Climate change requires risk management. It is the ultimate “threat multiplier” for its potential to make other risks worse. If unaddressed, it could significantly undermine economic growth and make our efforts to achieve other development goals nearly impossible.
In many ways, the financial sector is the foundation of sustainable and climate-resilient development. Financial institutions, lenders, investors, and insurers sit at the heart of climate risk and are the cornerstone of resilience, precisely because each actor in the financial ecosystem is fundamentally a risk manager. And from the understanding of risk – in a real financial sense – will come the opportunities to invest in businesses that are resilient and sustainable.Financial actors have yet to integrate and account for climate risks in a systematic way across all lending and investing, though. Nor have they started to see resilience as a sufficient business or investment opportunity. While insurers and ratings agencies are starting to discuss (and perhaps integrate) climate risks, most of the rest of the industry lags when it comes to assessing or pricing in the risks resulting from climate-related events. According to BlackRock, most equity investors overlook climate risk, credit investors do not routinely or adequately assess it, and property markets often ignore it, even in highly exposed coastal areas. This notwithstanding clear signals from the business community that climate change brings a cost to operations. In the recently published report Business Opportunities in a Changing Climate, over a third (36%) of all climate risks scored by businesses were marked as having a “high cost” to operations.