Mary Leung, Senior Advisor of Research and Advocacy for Asia-Pacific at the CFA Institute, makes the case for increased investment in climate adaptation.
How did your summer go? Was it hotter than usual? One’s answer is most likely in the affirmative, whether you were in Asia, Europe or the US, and regardless of whether the question was asked this year or last.
An analysis by the EU’s Copernicus Climate Change Service found that 2023 was the hottest year in data records going back to 1850, with an average temperature of 1.48°C warmer than the pre-industrial average. Unfortunately, this has persisted in 2024, with June 2024 being the warmest June on record worldwide. In Saudi Arabia, over 1,300 people died as a result of heat-related illnesses during the Hajj pilgrimage. In the nine days between 16 to 24 June, nearly 5 billion people were exposed to extreme heat, including 620 million people in India and 579 million in China.
Climate change has made extreme weather events such as heatwaves more frequent, intense, and prolonged. Extreme heat adversely affects one’s cognitive abilities and emotional responses, making us less logical, more angry and more aggressive. It exacerbates pre-existing conditions and can be deadly.
In addition to mortality rates and public health, it also has a huge impact on businesses and economies. Take infrastructure as an example: vital infrastructure such as power grids, mobile networks, data centres, roads, and airfields may fail as a result of intense heat stress, leading to power outages, loss of communications, and flight cancellations, causing significant economic losses.
Climate adaptation in extreme heat
The rising threat of heatwaves highlights the urgent need to focus on climate adaptation and resilience.
Following the 2003 European heat wave that killed an estimated 70,000 people, France became one of the first countries to create a national heatwave plan that incorporated early warning systems, mandatory insulation in construction regulation, and the replacement of tarmac with other reflective materials.
Since then, many cities around the world have formulated plans to future-proof their communities and infrastructure to make them climate resilient. One example is Ahmedabad in Gujarat, India, which launched its heat action plan in 2013, one of the first in South Asia. In addition to building community awareness, initiating an early warning system and capacity building among healthcare professionals, the plan also includes a low-cost cool roofs programme for commercial and residential buildings, with the purpose of saving energy, increasing thermal comfort and reducing cooling demand. A study that evaluated the effectiveness of the Ahmedabad plan found that an estimated 2,380 deaths were avoided as a result.
The above examples highlight that, if done right, adaptation initiatives can bring multiple benefits by reducing future losses, delivering economic benefits through risk mitigation and management, and bringing better social and environmental outcomes. However, despite its importance, climate adaptation initiatives received only 5% of total climate finance in 2021 to 2022. The 2023 UN Adaptation Gap Report puts the adaptation financing gap at US$194 to 366 billion per year.
While governments and international development banks have been key in financing some of these initiatives, it is clear that private financing will become increasingly important in achieving rapid and ambitious adaptation. For companies and investors, this creates potential opportunities in a range of critical sectors, such as infrastructure, transportation, energy, and agriculture.
Supporting climate adaptation
Investing in adaptation not only reduces risks and economic losses, but also boosts productivity and sparks innovation, providing net economic benefits of between two to ten dollars for every dollar invested, according to the Global Commission on Adaptation. Further, research by Climate Alpha suggests that “investing early in climate-resilient geographies will generate more than 70% higher returns on real estate portfolios by 2030 alone”.
As the urgency to avoid climate-related losses grows – and taking into account factors such as changing consumer demand, emerging technologies and operational necessities – there will be additional opportunities for the private sector to invest in adaptation. A deeper understanding of climate impacts and risks would allow the integration of climate risks into business models and guide investment decisions.
One often cited challenge in achieving scale in climate adaptation, and indeed in climate mitigation initiatives, is a lack of expertise in mobilising climate finance. An understanding in sustainable finance taxonomy, sustainability disclosures, climate risk management, policy incentives, and the latest financing products structures are among the most sought-after skillsets.
The importance of capacity building
In view of this, the Capacity-building Alliance of Sustainable Investment (CASI) was set up with the aim of delivering high quality, high impact sustainable finance capacity building services in emerging markets, in order to accelerate the market development of sustainable finance and create more investable and bankable climate projects.
Since its inception in 2023, CASI’s membership has grown to include international knowledge providers from supranational agencies, climate think tanks, international consultancies, and global financial institutions. Collaborative initiatives like CASI play a pivotal role in capitalising on these opportunities by fostering knowledge-sharing, capacity-building, and strategic partnerships across global markets. By offering targeted programmes, seminars, and bespoke capacity-building services, CASI’s target is to train 100,000 people globally by 2030.
As a founding member of CASI, the CFA Institute will leverage on its expertise in sustainability research and educational offerings to accelerate capacity building, raise professionalism, and promote efficient capital allocation. Our research on climate and net zero investing is available to all and can be accessed on the CFA Research and Policy Centre. This research is further supported by a suite of educational offerings.
So, as we brace for yet another sweltering summer, it is clear that climate adaptation and its financing is a pressing necessity. The private sector has an important role to play, and with proactive capacity building and strategic initiatives, these scorching challenges can be transformed into opportunities for a more resilient future.
Mary Leung, Senior Advisor of Research and Advocacy for Asia-Pacific at the CFA Institute, makes the case for increased investment in climate adaptation.
How did your summer go? Was it hotter than usual? One’s answer is most likely in the affirmative, whether you were in Asia, Europe or the US, and regardless of whether the question was asked this year or last.
An analysis by the EU’s Copernicus Climate Change Service found that 2023 was the hottest year in data records going back to 1850, with an average temperature of 1.48°C warmer than the pre-industrial average. Unfortunately, this has persisted in 2024, with June 2024 being the warmest June on record worldwide. In Saudi Arabia, over 1,300 people died as a result of heat-related illnesses during the Hajj pilgrimage. In the nine days between 16 to 24 June, nearly 5 billion people were exposed to extreme heat, including 620 million people in India and 579 million in China.
Climate change has made extreme weather events such as heatwaves more frequent, intense, and prolonged. Extreme heat adversely affects one’s cognitive abilities and emotional responses, making us less logical, more angry and more aggressive. It exacerbates pre-existing conditions and can be deadly.
In addition to mortality rates and public health, it also has a huge impact on businesses and economies. Take infrastructure as an example: vital infrastructure such as power grids, mobile networks, data centres, roads, and airfields may fail as a result of intense heat stress, leading to power outages, loss of communications, and flight cancellations, causing significant economic losses.
Climate adaptation in extreme heat
The rising threat of heatwaves highlights the urgent need to focus on climate adaptation and resilience.
Following the 2003 European heat wave that killed an estimated 70,000 people, France became one of the first countries to create a national heatwave plan that incorporated early warning systems, mandatory insulation in construction regulation, and the replacement of tarmac with other reflective materials.
Since then, many cities around the world have formulated plans to future-proof their communities and infrastructure to make them climate resilient. One example is Ahmedabad in Gujarat, India, which launched its heat action plan in 2013, one of the first in South Asia. In addition to building community awareness, initiating an early warning system and capacity building among healthcare professionals, the plan also includes a low-cost cool roofs programme for commercial and residential buildings, with the purpose of saving energy, increasing thermal comfort and reducing cooling demand. A study that evaluated the effectiveness of the Ahmedabad plan found that an estimated 2,380 deaths were avoided as a result.
The above examples highlight that, if done right, adaptation initiatives can bring multiple benefits by reducing future losses, delivering economic benefits through risk mitigation and management, and bringing better social and environmental outcomes. However, despite its importance, climate adaptation initiatives received only 5% of total climate finance in 2021 to 2022. The 2023 UN Adaptation Gap Report puts the adaptation financing gap at US$194 to 366 billion per year.
While governments and international development banks have been key in financing some of these initiatives, it is clear that private financing will become increasingly important in achieving rapid and ambitious adaptation. For companies and investors, this creates potential opportunities in a range of critical sectors, such as infrastructure, transportation, energy, and agriculture.
Supporting climate adaptation
Investing in adaptation not only reduces risks and economic losses, but also boosts productivity and sparks innovation, providing net economic benefits of between two to ten dollars for every dollar invested, according to the Global Commission on Adaptation. Further, research by Climate Alpha suggests that “investing early in climate-resilient geographies will generate more than 70% higher returns on real estate portfolios by 2030 alone”.
As the urgency to avoid climate-related losses grows – and taking into account factors such as changing consumer demand, emerging technologies and operational necessities – there will be additional opportunities for the private sector to invest in adaptation. A deeper understanding of climate impacts and risks would allow the integration of climate risks into business models and guide investment decisions.
One often cited challenge in achieving scale in climate adaptation, and indeed in climate mitigation initiatives, is a lack of expertise in mobilising climate finance. An understanding in sustainable finance taxonomy, sustainability disclosures, climate risk management, policy incentives, and the latest financing products structures are among the most sought-after skillsets.
The importance of capacity building
In view of this, the Capacity-building Alliance of Sustainable Investment (CASI) was set up with the aim of delivering high quality, high impact sustainable finance capacity building services in emerging markets, in order to accelerate the market development of sustainable finance and create more investable and bankable climate projects.
Since its inception in 2023, CASI’s membership has grown to include international knowledge providers from supranational agencies, climate think tanks, international consultancies, and global financial institutions. Collaborative initiatives like CASI play a pivotal role in capitalising on these opportunities by fostering knowledge-sharing, capacity-building, and strategic partnerships across global markets. By offering targeted programmes, seminars, and bespoke capacity-building services, CASI’s target is to train 100,000 people globally by 2030.
As a founding member of CASI, the CFA Institute will leverage on its expertise in sustainability research and educational offerings to accelerate capacity building, raise professionalism, and promote efficient capital allocation. Our research on climate and net zero investing is available to all and can be accessed on the CFA Research and Policy Centre. This research is further supported by a suite of educational offerings.
So, as we brace for yet another sweltering summer, it is clear that climate adaptation and its financing is a pressing necessity. The private sector has an important role to play, and with proactive capacity building and strategic initiatives, these scorching challenges can be transformed into opportunities for a more resilient future.
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