The financial sector is built around evaluating and managing risks of all kinds as the basis of making investment decisions. To date few in the financial sector are incorporating physical climate risks into investment decision making. Knowledge of how physical risks from climate change impacts risks and opportunities is rapidly evolving, but clear risk management practices are still nascent. Identifying the financial implications of climate risks will create enormous opportunities for profitable investment by all types of investors, including both public and private finance. However, the same understanding may also trigger potential capital shifts or flight from the poorest and most vulnerable communities and countries, those most in need of investment in adaptation and resilience. The absence of clear ownership of climate risk in many sectors has also led to expectations of publicly funded assistance following natural disasters, further discouraging investment in resilience.
Driving Finance Today for the Climate Resilient Society of Tomorrow reviews barriers and opportunities for financing resilience and adaptation by all actors across the financial system but chiefly targets financial system constituents, including policymakers and financial actors, and the actions required of each. The range of adaptation investment opportunities, while very large, faces additional barriers in the perceived lack of private benefits and the immaturity of business models. Aggressive additional public and private commitments will be needed to address the growing adaptation financing gap. Closing the gap will require comprehensive policy reforms, enhanced incentives, and partnerships involving governments and policy makers, financial institutions, businesses of all forms, and communities at risk.