"Adaptation Smart" Credit Ratings, UK Flood Task Force, the Resilient Planet Finance Lab, and More

🗽 Climate Week NYC is almost here! If you’re in the Big Apple next week, do consider swinging by the Climate Proof Adaptation Happy Hour on Tuesday, September 24.

Looking for more adaptation and resilience themed events? Our friends at Tailwind Climate have you covered. Explore their events calendar HERE.

Today in Climate Proof:

Finance:

• Time for “Adaptation Smart” Sovereign Credit Ratings

Policy:

• UK Launches Flood Task Force

Tech:

• One Year of the Resilient Planet Finance Lab

Research:

• Another round-up of papers and journal articles on all things climate adaptation

Time for “Adaptation Smart” Sovereign Credit Ratings

Investors in the US$64trn sovereign bond market may not be factoring climate physical risks or adaptation measures into their decision-making properly, according to new research out of the University of Oxford and partners.

Institutional investors — including pension funds and insurance companies — buy and hold government debt as a core part of their investment strategies. Often, they rely on credit ratings provided by S&P Global, Moody’s, and Fitch to help choose which bonds to buy, and which to leave well alone.

These ratings, though, may be lowballing sovereign issuers’ exposure to climate shocks, and discounting the climate-proofing activities taken to protect their economies. The researchers say these blindspots cause sovereign debt risks to be mispriced, with worrying implications for global financial stability and economic growth. After all, if major investors take unexpected losses from bonds highly exposed to physical risks, they could collapse — and take other institutions down with them.

To fix these blindspots, the researchers present a way to create “adaptation smart” ratings that incorporate the impacts of extreme weather shocks and climate adaptation efforts. Applying this methodology, they found that physical risk effects on sovereigns could be much greater than previously estimated, but also that most could be offset through smart adaptation investments.

Using Thailand as a case study — a country all too familiar with climate risks — the researchers estimated that extreme flooding could force a four-notch downgrade to its sovereign rating. However, this shock could be lessened if the country invested in flood adaptation measures, which could cut projected annual capital stock losses by nearly two-thirds.

The researchers believe their approach could help sell governments on the idea of “large-scale adaptation investments.” Lower credit ratings lead to higher borrowing costs for governments. This means that by maintaining strong ratings through adaptation, they could actually save money over time.

The Climate Investment Trap for Adaptation

“It is time for credit ratings agencies to get adaptation smart,” wrote Dr Nicola Ranger, a contributor to the research, on LinkedIn. “Our analysis underscores why credit rating agencies should factor in climate risks and adaptation efforts when evaluating sovereign creditworthiness. Doing so would provide not just a more accurate picture of risk but also incentivize both governments and the financial sector to invest more in climate adaptation.”

Other Stuff

USDA invests nearly US$121mn in specialty crops research and organic agriculture production (US Department of Agriculture)

African Development Bank provides US$102.79mn to support farmers through climate resilient Special Agro-Industrial Processing Zones infrastructure in Guinea, Senegal, and Togo (African Development Bank Group)

UK Launches Flood Task Force

The UK government has established a crack team to prepare for and defend against flood risks. 

The Floods Resilience Taskforce convened for the first time last Thursday (September 12). At its first meeting, the group discussed improving coordination on flooding preparation and resilience across different levels of government and finding ways to speed up development of the UK’s flood defenses.

Set up by the Department for Environment, Food and Rural Affairs (DEFRA), members of the Taskforce come from across government departments, as well as the Environment Agency, Met Office, National Farmers Union, and community-level stakeholders. The Taskforce is chaired by Floods Minister Emma Hardy.

Going forward, the Taskforce will identify and protect flood-risk areas and promote the implementation of effective flood defenses, drainage systems, and community-based flood management schemes. It also has a mission to take a long-term, strategic approach to flooding challenges — which includes making sure national infrastructure is climate resilient. 

“The climate crisis is the greatest global challenge we currently face, and as an eyewitness to extreme flooding myself, I know the devastating impact these events can have on our livelihoods,” said Hardy. “As chair of the Floods Resilience Taskforce, I will work closely with our partners to ensure projects remain on track and not only protect homes but create more green jobs and drive investment in our towns,” she added.

The Taskforce reflects a promise in the Labour Party’s manifesto to “improve resilience and preparation across central government, local authorities, local communities, and emergency services.”

It will meet again in early 2025, where members will discuss “longer-term oversight of wider flood resilience strategy and investment” and any lessons from responses to major flooding events.

Other Stuff

Readout of first-ever White House summit on extreme heat (The White House)

Readout of White House, Department of Agriculture, and Environmental Protection Agency roundtable on financing climate smart agriculture (The White House)

US lawmakers Van Hollen, Nadler, Chu introduce legislation to make polluters pay for fueling climate change (Senator Chris Van Hollen)

EPA launches new website to support the development of climate-resilient projects (US Environmental Protection Agency)

Australia passes law to begin mandatory climate reporting in 2025 (ESG Today)

Annual Review 2024 — Preparing for Ireland’s Changing Climate (Climate Change Advisory Council) 

Conflict, climate and extreme poverty: time for a new approach (Speech by David Miliband, President and CEO, International Rescue Committee)

One Year of the Resilient Planet Finance Lab

The Resilient Planet Finance Lab is not yet one year old, but it’s already made a splash in climate data world.

Its annual report, released last week, lists an array of initiatives at the intersection of climate resilience, AI, geospatial data, and the investment and insurance industries.

First, let’s rewind. The Lab was set up last November as part of the Resilient Planet Initiative — a research and innovation partnership launched at COP28 to advance the Sharm el-Sheikh Adaptation Agenda. Its purpose is to produce data and analytics that unlock finance for adaptation, resilience, and nature goals. 

At the helm is Dr Nicola Granger (also mentioned above), a top-flight adaptation expert who starred on Climate Proofers earlier this year. As Director, she has helped the Lab rack up a slate of achievements, chief among them the Resilient Planet Data Hub, an open resource that collates information on climate hazards, infrastructure networks, and land use. It can be used by public and private investors to make climate-informed capital allocation decisions. The Hub has already been used this year to improve climate scenario analysis activities focused on financial resilience-building.

In addition, the Lab has leveraged generative AI to assess companies’ alignment with adaptation goals and is working on integrating its analytics into data platforms developed by Climate Arc — a nonprofit specializing in tracking company-level climate performance data.

It’s also collaborating with the United Nations Environment Programme Finance Initiative (UNEP FI) to produce metrics that banks can use to better align their activities with adaptation and resilience goals. There’s even a workstream focused on solving one of Climate Proof’s own bugbears — sorting out the profusion of adaptation taxonomies used by companies, investors, and public bodies.

Looking to next year, the Lab says it will continue producing adaptation data and analytics for financial entities, and workshop new methods for assessing the alignment of firms with adaptation and nature goals. It will also advance its broader research efforts into the climate-nature nexus.

Other Stuff

Earth Finance expands global expertise with acquisition of Water Foundry (Earth Finance)

Farms of the future: How can AI accelerate regenerative agriculture? (World Economic Forum)

Is cooling paint the key to turning down the planet’s temperature dial? (Tech Xplore)

Water Resilience Tracker enables cross-sectoral collaboration (International Water Management Institute)

School districts race to invest in cooling solutions as classrooms and playgrounds heat up (Minnesota Star Tribune)

Helping farmers navigate climate change? There’s an app for that (Mercy Corps)

Why drinks giant Diageo is investing in cutting-edge tech (Technology Magazine)

RESEARCH

Improving adaptation assessment in the IPCC (npj Climate Action)

Beyond the dikes: flood scenarios for financial stability risk analysis (IMF Working Papers)

Central Europe floods may be the worst since 2002 (Climate Centre)

Cyclone Gabrielle was intensified by human-induced global warming (NIWA)

Thanks for reading!

Louie Woodall
Editor