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November 10, 2021

Adapting to the New Normal with Resilience to Physical Climate Hazards

Unlocking finance for resilience and adaptation is essential to ensure that the most exposed sectors and communities are resilient to the increase in storms, wildfires and heat waves that has already begun and will continue to worsen. While investments in mitigation to meet net zero targets are fast increasing, adaptation finance comprises only 1% of green bond issuance and 7% of climate finance, a testament to the considerable gaps in adaptation financing. Moody’s delegation at COP26 participated in several conversations on the topic this week to look at ways in which some of the main challenges related to data availability, tools, and financing mechanisms can be addressed and to outline the immense opportunities that arise in the context of financing adaptation.

Marie Diron, Managing Director in Moody’s Investors Service’s Sovereign Risk Group, joined a discussion convened by the Coalition for Climate Resilient Investment, which Moody’s joined recently, on “Defining and advancing systemic resilience.” Moody’s assessment of the credit impact of physical climate risks shows that sovereigns accounting for 60% of the world’s population and 25% of GDP are at high or very high risk. Physical climate risk is often associated with financial and institutional adaptation constraints for the sovereigns who need to build resilience the most. Climate resilience is likely to come from multi-pronged solutions involving new technologies and funding from multiple sources. Moody’s assessment of resilience is related to general resilience to shocks while evidence about best-in-class investments grows. Later in the day, Marie also spoke to COPTV on the topic, you can see her interview from 2:12:00 onwards here.

Emilie Mazzacurati, Global Head of Moody’s Climate Solutions, joined a panel at the Sustainable Innovation Forum titled “How is Sustainable Finance Shifting the Future of Investing? Mainstreaming climate adaption into existing policies.” Emilie emphasized the need to make all investments resilient rather than thinking of adaptation as a separate finance stream. Panelists discussed the opportunity for investors and corporations to lower their risk by building resilience in their broader value chain – including suppliers, employees and local communities. Emilie noted the need to improve cost estimates for climate impacts, a topic that Moody’s teams of economists and catastrophe risk modelers are focused on, and pointed to the fast-paced innovation in identifying the locations and sectors most exposed to physical climate impacts, which lays the groundwork for prioritization adaptation investment and identifying associated investment opportunities.