3. โข Underlying cash flow values may be significantly altered by
climate related impacts
โข Valuation: effects of CC over the investment lifetime
โข Operating costs, revenues: changes in price, decreased
productivity, availability, depreciation, etc.
โข Insurance: change in costs and availability
โข Changes in long-term average conditions
Sources: IFC 2011
Climate Risk and Investments
Financial and Credit
Market
conditions
Project costs
Asset depreciation
Efficiency and
performance
Outputs
Loss contingencies
Strategic and
developmental
Environmental and
Social
Country risk
Legal and Reputational
4. โข Pollution
โข Access to water
โข Community health and safety
โข Workplace conditions
โข Wastewater and water quality
โข Resettlement, etc.
Sources: IFC 2011, BMI 2010
Financial and Credit
Market
conditions
Project costs
Asset depreciation
Efficiency and
performance
Outputs
Loss contingencies
Strategic and
developmental
Environmental and
Social
Country risk
Legal and Reputational
โข โCountry risk may be aggravated by climate change impacts,
particularly in economies where GDP is reliant on scarce water
resources, or in smaller economies that are more vulnerable to
catastrophic climate events. โ
โข S&P, May 2014: โGlobal warming will harm sovereign
creditworthiness around the world this century, with poorer
nations the worst hit.โ
โGiven the recent damage to
infrastructure in the recent
flooding - and the massive
clean-up costs necessary to
get the economy back on its
feet - we believe that the
country's investment appeal
will remain unattractive for
the foreseeable futureโ
Climate Risk and Investments
5. Sources: IFC 2011
Financial and Credit
Market
conditions
Project costs
Asset depreciation
Efficiency and
performance
Outputs
Loss contingencies
Strategic and
developmental
Environmental and
Social
Country risk
Legal and Reputational
โข โSome lawyers are beginning to acknowledge that there is now
sufficient information available on CC for it to be taken into
account in both strategic and operational decision making.
โข โIf CC impacts are considered reasonably foreseeable by a
court, decisions that do not take these impacts into account
may incur liability in negligence.โ
โข Illinois Farmers Insurance vs. Chicago municipalities, May โ14:
โThe defendant knew or should have known that climate
change in Cook County has resulted in greater rainfall volume,
greater rainfall intensity and greater rainfall duration than pre-
1970 rainfall history evidenced, resulting in greater stormwater
runoff.โ
Climate Risk and Investments
6. โข IFC Climate Risk Management: mainstreaming of climate risk assessment at project appraisal
stage and risk mitigation responses in real sector investments
โข 2012 revision of IFC Performance Standards (definition of clients'
responsibilities for managing environmental and social risks) includes
climate risk considerations
โข PS1: โThe client will establish and maintain a process for identifying the
environmental and social risks and impacts of the project. (...) The risks and
impacts identification process will consider (...) the relevant risks associated
with a changing climate and the adaptation opportunities (...)
Management of financial, E&S related climate, Adaptation
โข IFCโs Adaptation Definition for investments and advisory services
7. De-risking investments
Storm surge height
Seawater flooding, 2050, observed and
accelerated SLR scenarios
Sources: IFC 2011, Escuela Naval CIOH 2010
โข Port Muelles el Bosque, Colombia
โข USD 180,000 investment in
information:
o mobilized USD 20 million in
private finance for adaptation
o de-risks and protects several
hundred million worth of
infrastructure