Reflecting on 2023's Climate Disasters, Panama Canal's Plight, Dalio's Adaptation Take, and More

Christian Aid tallies the cost of 2023’s climate disasters, Ray Dalio predicts a shift of financing from mitigation to adaptation, the Panama Canal crisis threatens global trade, national adaptation plans climb the global agenda, California reels under assault from monster waves, a drenched Europe deals with floods, and Innovation of the Week!

Lessons from 2023’s Climate Catastrophes

New Years is a time for reflection, for taking stock of the year just passed and preparing for the one to come.

The charity Christian Aid wants us to reflect on the ever-increasing cost of climate disasters and the pressing need for greater adaptation finance.

In “Counting the Cost 2023: A Year of Climate Breakdown”, the charity paints a clear picture: with more frequent and intense climate events come more painful economic impacts. The report highlights the 20 costliest disasters per capita last year, finding that while high-income nations like the US and New Zealand bore some of the highest costs, it was often smaller or lower-income countries that were the hardest hit and least capable of bouncing back.

October’s tragic wildfires in Hawaii surfaced as the costliest disaster per capita, inflicting a toll of US$4,161 per person. (Christian Aid divided the total estimated economic cost across the 1.44 million population of Hawaii rather than across the US as a whole. The cost per capita US-wide was around US$18.) 

Tropical storms in Guam and Vanuatu also incurred painful per capita costs (US$1,455 and US$947, respectively), as did floods and storms in New Zealand.

The eighth to twentieth costliest disasters incurred less than US$100 per capita of damage apiece. This may seem low at first glance, but as with everything, context is key. If we look at the per capita cost as a percentage of per capita income, it’s clear these apparently low-dollar disasters took big bites out of lower-income countries’ economies. For example, in Malawi the cost of storm recovery absorbed a staggering 5% of the country’s economy, even though the per capita cost was ‘just’ US$17. 

In addition, it was in lower-income countries where climate disasters tended to affect a greater number of people — meaning the per capita costs were directly felt by a larger share of the population rather than concentrated in small pockets of the population.

Christian Aid said the stark imbalance in the economic impact of disasters underscores the need for a fairer distribution of climate adaptation finance. Among its recommendations, the charity says there should be greater focus on financing adaptation before disasters strike, for example by investing in agroecology — sustainable farming which is better suited to withstand climate impacts.

Christian Aid also made the case for ramping up investment in early warning systems, which can lower disaster recovery costs, and other early action measures. It’s an investment theme that keeps coming up among nonprofits and governments and one likely to build in salience as climate calamities grow in strength and frequency.

Dalio Dives In

Ray Dalio — hedge fund founder, would-be philosopher, and allegedly terrible boss — shared his thoughts on climate change at the end of December, calling it the “The Fourth Big Force” shaping the world order.

Dalio’s overarching point is clear — the world is vastly underfunding efforts to curb climate change, which signals an impending shift from mitigation to costly adaptation and damage repair strategies.

Who should do the paying? Dalio says the “biggest pool of money”, US$120trn or so, is held by institutional investors — namely sovereign wealth funds and pension funds. Right now, he says only about 0.5% of their portfolios are allocated to climate finance “because there is a shortage of investments that those who run these institutions can put their money into that provide an adequate return.” 

This means we have to find ways to make climate solutions “profitable to invest in.”

Dalio’s missive is noteworthy in predicting that climate finance will increasingly flow to adaptation and resilience as mitigation targets — like the vaunted 1.5°C warming limit — fall out of reach. To what extent his views are reflected across Wall Street is an open question, but it is interesting that JP Morgan Asset Management ended the year with a long document on climate adaptation investments, and that the United Nations is ramping up efforts to engage asset owners and banks in adaptation financing. 

Maybe this will be the year that private finance “gets creative” on adaptation.

The question Dalio leaves unanswered, though, is just how adaptation financing can be made profitable.

Panama’s Plight

Here’s an example of how climate impacts are choking global trade and why adaptation investments are critical risk management tools for governments, corporates, and investors.

The Panama Canal, which freights US$270 billion a year in global trade, is grappling with severe water shortages attributed to the El Niño weather phenomenon and climate change. This led to painful transit restrictions in 2023, the most stringent since 1989.

The Port Authority cut the number of daily container transits by a third to just 24, creating a bottleneck that threatens to escalate as the dry season approaches. As of late December, the average waiting time for ships was 12 days. This disruption has immediate consequences for international trade, increasing the cost of merchandise and inventory carrying costs due to delayed shipments.

The snarl-up has pushed some shippers to divert to alternative routes like the Suez Canal — which brings unique risks of its own, such as attacks from Yemen’s Houthi rebels.

In a fight to restore the Canal to full transit capacity, the Panama Canal Authority is planning a US$2 billion investment to augment the water supply by constructing a dam to feed into Lake Gatun, which supplies that canal’s locks. 

This effort aims to bolster the canal's resilience against future water shortages and could potentially increase its capacity by allowing passage for an additional 15 ships daily. However, experts suggest it could still take a year to return to “normal” traffic levels.

The Canal’s woes underscore why adaptation financing is essential if the world economy wants to continue “business as usual” in an ever-warming world. Indeed, it makes adaptation investments compelling as a risk mitigation tool. After all, if the Canal’s troubles continue, it’s easy to imagine a fund engaged in trade finance or a bank that deals with letters of credit will see these businesses become more volatile and less remunerative over time. To reduce volatility, it may make sense for such institutions to “protect” these businesses by allocating capital to adaptive measures, or at the very least lobbying governments and development banks to do it for them.

Spotlight on National Adaptation Plans

In the aftermath of COP28, countries are being urged to step up their work developing national adaptation plans. 

The Global Stocktake, the process by which the United Nations Framework Convention on Climate Change (UNFCCC) monitors Paris Climate Agreement participants’ progress, found that 51 countries have now submitted adaptation plans, of which 11 were completed in 2023 — a record high.

However, this means that three-quarters of participants still haven’t submitted their plans.

This is a problem for businesses and financial institutions. National adaptation plans signal to the private sector how economies will be reshaped to deal with climate impacts. Put another way, they indicate what adaptation investments dovetail with governments’ own strategies, and therefore which should be financially rewarding going forward.

Investors should lobby governments for clear, detailed national adaptation plans that clarify the investment landscape. These could be key to unlocking private capital for climate resilience and achieving the doubling of adaptation finance called for in Dubai.

Coastal States Battered by Waves

Surf’s up – but a little too up in parts of the US.

In recent weeks, California’s coastline has been slammed by huge waves up to 20ft high thanks to the compounding impacts of global warming and an intensified El Niño pattern.

The watery assault has forced beach closures, caused property damage, and disrupted businesses, underlining the economic vulnerability of coastal communities to worsening climate change.

The average height of winter waves has surged over the past decades as the Pacific Ocean has risen thanks to climate change, and properties built along a more precarious coastline are increasingly at risk from flood damage. This winter saw a 50% jump in winter wave energy in response to the powerful El Niño event, and the National Oceanic and Atmospheric Administration’s data projects there may be three to eight days of high tide flooding in 2023/4. High tide flooding occurs nearly three times as often today as it did in 2000, the NOAA says.

South Carolina is also getting to grips with fiercer seas — particularly the port city of Charleston. Here, there’s evidence of public money being put to good use helping communities adapt to rising oceans and more forceful storms.

The federal government has allocated over US$62mn in grants through the Bipartisan Infrastructure Law to the state, much of which has been earmarked for climate resilience and clean energy initiatives.

Among the grab bag of projects funded by the grants, the Nature Conservancy will spend US$6.7mn to promote “living shoreline projects” around Charleston, which offer an ecological alternative to traditional erosion control methods such as sea walls. It’s an example of the kind of nature-based adaptation solutions that the federal government is keen to promote.

Drenched Europe Blighted by Floods

It’s not just the US that’s in the midst of wet and wild times. Parts of Europe and the UK have witnessed devastating floods triggered by heavy rains, exacerbated by effects such as El Niño, sea level rise, and inadequate flood defenses. 

In the UK, Storm Henk unleashed flooding that forced 100 properties to be evacuated in the county of Nottinghamshire and caused extensive infrastructure damage. Leicestershire county was also hit hard, with local officials calling for national support to get businesses and households back on their feet. The UK Centre for Ecology and Hydrology reported that the July to December period of 2023 was the wettest half-year on record for the UK.

Low-pressure systems intensified by climate change are directing more rain into Central Europe, says meteorologists. Above average ocean temperatures, in part driven by El Niño, are exacerbating these deluges, while increased sea levels mean rivers are more likely to overflow in heavy rain conditions. Sea levels at Dunkirk in France have climbed 3.5 inches from 1957 to 2017, while Calais has experienced a near 2 inch rise from 1966 to 2018 — tiny amounts, but enough to dramatically increase the frequency and severity of flooding in these low-lying regions.

With certain climate impacts now “locked in” due to current levels of greenhouse gas emissions, European nations will have to significantly enhance flood defenses and implement effective early warning systems if they want to reduce their physical and financial vulnerability to watery disasters.

💡Innovation of the Week💡

Here’s some light at the end of the email for you — a space each week where we’ll showcase a particular technology, business, or bit of research relevant to the climate adaptation space.

In this inaugural edition, we’re highlighting the PIONEER project, a transatlantic collaboration working to bolster sea walls against increasing coastal flooding: a risk that’s clearly growing in salience on both sides of the Pond.

PIONEER is bringing together researchers from Virginia Tech and Heriot-Watt University in Edinburgh to explore how factors like the interaction of flood water on soils affect the resilience of shoreline protective structures. The hope is their findings will help improve the effectiveness of coastal defenses  

The project will simulate different climate change and emissions scenarios in a laboratory setting and their effects on soil, and then progress to experimenting with full-sized retaining walls to examine the impacts of temperature change, water pressure, and other factors on their resilience. 

Incremental improvements to coastal defenses could reap huge financial and physical benefits in reduced property damage and business interruption from flooding. Investors looking to build out their adaptation portfolios could do worse than exploring opportunities in this space, given the clear rewards they offer in terms of risk mitigation. 

Other stuff

New WMO head says top priority is helping climate-vulnerable countries

Danish government signs co-financing deal to support over half a million Kenyan farmers in building climate resilience actions

Enhancing coastal cities' flood resilience through smart city technologies

NYDFS finalizes climate risk management guidance