Investors offered climate exposure tool

A new tool which will allow asset owners and investors to accurately understand the exposure of critical infrastructure to climate risks.

Mott MacDonald and the Coalition for Climate Resilient Investment (CCRI)  say the methodology’s “pioneering approach” has been developed to address the massive resilience gap in financing.

The Physical Climate Risk Assessment Methodology (PCRAM) has been created as a global practitioner’s guide which delivers the practical tools to identify and assess the resilience of infrastructure assets.

“Investment in resilience lags well behind the financing of climate mitigation,” CCRI said. “According to the Climate Policy Initiative (CPI), total spending on climate finance during 2019-2020 reached US$632 billion, with mitigation finance accounting for $571 billion compared to just $46 billion on adaptation and resilience; significantly less than what is required to meet the challenges posed by climate change.”

Carlos Sanchez, Executive Director, Coalition for Climate Resilient Investment, added: “CCRI delivers rigorous analytical solutions that clearly demonstrate resilient investments are good investments. Strong market forces are pushing the industry towards improved enforcement and reward of these integration practices, translating into opportunities for those that take early action. CCRI analytics offer the potential to drive a more efficient allocation of capital towards climate resilient investments, without which we are unlikely to future-proof our communities for the decades ahead.”

Designed to enhance the financial valuation of investments, instead of minimising losses, PCRAM uses new methodology that gives infrastructure owners and operators the means to evaluate physical climate risks to infrastructure and analyse their long-term impact on asset performance.

“This capability ensures climate risk assessment is integral to adapting infrastructure assets – from asset design on day one and through the entire life cycle of the project – leading to significant reductions in the cost of future climate adaptation measures and improvement in the quality of revenue streams,” added the CCRI.  “For the first time, PCRAM also brings together climate data providers, resilience practitioners, asset managers and investors to assess and quantify physical climate risks. Mott MacDonald tested the methodology on five real-world infrastructure assets, including a nearshore wind farm in South East Asia and a hydropower plant in Africa, with each case delivering a ‘resilience dividend’.”

Denise Bower, Executive Director at Mott MacDonald, explained: “We set out to create a framework that enable public and private sector infrastructure investors to assess their exposure to climate physical risks, quantify this exposure and improve their asset performance. What we found is that investing in resilience leads to better outcomes, better performance, less downtime, less maintenance and, most importantly, fewer negative impacts on the communities that infrastructure serves.

“All of this means a higher rate of return for investors and is a powerful tool for building the case for resilience. This is vitally important work. Even if we do manage to limit global warming to 1.5°C, we will still see decades of continued changes to our climate that will result in immense economic shocks and loss of life if we are not prepared.”

Rebecca Mikula-Wright, CEO of Investor Group on Climate Change, said: “PCRAM is an essential building block for investors to increase the resilience of their own portfolios and the communities they invest in. Additionally, it repositions physical risk as not only cost minimisation (for loss and damage) but as an opportunity for value creation.”

“There is huge appetite from the private sector to invest in resilience,” said Sanchez. “What has been missing so far are the tools to invest with confidence. Our methodology looks at specific infrastructure risks and how they will affect asset performance, life cycle and maintenance. We can then present a solid business case for resilient investment, unlocking the finance needed to protect vulnerable communities from the impacts of climate change.”