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A "Virtual Green Bank" for Adaptation, UN Pact for the Future, Heat Tech, and More

USAID, The Lightsmith Group team up to launch adaptation finance platform

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A “Virtual Green Bank” for Climate Adaptation

Climate proofers rejoice! A new climate finance platform is launching, with ambitions to become a one-stop-shop for adaptation and resilience investments.

The Systemic Capital for Adaptation Localization and Expansion program (‘SCALE’) is the brainchild of The Lightsmith Group, a private equity investor in adaptation companies, and the US Agency for International Development (USAID). SCALE aspires to become a climate finance superstore that offers private businesses a variety of equity and credit instruments along with the technical assistance needed to power their climate-proofing ambitions.

Jay Koh, Lightsmith Group managing director, says SCALE could be a “virtual ‘green bank’ for adaptation,” adding that climate-proofing tech represents an “‘unavoidable opportunity’ potentially as large or larger than global investment in decarbonization.” Readers can listen to Jay Koh expand on this investment thesis in Episode 14 of Climate Proofers.

SCALE also plans to map out the emerging climate resilience economy and spotlight those technologies and sectors that can support climate-proofing efforts. Initial focus areas include agricultural analytics, water efficiency and smart water management, and support for nature and biodiversity.

USAID is fronting the money to power SCALE through its Adaptation Finance Window, which “aims to de-risk the development and scaling of companies and investment vehicles that mobilize private finance for climate adaptation.” 

Tracking Private Sector Adaptation Finance

To produce its latest report, the nonprofit Climate Policy Initiative (CPI) had to channel its inner Sherlock Holmes. Its objective? To track down private sector investment in adaptation.

The CPI has tried to sum adaptation finance flows for years, and published its most recent numbers in the 2023 Global Landscape of Climate Finance report. This ballparked adaptation finance at US$63bn in 2021/22. However, just US$1.5bn of this — 2% — came from private sector sources. 

The new report acknowledges that the actual amount of private sector investment “is likely significantly higher” than that captured to date. The problem is that there are no reliable tracking efforts underway to flag investments in adaptation-focused businesses and climate-proofing startups, or to tally up spending on adaptation solutions and technologies by consumers and corporates.

To remedy this, the CPI is floating a new taxonomy for private adaptation finance tracking and a machine learning model that can identify adaptation-relevant investments and spending. Using these, the CPI was able to unearth some US$4.7bn in capital flows to adaptation-relevant activities (calculated on an annual average basis).

Private Adaptation Investment By Adaptation Likelihood

The criteria used to determine “adaptation relevance” borrow from existing taxonomies from Tailwind Climate and the Climate Bonds Initiative. Under the CPI’s rubric, there are four tests that must be passed before private finance gets the “adaptation” label: the finance deployed must go to people and/or assets in high physical climate risk areas; it must be used to reduce physical risk impacts to the activity where it is directed, to other economic activities, or to reduce “systemic barriers to adaptation”; it must have adaptation outcomes that can be clearly defined and quantitatively or qualitatively measured, and use “the best available knowledge” to provide solutions.

While the CPI approach has uncovered billions more in adaptation spending, there are questions as to its quality. The group found that around 16% of the finance flows identified have a “low likelihood” of being adaptation relevant. Moreover, 27% of flows were tagged as having a potential for maladaptation or causing significant harm to other social and environmental objectives.

57 US Banks at “Material” Risk From Climate Shocks

Monstrous storms, like Hurricane Helene — which last week rampaged through the southeastern US killing dozens and causing untold personal, economic, and financial ruin — have the power to wipe entire communities off the map. 

They also have the potential to knock down entire banking networks, robbing disaster-struck areas of local financial services when they are most needed.

That’s the conclusion of a new report from First Street, a climate risk modeling firm. The company applied its unique risk model and found that 57 lenders could suffer material damages from a 1-in-100 year extreme weather shock. While this indicates high vulnerability only under a rare event, it’s important to remember that supposedly unlikely extreme weather disasters are becoming more common because of climate change.

For its analysis, First Street gathered the geolocational data of nearly 20,000 bank branches belonging to 191 banks. The assessment group was limited to those firms with at least 20 branches. These were then tested under the First Street Correlated Risk Model (FS-CRM), which estimates potential losses from multiple climate hazards using techniques borrowed from the catastrophe modeling industry. 

This showed that climate shocks have the potential to inflict US$2.4bn in gross damages to these bank branches, about 1.5% of their combined value. While seemingly innocuous in the aggregate, it's in the distribution of the potential losses where things get interesting. First Street says 57 banks could see greater than 1% losses to the value of their branch portfolios under the 1-in-100 year shock — the threshold US regulators deem to be material for financial disclosures. This group of vulnerable banks oversees some US$627bn of real estate loans across the country. 

Probability Exceedance Curve Of Current And Future Net Damages By Bank Class Under A SSP2-4.5 Scenario

Most of these are small, community banks with concentrated branch networks. These lenders generally extend credit to people and properties that are geographically close to their branches, which suggests that climate risks could deal a heavy blow to their loan portfolios as well as to their own property holdings. The end result could be a series of  messy collapses and localized financial crises should a string of climate hazards hit.

“When a large regional bank fails, it can create severe economic disruptions within its region, particularly if it is a major lender to local businesses or a primary financial institution for a significant portion of the population,” the report reads. “The failure of such a bank might lead to a credit crunch in the affected region, making it difficult for businesses to secure loans and for individuals to access their savings or other financial services.”

Other Stuff

How the world’s climate financing hinges on the US election (Fast Company)

IDB supports Chile to accelerate the transition to a carbon-neutral and resilient economy (Inter-American Development Bank)

Bahamas seeks help to pay off debt brought by huge storms, result of climate change (abc)

Biden-Harris administration announces nearly US$715mn to help communities across the nation build resilience to flooding disasters through Investing in America agenda (FEMA)

Michael R. Bloomberg and Mary Schapiro announce beta launch of platform to support financial institutions seeking to build climate finance technical capacity and resources (Bloomberg Philanthropies)

Western philanthropies drum up climate finance ahead of UN meetings (Financial Times)

Climate Hope and Fear at the UN General Assembly

A week on from the UN General Assembly, the horde of diplomats who gridlocked the New York City streets are heading home. The traffic troubles will soon be a distant memory. So too could the week’s climate promises.

Ahead of a two-day “Summit for the Future” hosted by UN Secretary General António Guterres at the start of last week, Reuters reported that a “growing mistrust” between nations could hamper progress on climate goals. 

This was in full display during a contentious debate on the adoption of the “Pact for the Future” by UN member states. This package of 56 actions is designed to revive cross-country cooperation on pressing global issues, including on climate change. Russia, Iran, and a slate of allies tried to water down the Pact via an amendment, but were beaten back by a bloc of African countries. Russia claimed the Pact was written by western countries that had ignored its own requests for “intergovernmental negotiations” on the text.

The adopted version of the Pact obliges members to strengthen climate adaptation efforts. The text references a need to double adaptation finance “to support the urgent and evolving need to accelerate adaptation and build resilience in developing countries.” It also calls on multilateral development banks to “mobilize additional financing to support adaptation.”

While brimming with lofty pledges, the Pact falls short when it comes to information on how its goals can be achieved. Moreover, with Russia already distancing itself from the Pact and other nations railing against a “West-led World Order”, its momentum is already in danger of stalling.

On the fringes of the UN General Assembly, talk on the future of multilateral climate policy was dominated by forthcoming elections — not least the US presidential election this November. “I think everybody is absolutely holding their breath and saying, in every single election across this planet, is it going to be more populist withdrawal from global cooperation?” said The Rockefeller Foundation president Rajiv Shah at an event hosted by Axios.

Similarly, at an event on climate resilience held by Tailwind Climate last Thursday, Jason Glaser, CEO at La Isla Network, said: “Everything’s political. What is coming in November, it is going to put a lot back if it goes one way. We shouldn’t fool ourselves.”

Biden Touts Climate Legacy in New York

President Biden took a bow for his climate achievements at Climate Week NYC, claiming that “[i]n the face of the dangerous and deadly impacts of climate change”, his administration is making cities and towns more resilient and advancing environmental justice.

In last Tuesday’s speech at the Bloomberg Global Business Forum, Biden riffed on the state of US climate preparedness at the start of his tenure and how it has changed today.  “[W]hen Kamala and I came into office, there was no real plan in place to do anything about it [climate risk].  As a government, we were doing nothing — virtually nothing.”

Now, he says that the Inflation Reduction Act — “the most significant climate law ever passed in the history of the world” — has opened the door to unprecedented clean energy development and innovation, as well as meaningful action of adaptation and resilience. Among the climate-proofing changes made while he has been in the White House, Biden highlighted the 80,000 US farms that now are implementing “climate-smart” agriculture and progress toward a conservation target covering 30% of all US lands and waters by the year 2030. 

I’ve toured the communit[ies] ravaged by tornadoes and floods and more … that cost lives and livelihoods, [and] costs taxpayers billions of dollars in damage.

President Biden

“The Inflation Reduction Act is also the most significant law ever advancing environmental justice for disadvantaged and so-called fence-line communities, like Cancer Alley in Louisiana or Route 9 corridor in Delaware,” said Biden. “We’re making sure these communities receive 40 percent of the benefits … of the key investments in pollution reduction, clean energy, and infrastructure.”

In comments ahead of the speech, Ali Zaidi, White House national climate adviser, said Biden’s speech was pitched to show how the US has changed the climate “playbook” by showing how fighting climate change and adapting to its effects represent “a massive economic opportunity … and a chance to build the American middle class.”

Other Stuff

US actions to tackle sea-level rise at home and abroad (US Department of State)

NFL and FEMA launch national strategy to build resilience in communities, designate venues as mission ready locations during disasters (FEMA)

FEMA releases new resources to help communities prioritize Inflation Reduction Act projects, implement low-carbon and net-zero energy solutions to promote national resilience (FEMA)

US voters strongly support the Polluters Pay Climate Fund Act (Data for Progress)

US Department of Housing and Urban Development: Extreme Heat Playbook (HUD)

Improving school infrastructure benefits students, the economy, and the environment (Joint Economic Committee Democrats)

UK Rural Flood Resilience Partnership launched to help farmers and rural communities adapt to a changing climate (Environment Agency / Natural England)

Scottish National Adaptation Plan 2024-2029 (Scottish Government)

Apolitical receives US$2mn Bezos Earth Fund grant for climate change training for public servants (tech.eu)

Atlantic Council announces Jorge Gastelumendi as senior director of the Climate Resilience Center  (Atlantic Council)

The Rockefeller Foundation identifies critical gaps in city responses to climate-induced health threats (The Rockefeller Foundation)

CWNYC: Heat Tech Takes Center Stage

Extreme heat was the subject of a host of Climate Week NYC events, along with the growing stable of tech solutions designed to counter its effects.

At Tailwind Climate’s panel on extreme heat and health innovation, an array of heat tech company founders sounded off on the challenges and opportunities related to this particular climate peril, and explained why more innovators are needed in this space.  

Here’s a round-up of the solutions discussed for those feeling the FOMO:

Matt Anderson is the founder of Cyrogenx, a startup working on portable body cooling tech that can be used to combat heat stroke. “Our initial strategy is focusing … on occupational healthcare settings, people across defense, construction, utilities, oil and gas, professional sports, anywhere where occupational workers are forced to be within extreme heat and also exert during their occupation. That’s where we see the most pressing demand from that case. But we really do see this scaling to be a universal healthcare tool.” (Tailwind Climate is an investor in Cyrogenx).

Ibbi Almufti, a principal at engineering firm Arup, touted the spin-off of an intelligence platform used to assess climate hazards to physical projects and develop resilience strategies: “We went hazard-by-hazard: flood, hurricanes, tornadoes, wildfires, to help them [clients] understand what the impact could be on people and operations and what to do about it. We developed a platform, called Iris, that we’ve been using for several years to help deliver these services to organizations like corporates, higher ed, affordable housing developers, communities and governments.” This platform, Iris, is now being housed in a standalone company that Almufti will run.

Nakita Devlin, founder at Ric, talked about her company’s mission to bring affordable, fast-paying insurance policies to communities and businesses vulnerable to climate risk: “We create micro-parametric insurance [policies], that are under US$50 a month that offer US$10,000 payouts that address climate-related challenges around rainfall, flooding, extreme heat and wildfire.” The company’s intended customers are employers with workforces that operate in climate-vulnerable settings and consumers that tap its resources directly. The idea is that the insurance payouts offer a financial bridge to affected policyholders, helping them bounce back when their workplace, home, or vehicle is out of commission.

Other Stuff

Sorry, AI won’t “fix” climate change (MIT Technology Review)

New Earth observation technology to expand insights on climate change, natural disasters, and more (ISS National Observatory)

City of Boston hosts Deployables Day to showcase flood protection and preparedness (City of Boston)

European VC Investment in Climate Tech Q3 2024 (Pitchbook)

75% of farmers are open to innovation to cope with climate change: 2024 Farmer Voice survey (AgroSpectrum)

RESEARCH

Four ways climate change likely made Hurricane Helene worse (Yale Climate Connections)

Are we adapting to climate change? (National Bureau of Economic Research)

Adaptive measures to deal with the next pandemic caused by climate change in at-risk groups (BMC Psychiatry)

Defining climate change adaptation and disaster risk reduction policy integration: Evidence and recommendations from Zambia (International Journal of Disaster Risk Reduction)

Thanks for reading!

Louie Woodall
Editor