4th December 2019

S&P Global publishes "Sink Or Swim: The Importance Of Adaptation Projects Rises With Climate Risks"

The recent surge in damage from extreme climate events has focused the attention of public authorities on the need for investment in climate change adaptation projects("Sink Or Swim: The Importance Of Adaptation Projects Rises With Climate Risks," published yesterday). Adaptation projects aim to strengthen the resilience of buildings, critical infrastructure, and communities against the risk climate change presents. Strengthening flood defences is probably the most common adaptation investment.
During 2018, only about 6% of the $546bn invested in climate change projects globally focused on adaptation projects, according to the Climate Policy Initiative. In today's report, S&P Global Ratings credit analyst David Masters comments "Although the imbalance is shifting, adaptation costs in developing countries alone are set to rise to $140bn-$300bn by 2030. That's 4x-9x more than the total amount of international finance available today."
"Over the past three years, the world has seen an spike in extreme weather, most recently the Australia and California wildfires, and Cyclone Bulbul in India and Bangladesh," continued Masters. "These events highlight that many countries are vulnerable to these events. Climate change is likely to make matters worse, whether or not we manage to keep global warming to 2 degrees Celsius above pre-industrial levels. Therefore, more people are looking at how to adapt to climate change, and how to finance it."
The Global Commission on Adaptation forecasts that without adaptation, climate change could reduce growth in global agricultural yields by as much as 30% by 2050, as well as pushing more than 100 million people below the poverty line in developing countries by 2030.
Despite this, governments are not spending nearly as much money as one might expect. Part of it is political--it can be hard to justify the cost for something that might not happen. Part of it is that governments are already stretched financially.
One way to bridge the gap is with private investors. Investment in adaptation can offer cost-effective protection against extreme weather damage, which is referred to as a resilience benefit. A strong resilience benefit and an attractive risk-return profile can attract private investors and bring much-needed money to this sector. Introducing financial instruments that demonstrate a strong link between investment returns and resilience benefits could boost the uptake of private sector adaptation investments.

S&P Global Trends(512 articles)