The Market for Climate Resilience: Hidden in Plain Sight?

The Market for Climate Resilience: Hidden in Plain Sight?

Households, businesses, and communities everywhere are vulnerable to a growing array of risks related to climate change. These risks arise as a result of climate variability, caused primarily by the long-term emission of greenhouse gases, including carbon dioxide. Climate risks are manifold: floods, drought, extreme winds, heat waves, sea level rise, invasive pests, and wildfires, among others. Understandably, extreme weather events such as hurricanes and major floods receive the most attention. But longer-term, incremental changes (such as in temperature and precipitation patterns) can be at least as costly and can threaten our very survival—endangering our food supply, water and energy security, health, businesses, livelihoods, and human settlements.

Climate resilience vs. climate mitigation

The way that private businesses and governments define and respond to climate risks is part of the process by which people build climate resilience. Climate resilience (used interchangeably with “climate adaptation” for present purposes) is a fundamentally different challenge from climate mitigation, involving different incentives and stakeholders.

Climate mitigation aims to reduce global emissions, but unlike climate resilience, confronts a tragedy of the global commons and a lack of global governance that impedes the collective action required for reducing global emissions. Greenhouse gas emissions represent local costs that are externalized across the global public commons. Internalizing these costs and reducing emissions will require a price for or a cap on carbon emissions, strong global regulations with robust enabling institutions, and/or dramatic advances in technology. The challenges facing mitigation are daunting, involving new forms of international coordination, incentives, political will, and technical solutions.

In contrast to mitigation, many actions to build climate resilience occur within local markets, where there are private solutions that protect people and assets from climate risks. However, very few of these private transactions are accounted for using climate jargon, and public authorities do not yet systematically collect data on private resilience building. Hence, many of these techniques are seen as just “doing business”: water-efficient irrigation technologies, back-up generators, storm-resilient building materials, water harvesting services, flood control, insulation against heat, early-warning systems and climate information, and flood- and heat-resistant housing. Consequently, much of the market activity related to climate risks remains hidden in plain sight.

Why does this oversight matter?

There are several reasons:

1. The hidden nature of private climate resilience impedes effective policymaking and perpetuates the myth that the private sector is shortsighted or uninterested, or has done little in the way of helping people with practical resilience solutions. From this perspective, the private sector is viewed as simply a part of the problem and a potential source of climate finance that must be “mobilized and directed,” rather than as a wellspring of ideas and solutions.

2. Much needs to be learned about private innovation in climate resilience. Private solutions can protect many types of assets, property, and businesses from climate risks, and in turn strengthen the global response to climate change—while also generating economic opportunity and social benefits.

3. Shedding light on private climate resilience solutions will help businesses better understand that climate variability is the “new normal,” and that weather or natural-disaster models may be insufficient for framing the demand for resilience solutions. Moreover, an understanding of the benefit of resilience will better inform business decisions regarding climate risk transfer plans, such as insurance. Insurance against climate risks in most vulnerable sectors is either prohibitively costly or unavailable, and likely to disappear without strong public participation. For the great majority of smaller businesses in developing countries, insurance against climate risks is not a viable option. The common conflation of weather and flood insurance with climate resilience can further confuse matters. In much the same way that health insurance (albeit important) does not guarantee good health or substitute for healthy habits, weather or flood insurance is no substitute for practical, proactive measures to build climate resilience that protect assets from climate risks. At the end of the day, building climate resilience represents the best form of “insurance” for many enterprises and communities.

4. A methodology focused on the climate resilience market can highlight businesses that offer innovative resilience solutions and that are prime candidates for investments, leverage, partnerships, or targeted assistance.

5. This exercise can inform and encourage new kinds of public-private partnerships that build climate resilience programs across the globe.

In summary, climate risks drive a large and growing demand for private climate resilience solutions. While much work has focused on the need for climate resilience, far less has examined the role of the private sector in building resilience and fostering operational continuity. Part of this is because many people frame products and services in terms of “weather” or “natural disasters,” rather than climate, and because many private resilience solutions are specific to particular sectors.

Perhaps the best applied work on this subject is coming from specialized academic institutes, such as the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science, and the Smith School for Enterprise and the Environment at the University of Oxford. The private opportunity presented by changing climate has also caught the attention of the popular press, in books such as Windfall: The Booming Business of Global Warming.

These and related issues will be examined during a Multilateral Investment Fund (MIF) conference in Cartagena de Indias, Colombia, May 25-27: The Challenge and the Opportunity of Private Climate Resilience. A new study to be conducted on behalf of the MIF, co-financed by the Nordic Development Fund, Markets for Climate Resilience in Latin America, Africa and Asia, will be announced at the conference.

From the Multilateral Investment Fund Trends blog