Adapting to and Addressing the Financing Shortfall for Climate Change Mitigation Among Businesses

Adapting to and Addressing the Financing Shortfall for Climate Change Mitigation Among Businesses

Businesses Step Up Climate Action, But Challenges Persist in Adaptation Financing

In a bid to combat the effects of climate change, businesses are turning to various financing methods, such as purchasing high-quality carbon credits, issuing green bonds, and leveraging blended finance. These strategies aim to address unavoidable emissions and invest in climate solutions 1. However, a significant funding gap remains, particularly in adaptation financing, with cities like London lagging behind more proactive cities such as Singapore and Copenhagen 2.

Professor Michael Wilkins, from the Imperial Business School, emphasizes the importance of recognizing "locked-in" costs, which are the costs caused by how the climate is set to change over the next two decades 3. He suggests that many costs have been assessed in a fragmented manner, and there is a lack of standardization and unification in addressing climate adaptation, considering the social and economic impact of severe climate impacts 4.

The Centre for Climate Finance and Investment at the Imperial Business School has released a report on how businesses can mitigate environmental risks 5. The report suggests that businesses could be underestimating investor losses from physical climate risks by as much as 70% 5.

Lorenzo Saa, chief sustainability officer at Clarity AI, shares a growing sense among corporations and investors that climate mitigation alone is no longer enough, and that focus should shift to adaptation 6. He stresses the importance of corporate data to understand climate impacts and the growing role of asset management in identifying resilience solutions 7.

In the U.K, the cost of adapting infrastructure to make it resilient to future climate impacts is estimated to be between £5 billion and £10 billion per year, but less than £1 billion is currently being spent 8. Ageing infrastructure, particularly in the water sector, makes it harder to estimate the full cost of climate adaption 9. Without substantial investments in adaptation, urban areas face significant vulnerability to climate-induced extreme events 10.

Professor Wilkins states that many costs have been assessed in a fragmented manner and that a more standardized and unified approach is necessary to address climate adaptation 4. He cites Singapore as an example, where framework plans for addressing sea water surges due to tropical cyclones have led to more resilient infrastructure being built 11.

Saa highlights several factors involved in bridging the funding gap for climate adaptation measures 6. Potential solutions include innovative financing platforms like multilaterally backed guarantee facilities (e.g., ADB’s IF-CAP), use of green bonds combined with carbon pricing, and enhanced stakeholder collaboration to align investments with climate goals.

In summary, businesses are taking steps to finance climate change mitigation and adaptation, but challenges remain, particularly in adaptation financing. Cities with proactive policies and international collaborations, such as Singapore and Copenhagen, demonstrate more advanced financing frameworks than London. Scaling innovations like guarantee-backed loans and enhancing policy mixes may help close these gaps and accelerate adaptation investments.

References:

1. Business financing methods for mitigation and adaptation
2. Funding gaps and challenges
3. Professor Wilkins highlights a lack of recognition of "locked-in" costs
4. Professor Wilkins suggests that other countries have addressed climate adaptation in a more standardized and unified way
5. The Imperial Business School's Centre for Climate Finance and Investment has released a report on how businesses can mitigate environmental risks
6. Lorenzo Saa, chief sustainability officer at Clarity AI, states that there is a growing sense among corporations and investors that climate mitigation alone is no longer enough, and that focus should shift to adaptation
7. Saa also stresses the importance of corporate data to understand climate impacts
8. In the U.K, the cost of adapting infrastructure to make it resilient to future climate impacts is estimated to be between £5 billion and £10 billion per year, but less than £1 billion is currently being spent
9. Ageing infrastructure, particularly in the water sector, makes it harder to estimate the full cost of climate adaption in the U.K.
10. Without substantial investments in adaptation, urban areas face significant vulnerability to climate-induced extreme events
11. He mentions Singapore as an example, where framework plans for addressing sea water surges due to tropical cyclones have led to more resilient infrastructure being built
12. Saa highlights several factors involved in bridging the funding gap for climate adaptation measures
13. The report by the Imperial Business School's Centre for Climate Finance and Investment advocates for businesses to mitigate environmental risks by exploring unconventional financing methods like multilaterally backed guarantee facilities and the integration of carbon pricing with green bonds.
14. The U.K.'s aging infrastructure poses challenges in accurately estimating the full cost of climate adaptation, with annual costs for resilient infrastructure improvements calculated at £5-£10 billion, but actual spending remaining below £1 billion.
15. Professor Wilkins from the Imperial Business School cautions about the underestimation of investor losses from physical climate risks, suggesting that businesses could potentially be underestimating these risks by up to 70%.
16. The need for a more standardized and unified approach to climate adaptation financing is emphasized by Professor Wilkins, who uses Singapore as an example of a city that has successfully built more resilient infrastructure through proactive framework plans addressing sea water surges due to tropical cyclones.

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