Lack of clarity on Asia’s climate adaptation plans hinders private investment: report
Investors want to see new policy frameworks and multi-stakeholder partnerships on building climate change resilience, says AIGCC
THERE is a lack of clarity among Asian regulators on their countries’ national climate adaptation plans, as well as investment opportunities for such actions, a recent report by the Asia Investor Group on Climate Change (AIGCC) showed.
This has prevented more private capital from flowing into climate adaptation projects, which have historically suffered from a lack of financing compared with climate mitigation efforts.
Adaptation refers to making adjustments to the current and future effects of climate change, while mitigation is about the measures taken to reduce greenhouse gas emissions. Thus far, climate mitigation has been the main focus of governments, companies and financial institutions.
AIGCC – which engages its members including major investors on climate change matters – assessed nine markets in the region on their adaptation plans: China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Singapore and Thailand.
It found significant gaps.
What investors want
Based on the report, investors in Asia want to see new policy frameworks and multi-stakeholder partnerships on building climate change resilience. This is amid greater demand and necessity to integrate investor perspectives into adaptation plans.
A NEWSLETTER FOR YOU
Friday, 12.30 pm
ESG Insights
An exclusive weekly report on the latest environmental, social and governance issues.
For instance, to build an investment case for climate adaptation, investors need to quantify the financial implications of physical risks to their assets and operations, including indirect impacts via value chain exposures.
However, existing data and methods to do so remain nascent and insufficiently credible, granular or consistent for decision-making.
Climate adaptation has typically been viewed as the responsibility of the public sector, even though public funding cannot meet the scale of investment needed in most markets.
SEE ALSO
In addition, private investors usually consider such investments as not meeting their risk-return profiles. They must often contend with the real or perceived low cash flows from resilience investments, a lack of strategic policy direction, uncertainty around financing needs, and poor investor confidence in the transparency and predictability of capital.
To obtain a comprehensive view of risk exposure and impacts, the report said that companies and investors should examine physical risks and impacts by sectors and across the value chain.
However, it added that impacts at the sectoral level and across boundaries are poorly understood or quantified.
What governments need to do
The report found significant gaps around the availability and accessibility of climate data and risk information. While four out of the nine markets have developed physical risk data platforms, access to some of these is presently restricted.
These include a climate crisis vulnerability assessment tool developed by South Korea, and a climate change adaptation information platform in Japan.
Developing open and granular information platforms on physical risk and vulnerabilities would facilitate a comprehensive view of risk among finance-sector participants and real-economy stakeholders, the report said. This would accelerate adaptation and resilience efforts, it added.
While all nine markets have evaluated the long-term projections of climate variables across scenarios and time horizons, AIGCC’s report found that detailed quantification of impacts and vulnerabilities across sectors is still lacking.
Hong Kong and Singapore are the only two markets which have yet to quantify and communicate climate impacts or vulnerabilities across specific sectors.
For investors to analyse the physical risks to their holdings, governments should mandate climate disclosure and ensure that disclosure frameworks present investors with information useful for decision-making.
However, the report noted that the implementation of mandatory climate risk disclosures aligned with international standards remains inconsistent across the region.
For instance, only Hong Kong and Singapore have announced clear timelines for disclosures in line with the International Sustainability Standards Board.
Given that the effects of climate change cut across national boundaries, the report said there is a need to integrate interregional aspects into national climate risk assessments and adaptation plans.
This will help direct resources towards reducing risks across borders, and building systemic resilience to climate change globally.
Although six markets have indicated some form of participation in regional adaptation platforms, only Japan stands out in this area. Besides considering interregional risks in its plans, it has contributed to climate adaptation across regions.
The report also found that most markets have not established financing pathways and mechanisms to mobilise private capital in adaptation planning. There is a general lack of visibility of the national process from a financing perspective, and the roles investors can play.
Moreover, detailed financing mechanisms, investable project opportunity pipelines, and road maps that lay out ways to collaborate with financiers have not been adequately developed.
Among the nine markets, only Indonesia and China have started outlining action plans and implemented pilot initiatives to facilitate private-sector engagement and funding in adaptation planning.
The report said a detailed national adaptation plan should include financing strategies, as well as a clear delineation of the roles and engagement strategies of investors across the various stages of planning.
An advisory group comprising government officials, multilateral development banks, philanthropies and the private sector should also be established to develop a range of financial products to co-fund resilience and adaptation projects.
Copyright SPH Media. All rights reserved.
