The physical damages of climate change pose a substantial threat to Asian economies, with projected costs reaching trillions of dollars in the coming decades primarily driven by loss of life and damage from extreme weather events.
AIGCC’s Physical Risk and Resilience Working Group (PRR WG) was established to equip investors with the tools and knowledge necessary to integrate physical risk considerations and resilience in their portfolio management and to catalyse investment in adaptation solutions.
Tools for investors to understand physical risks
Since its inception, the PRR WG has made significant strides in understanding of physical risk and thereby enabling investor action on climate change. Initially, the WG focused on developing a comprehensive overview of risk assessment tools and services available to investors.
These assessments have supported investors in engaging with their investee companies to outline risk exposure of company assets and operations while urging companies to develop resilience plans to mitigate risks. In 2021, the WG put together a compendium report that has been invaluable in guiding investors to identify and quantify physical climate risks within their portfolios.
Engagements with banks on physical risks
Building on this foundation, the PRR WG aimed to increase financial institutions’ understanding of the greater risks associated with sea level rise. In coordination with China Water Risk (CWR), the PRR WG held a series of engagements with banks in Asia to discuss the increasing risks associated with sea level rise which are not being adequately considered in their assessments.
Stress testing against these “cannot be ruled out” climate scenarios will help banks project and manage their financial risks. Through a joint open letter and direct dialogue with banks, the PRR WG has highlighted the urgent need for financial institutions to consider the financial consequences of inaction on climate adaptation.
Critical progress needed for adaptation finance
While it is important that investors understand and assess physical climate risks, it is also critical to focus on climate solutions. For countries to sufficiently build resilience and mitigate the adverse impacts of climate change, adaptation finance is crucial and addressing this requires a coordinated effort between public and private sectors.
AIGCC has published Investor Expectations on National Adaptation Planning in Asia, which lists key elements that would help facilitate more collaboration between the public and private sector on adaptation financing. This set of expectations will help investors to enhance asset-level resilience planning and initiate discussions on financing solutions.
AIGCC then conducted a preliminary benchmarking exercise of national-level adaptation plans in Asian markets to assess their alignment with investor expectations on national adaptation planning. This analysis revealed significant barriers to private investment, including fragmented, inconsistent, and incomparable physical risk information.
To address these barriers, the PRR WG has started a series of investor-led policy engagements on adaptation finance, including but not limited to, China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, South Korea, and Thailand. Through the PRR WG, AIGCC investor members are committed to working closely with governments to scale understanding and action on adaptation planning.
Discussions in these markets have focused on identifying opportunities for adaptation financing, providing accurate and actionable data, implementing resilience taxonomies, and encouraging governments to incorporate private sector involvement in national adaptation planning.
Through the PRR WG, AIGCC will continue to catalyse crucial dialogues between policymakers and investors to properly assess physical climate risks and through that process, identify adaptation project needs, and unlock new sources of capital for adaptation.
AIGCC is enabling stakeholders to identify approaches to bridge the adaptation finance gap and build resilience in regions that are most vulnerable to the physical impacts of climate change.
Learn more about the PRR WG