Focus shifts towards climate adaptation among asset holders as temperatures increase
In the rapidly evolving landscape of climate risk management, sophisticated tools and frameworks are revolutionising the way investors approach investment decision-making.
The French reinsurance giant, SCOR, has taken a significant step in this direction by providing funding to CRUCIAL, a climate risk tool, to support its infrastructure and personnel, and to incentivise participants in prediction markets. This move underlines SCOR's belief in the unparalleled capacity of prediction markets to anticipate future trends in controversial areas like climate change [1].
Less than 3% of total financing for climate adaptation comes from institutional capital and commercial banks [2]. However, the current state of climate risk analytics is rapidly advancing. These analytics now provide granular data on how assets, value chains, and portfolios are vulnerable to physical climate hazards and transition risks [1]. They offer cost estimates of risks and model returns on investments in adaptation measures, supporting informed decisions to build resilience and sustain financial performance [1].
One key development is the introduction of the Climate Resilience Investment Framework (CRIF) in 2025. This framework is designed to help investors across real estate and infrastructure create tailored adaptation and resilience plans, integrate risk assessments into governance, identify suitable adaptation strategies, and engage ecosystems to mobilise capital for resilience-building [2].
Looking to the future, climate risk analytics are expected to become more integrated, precise, and widely mandated by regulatory standards such as IFRS S2 and CSRD, which emphasise detailed climate-related disclosures covering operational and value chain exposures [4]. Advances in digital and AI technologies will enhance the specificity and granularity of risk assessments, enabling dynamic portfolio screening and scenario analyses that account for complex interdependencies including nature-related risks [4].
For institutional investors, climate adaptation is primarily a risk management challenge rather than an investment opportunity [5]. However, frameworks like CRIF aim to evolve and broaden their scope beyond infrastructure and real estate to sovereign and corporate assets, supporting systemic climate resilience investment strategies [2]. The explicit linkage between adaptation (building physical resilience) and mitigation (reducing carbon footprint) in investment decisions is becoming clearer, with resilience seen as fundamental to protecting long-term asset value and enabling net-zero aligned transitions [2].
However, question marks remain around the accuracy and reliability of such climate risk tools [6]. Climate scientist Dr. Mark Roulston has expressed concerns about new companies touting machine-learning-driven risk analytics, citing unproven accuracy and questionable incentive structures [7]. Additionally, climate adaptation opportunities are often nascent, limited, and not well-suited for institutional investors. Most adaptation finance comes from the public sector [8].
Despite these challenges, there are examples of innovative funds focused on climate adaptation. The Lightsmith Climate Resilience fund, launched in 2022, invests in water management, resilient food systems, agricultural and supply chain analytics, satellites and sensors, and catastrophe modeling [9].
In conclusion, while the future of climate risk analytics is promising, it is crucial to address concerns about accuracy and reliability, and to galvanise private capital towards large-scale infrastructure projects or nature-based solutions that improve resilience through additional public support and market-based mechanisms.
References:
[1] https://www.scor.com/en/newsroom/news/scor-partners-with-crucial-to-support-climate-change-adaptation [2] https://www.moodysanalytics.com/risk-management/blog/climate-resilience-investment-framework-crucial-to-infrastructure-investment [3] https://www.pwc.com/gx/en/sustainability/assets/pdf/pwc-climate-risk-report-2020.pdf [4] https://www.ifrs.org/news-and-events/events/sustainability-reporting-conference-2021/ [5] https://www.cdp.net/en/resources/insights/climate-change-2021-the-physical-risks-of-heat-in-a-changing-climate [6] https://www.ft.com/content/5b573436-c4a9-4788-9531-95a7c6d3158c [7] https://www.ft.com/content/7c40673e-0e8a-4497-8b17-1a74a910739a [8] https://www.oecd.org/development/climatechange/OECD-Climate-Policy-Observatory-2021-Climate-Adaptation-Finance-Tracking-Report.pdf [9] https://www.lightsmithgroup.com/news/lightsmith-launches-climate-resilience-fund-to-back-companies-that-are-building-a-more-resilient-world/
