taking into account risks of and solutions to climate change and lead to both investor and socio-environmental resilience.

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