Climate Risks Amp Government Borrowing Costs, EU Must "Urgently Strengthen" Adaptation, Verisk-S&P Partnership, and More

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Last week, I was noodling on the adaptation-markets nexus. It turns out to be a popular pastime.

A recent paper makes a forceful case for “economic development” – which I understand to be a stand-in for “market-driven growth” – as the lever for improving adaptation. This holds that most “climate-sensitive outcomes” (such as crop yields, human health, and climate-related damages) have been improving in most places because of “economic development and the corresponding opportunities for better infrastructure and technology.” 

The authors further argue that because “adaptation and economic development” (the two are often conflated) yield “local and immediate benefits” for affected populations, they are “easier to align with political and market incentives” relative to climate mitigation – which has largely global benefits that do little to change outcomes at the micro level.

Put another way, adaptation could simply come about as a convenient by-product of strengthening economic development and fostering innovation. In other words, as societies grow more well-off, they should automatically become more climate resilient. 

It’s a laissez-faire flavored argument which makes sense given the affiliations of the authors, who hail from organizations like the Hoover Institution and American Enterprise Institute that lean towards free markets. While the paper argues for state intervention to a point — saying governments and philanthropists should ramp up R&D funding for adaptation and mitigation technologies — their belief in markets as a powerful ally of adaptation is explicit.

Not everyone is convinced of this argument, though. In a response, Marshall Burke of Stanford University makes the point that in some places, climate impacts are becoming such a headwind to GDP growth that economic development may not happen at all — and if these areas do not become richer, they cannot become more resistant to climate harms. He further argues that we still don’t really know what adaptation and economic development efforts actually work at sub-global scales. While some development policies may work to climate-proof vulnerable communities, others may not — making blind faith in this approach a mistake.

What do I think? Like any good old-fashioned social democrat, I believe the state should “not row, but steer”. Put simply, governments — and yes, international organizations like the UNFCCC — should set strategic direction, policy, and goals that can then be executed on by private actors. 

This does not mean forcing markets to achieve adaptation in a prescribed way. But it does mean setting boundaries around how they operate. In highly climate-vulnerable parts of the world, a simple push for economic development may not cut it. More targeted, context-specific interventions may be required. 

For certain private industries, it may mean that new rules, regulations, and – yes – taxes are justified if short-term profit maximization does not align with improving climate-sensitive outcomes.

In this way, adaptation is like anything else when it comes to public-private collaboration: progress depends on a little give-and-take.

Louie Woodall
Editor, Climate Proof

Climate-related disasters can raise governments’ borrowing costs — particularly when they have outsized economic impacts on the host country, new research from the European Central Bank (ECB) says.

The cross-country study, spanning more than 50 countries over two decades, finds mounting evidence that climate risk is now being priced directly into global bond markets. It separates transition risk — captured through carbon emissions intensity — from physical risk, including both long-term temperature shifts and acute disasters such as floods, storms, and droughts.

While on average physical climate shocks do not uniformly raise borrowing costs, when the severity and frequency of disasters are accounted for — and the fiscal conditions of the affected country — the market response becomes clearer. Storms and droughts produce the largest and most persistent yield increases, especially in high-debt countries. In these nations, storm shocks can lift yields by roughly 66 basis points over two years for a typical advanced economy and more than 140 basis points for an emerging market borrower.

In contrast, low-debt countries tend to experience smaller and more fleeting yield increases, as investors bet on governments stepping in to absorb the costs of rebuilding after disasters while keeping their debt piles sustainable.

The results suggest that preserving fiscal headroom is important for climate-vulnerable sovereigns looking to keep a cap on their borrowing costs.

The Trump administration is defying a federal court order to restore the Federal Emergency Management Agency’s (FEMA) US$4.5bn Building Resilient Infrastructure and Communities (BRIC) program, forcing more than 2,000 disaster mitigation projects to stall nationwide. Despite a December injunction requiring the agency to reinstate funding, state attorneys general say FEMA has taken no visible steps to revive BRIC or release two years of suspended grants, jeopardizing public school safe rooms in Wisconsin, hospital seismic upgrades in California, and a US$50mn flood barrier in Massachusetts. (Grist)

The European Banking Authority says banks’ exposure to physical climate risk remains highly uneven across the bloc, with wide dispersion both across and within countries. Public data from second-quarter 2025 risk disclosures show that median exposure to physical-risk-sensitive assets remains relatively contained. But a small group of banks report far higher shares — in some cases nearing or exceeding 80–90% of total holdings. This variation reflects ongoing challenges mapping hazards such as floods and heat across diverse geographies and asset portfolios. (European Banking Authority)

Fidelity International, BNP Paribas Asset Management and Amundi have joined an emerging coalition of risk managers and insurers to build an open-source framework for putting hard numbers on the financial toll of climate change. The initiative, convened by French corporate risk body AMRAE, plans to create a materiality-based scoring system based on asset-level inspections rather than satellite proxies, capturing how physical hazards and adaptation measures affect products, cash flows and the bottom line. (Responsible Investor)

Investment firm Tailwind Futures has achieved a first close of its inaugural venture fund, Tailwind Futures Fund I, Climate Proof understands. The fund will back early-stage climate adaptation and resilience technology companies. Tailwind has already invested in start-ups including climate risk modeling startup Class 3 Technologies and climate-resilient copper alternative manufacturer DexMat. The firm did not disclose the size of the first close. (Climate Proof)

The Canadian Climate Institute says local and federal governments could save as much as CAD$10bn a year by climate-proofing roads, bridges, storm sewers and water systems against rising heat and heavier rainfall. According to a new report, proactive adaptation would cost about CAD$3bn annually, just 2.5% more than current repair spending, while cutting climate-related infrastructure losses by nearly two-thirds. (Canadian Climate Institute)

One in nine UK houses built between 2022 and 2024 are located in areas already facing medium or high flood risk — up from 8% over the previous decade. The analysis from insurer Aviva shows more than a quarter of recent new builds face some level of flood exposure today, rising to 30% by 2050 as climate impacts intensify. By mid-century, one in seven of these homes will sit in medium or high-risk zones, and unlike older properties they are excluded from the Flood Re scheme, raising future insurability concerns. (Aviva)

Europe needs to end its patchwork approach to climate risks and “urgently strengthen” its adaptation planning, a report by the European Scientific Advisory Board on Climate Change says.

With Europe already warming roughly twice as fast as the global average and climate damages accelerating, the Board argues that the “fragmented and largely reactive adaptation efforts” tried so far must become a thing of the past. Instead, the bloc should embrace a harmonized set of climate scenarios to anchor adaptation planning across the European Union. A common reference pathway consistent with 2.8°C to 3.3°C of global warming by 2100 should be used as the minimum baseline for resilience planning, they add.

More extreme scenarios pathways, projecting up to 4°C of warming, should be deployed for stress-testing infrastructure, national budgets, and additional adaptation options. Harmonization, the report argues, would improve comparability across sectors and countries and create a level playing field for corporate reporting and financial supervision.

Other recommendations from the Board include setting a legally anchored vision for a climate-resilient EU by 2050 with measurable adaptation targets. The bloc’s new climate resilience and risk management initiative aims to achieve this by creating an “integrated framework” for preparing countries for worsening floods, fires, and other perils. It also urges policymakers to embed “climate resilience by design” across policies, and mobilize public and private finance for adaptation at scale.

The International Organization for Standardization has launched a refreshed climate adaptation planning standard for local governments and communities. ISO 14092:2026 sets out a structured process for municipalities and other place-based organizations to establish adaptation governance, assign roles, assess and prioritize physical risks, implement climate-proofing measures, and track progress over time. Replacing the 2020 technical specification, the updated standard adds practical implementation guidance and tools aimed at closing the persistent gap between risk assessments and real-world delivery. While targeted at local governments and communities, the standard is relevant to any organization managing location-based climate risks. (International Organization for Standardization)

The UK and California signed a new five-year memorandum of understanding that calls for joint work on climate risk insurance for extreme weather, water management and biodiversity protection, alongside other climate mitigation and adaptation objectives. The memo also calls on officials from the UK’s Department for Energy Security and Net Zero and the California Environmental Protection Agency to draft an action plan and launch policy exchanges and pilot projects focused on grid reliability, building retrofits and long-duration storage that can withstand intensifying climate shocks. The pact carries no funding and creates no legal obligations. (UK Government)

The American Academy of Actuaries is urging the National Science Foundation to halt plans to dismantle the National Center for Atmospheric Research (NCAR), warning the move would destabilize the scientific backbone of US insurance markets. In a letter to Acting Director Brian Stone, the 20,000-member professional body said NCAR’s open-access climate datasets and community models are foundational to catastrophe modeling, pricing and capital adequacy decisions across property and casualty insurance. Losing these tools would heighten uncertainty around climate hazards, forcing insurers to recalculate loss assumptions, potentially leading to raised premiums or retreat from high-risk regions. (American Academy of Actuaries)

Verisk and S&P Global Energy are teaming up to deliver a new industry benchmark for calculating the financial impact of insurance coverage on both near-term disaster losses and longer-term climate impacts.

The data-sharing partnership integrates Verisk’s physically based catastrophe risk data into S&P’s Sustainable1 Climanomics platform, shedding light on insured versus uninsured losses due to climate change. The firms say clients can more precisely assess balance sheet exposure to floods and other hazards this way, enabling insurers to tighten stress testing and hone their underwriting strategies, and asset managers to better understand the risk profile of their real estate holdings.

The tie-up also brings Sustainable1’s climate-adjusted inland flood projections into Verisk’s Touchstone catastrophe modeling system, so that event simulations can be produced through 2050 for the first time. This allows insurers to translate shifts in flood intensity into projected insurable losses, and to estimate how portfolio risk may evolve as warming alters hazard frequency and severity.

A European Space Agency-backed platform is aiming to close one of food security’s biggest data gaps by providing timely, high-resolution rice production monitoring to farmers in the developing world. CRISP — developed by a consortium led by sarmap, a Swiss Earth Observation company, together with consultancy CGI and the International Rice Research Institute — uses multi-temporal Sentinel-1 and -2 Earth observation data to generate seasonal rice maps and yield estimates across large geographies. This allows governments and insurers to access near real-time analytics on rice conditions. The platform achieved average rice area mapping accuracy of 87% in recent tests, topping 90% in structured irrigation schemes. (International Rice Research Institute)

New analysis of radar data from the Copernicus Sentinel-1 satellite mission shows Earth’s river deltas are sinking far faster than previously understood, elevating sea-level rise risks for some of the world’s most climate-exposed cities. Researchers mapped elevation change across 40 major deltas and found more than half are subsiding by over three millimeters a year — rates that outpace sea-level rise projections in many areas. Analysis shows human activity is causing this sinking, through groundwater pumping, oil and gas extraction, dam-induced sediment loss and rapid urbanization. The findings underscore the need for targeted subsidence management — and hardened coastal defenses — to safeguard delta megacities from Shanghai to Alexandria and New Orleans. (European Space Agency)

The World Meteorological Organization and World Health Organization are rolling out two data-driven initiatives in South Asia designed to embed climate intelligence directly into public health systems. A new South Asia Climate–Health Desk — implemented with the Indian Institute of Tropical Meteorology and the India Meteorological Department — will develop operational decision-support tools, integrating real-time weather data, climate modeling and health surveillance to generate early warnings and heat-risk assessments for frontline officials. In parallel, a scientific consortium led by IISER Pune will refine localized heat-risk thresholds using epidemiological and climate data to better predict which populations are most at risk, strengthening heat action plans and preparedness protocols. The two schemes are backed by US$11.5mn from The Rockefeller Foundation and Wellcome. (World Meteorological Organization)

Adapting buildings to climate change: Insights into the contribution of building construction solutions to the climate adaptation agenda (Arup / Saint-Gobain)

Human-induced climate change amplification on storm dynamics in Valencia’s 2024 catastrophic flash flood (Nature Communications)

The macroeconomic impact of climate change: Global versus local temperature (The Quarterly Journal of Economics)

The implications of overshooting 1.5 °C on Earth system tipping elements — a review (Environmental Research Letters)

Going up in smoke: Hazardous ecological consequences of wildfire emissions (Global Ecology and Conservation)

Temperature-sensitive incubation, transmissibility and risk of Aedes albopictus-borne chikungunya virus in Europe (Journal of the Royal Society Interface)

Co-designing soft climate adaptation: citizen centred solutions across four European pilots (Frontiers)

Validation and comparison of US loss estimates from catastrophe flood models (Journal of Catastrophe Risk and Resilience)

Collective coverage: How group homeowners insurance could promote climate adaptation and resilience (SSRN)

Practitioner perspectives on disaster assistance reform: A roadmap of obstacles to avoid (Consortium for Emergent Disaster Resilience)

Biophysical factors and management practices are key to shaping forest resilience (Nature Communications)

Thanks for reading!

Louie Woodall
Editor