26 February 2021
Carlos Sanchez, executive director for the Coalition for Climate Resilient Investment (CCRI) and director of climate resilience finance at Willis Towers Watson's climate and resilience hub, discusses the CCRI's mission and successes to date.
What is CCRI and why was it formed?
Spearheaded by Willis Towers Watson, the Coalition for Climate Resilient Investment (CCRI) is the first of its kind, bringing together industries and leaders across the finance and investment value chain to develop practical solutions to advance climate resilience.
CCRI launched at the UN Climate Action Summit in 2019 as a private sector-led initiative to better understand climate risk for use by investors. It aims to create opportunities and build a network of resilient infrastructure in the most vulnerable and advanced economies, enabling us to better prevent future human and financial disasters.
Building on the momentum created by initiatives such as the Task Force on Climate-Related Financial Disclosures (TCFD), the Coalition has grown to more than 70 members with over $11trn in assets, including institutional investors, banks, insurers, the World Economic Forum, the State of California, and governments of the UK, Canada, Jamaica and most recently Australia.
What challenges do financial services face in pricing physical climate risks?
Climate change poses not only an immediate environmental risk, but a financial risk to long-term investment stability. With global infrastructure investment needs forecast by the G20 to reach $94trn by 2040, the question is how much of this investment will properly integrate physical climate risks (PCRs).
The lack of climate risk standards has resulted in an inefficient allocation of capital when protecting assets from PCRs. These are often mispriced, lacking transparency and understanding around climate-related impacts. Yet investors, lenders, insurers and ratings agencies need this information to make informed decisions.
How is the Covid-19 pandemic driving action by CCRI and the finance sector on climate change?
The global pandemic brought into focus the need to strengthen resilience and manage risk and a clear lesson on the cost of underestimating the impact of climate change.
Properly pricing climate risk in financial decision-making will align investment flows towards infrastructure capable of withstanding a changing climate. Providing a methodology to quantify the economic and financial benefits offers a critical incentive for financial markets to embed resilience upfront.
There is also an urgent need to develop new sources of data and analytical tools to better understand the risks posed by climate change.
What practical solutions has CCRI already launched to better integrate climate risk in financial decisions?
CCRI's Systemic Resilience working group has already launched two pilot projects – in Jamaica and Chile – to develop an investment prioritisation tool that enables governments and local policymakers to protect and maximise socio-economic value within infrastructure networks. In parallel, CCRI's Asset Design and Structuring workstream is developing frameworks for risk-informed cashflow modelling practices based on data from 40 live projects.
CCRI members are also working closely to structure financial instruments that will mobilise capital towards resilience. Other initiatives closely supported by CCRI include FAST Infra, the Coalition for Disaster Resilient Infrastructure, and the TCFD.
By 2025, CCRI intends to implement solutions to manage exposure to social and economic value at risk and maximise investment in at least 30 economies, both OECD and non-OECD.
Why should governments and stakeholders join the CCRI?
According to the Global Commission on Adaptation, adaptation investments consistently deliver high returns, with benefit-cost ratios ranging from 2:1 to 10:1. CCRI believes an average of 3% additional upfront capital investment is required to build resilience into infrastructure, yet every dollar invested in resilience generates four dollars of economic value.
From a purely investment perspective, resilient assets are not more expensive assets, but instead more efficient, reliable sources of long-term secure cash flows to investors.
The Coalition remains uniquely positioned to harness a combination of rapidly advancing climate risk analytics coupled with ambitious regulatory and investor-led initiatives.
A more accurate pricing of climate risk will create opportunities to build a network of resilient infrastructure in high, medium and low-income countries, enabling us to better prevent future human and financial disasters.