Let’s Talk About Building Resilience
Mark Crouch, Decarbonisation Discipline Lead at Mott MacDonald, outlines the importance of bridging the language gap between physical infrastructure and finance.
Since July, the new UK government has been setting out a refreshed approach to delivering and enhancing national infrastructure, with a strong emphasis on the importance of unlocking private investment.
Of the 40 new bills announced as part of the King’s Speech, over a quarter were in some way related to infrastructure. While this emphasis is not unusual in a parliamentary programme, it has come with a clear message from HM Treasury that it is seeking private partners to deliver an agenda centred around green growth. This is most clearly exemplified through the launch of National Wealth Fund (NWF) – designed to encourage strategic investment in ports, gigafactories, clean energy and manufacturing.
While the focus for investment is on green industries and decarbonisation, the importance of ensuring infrastructure is resilient to physical risk – like more extreme weather caused by the climate crisis – as well as transition risk is noticeably missing from the mainstream policy conversation. This applies not only to existing assets but also to the new infrastructure that’s part of the green growth agenda too.
This matters, because while investors are getting more comfortable aligning their investment plans with environmental requirements – such as the Financial Conduct Authority’s Sustainability Disclosure Requirements (SDRs), and the International Sustainability Standards Board’s (ISSB) sustainable disclosure standards – there is a disconnect when it comes to resilience.
Greater collaboration between government, infrastructure and finance professionals will be vital to generate the investment necessary to help protect assets long-term.
But the first step to achieving this is to get them speaking the same language.
Communicating the value
The failure of resilience investment to keep up with what is required was laid bare by the updated London Climate Resilience review, published hours before the State Opening of Parliament in July.
Commissioned by the Mayor of London, the report highlighted the capital’s unpreparedness for dealing with the risks and economic and public health implications of more frequent and severe extreme weather.
This included forecasts that climate change will impact London’s GDP by 2-3% by 2050, as a result of challenges like subsidence, which could affect almost half (43%) of London’s real estate by the end of this decade. Having homes, businesses and public infrastructure like hospitals unfit to face the tests of a changing climate poses serious consequences for the economy and people’s lives.
Yet despite the stark warnings, less than 10% of all climate finance is currently directed towards improving resilience. Communicating the benefits – and penalties – of resilience investment is essential to address this imbalance.
Until recently, there has been a lack of a standardised process methodology to measure the risk of physical climate change impacts on the resilience of a specific asset. Without this common language, communicating the value of investing in resilience is often difficult, because it’s more challenging to make consistent and strategic decisions. For investors and asset owners to play their role in protecting the UK’s infrastructure, they need to understand the scale of the task at hand and how funding can best be allocated to tackle it.
Fortunately, progress is being made on this front. The Physical Climate Risk Methodology (PCRAM) helps bridge this gap, providing a consistent data-driven approach to evaluating climate risk.
Developed through the Coalition for Climate Resilient Investment (CCRI), in partnership with Mott MacDonald, it looks at a range of likely climate scenarios performing a cost-benefit analysis of investing in resilience. This type of robust and rigorous assessment is vital in informing a compelling business case for investment.
Driving outcomes
Such methodologies are imperative for the investment community, which needs confidence that its money is going to be spent strategically, securing maximum economic and social returns and demonstrating alignment with regulatory standards. Data-driven approaches can also be easily applied to a range of different assets and scenarios, meaning they can be adopted at scale and across the globe – helping investors identify where best to target capital to ensure it delivers the greatest benefit.
A new set of real-world PCRAM case studies, published by the Institutional Investors Group on Climate Change (IIGCC), show how it delivers demonstrable benefits. Crucially, the case studies find that, beyond simply mitigating the risks of climate change, making better decisions about resilience creates the exciting possibility of tangible upside, like improved credit quality and lowering the barriers to accessing finance.
While less focused on influencing investors, standards such as PAS2080 – established in 2016 to improve the management of carbon in buildings and infrastructure – demonstrate the positive impact that rigour can achieve when attracting investment and improving outcomes. By looking at the whole value chain, it aims to reduce carbon and cost through intelligent design, construction and use. Its robust data-driven approach helps to communicate the value of investment to financial backers, acting as a common language that informs effective funding decisions.
Towards a greener future
By providing a common language, standards such as PAS2080 and methodologies like PCRAM help to foster greater collaboration between the public and private sectors. Politically, this alignment is essential to support the UK government’s legislative programme. Societally, it is what will make the difference when facing the climate crisis, ensuring that infrastructure assets are protected and that the communities they support can continue to thrive.
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