Smoothing the path to climate resilience in the Americas

Climate change is an existential threat. Worst-case scenarios predict mass migration events, coastal flooding, increasingly severe weather events and an 18% contraction of the global economy.

At the Supercharging Public, Private Sector Efforts on Climate Change virtual panel debate hosted by Swiss Re, the Americas based speakers shared insights and opinions on what can be done to tackle some of these challenges.

All were agreed that the seriousness of the threat should not be underestimated, the size of the investment opportunity should not be ignored, and that finding a way forward will necessitate close cooperation between the public and private sectors. Done well, the work that we stand ready to do together could actually lead us to a healthier, wealthier and more inclusive world, in a closer balance with nature.

Understanding what’s at stake

Philippe Brahin, Swiss Re's Head Public Sector Solutions, Americas, moderated the session.

He framed the event by highlighting: "We all agree that Climate change is one the biggest global challenges; it already shapes the way the world does business now and in the future. There is an urgent need for cooperation and collaboration between the public and private sector to fight climate change going on to reference the importance of reducing carbon emissions."

Patrick Saner, Head Macro Strategy at the Swiss Re Institute highlighted the threat to global GDP if the 2015 Paris Agreement goal is missed – it could fall by as much as 18%. This statistic is explored in the Swiss Re Institute’s Economics of Climate Change report, which also details how, by 2048, OECD economies could lose 10.6% of GDP, and China’s economy could shrink by 23.5%.

"We need to build climate resilience," he urged. "As with COVID-19, resilience must happen before the crisis starts. We are now in a climate crisis mode and public-private partnerships are vital to facilitating the smooth transition to a low-carbon economy."

Identifying the opportunities

Saner also referred to the USD 100 trillion investment opportunity that tackling climate change represents.

"Climate change, while it's the number one systemic risk for the global economy, is probably also by far the biggest investment opportunity out there," he said.

Green financing deals are a key part of that opportunity, helping large-scale energy transition projects get underway and facilitating the move to a low-carbon future.

Vivek Pathak, Global Head of Climate Business for the IFC World Bank concurred:

"There are nearly $23 trillion in opportunities for climate-smart investments in emerging markets between now and 2030. Climate is being mainstreamed."

Andres Perez, Head of International Finance and Head of Advisors at the Ministry of Finance of Chile explained the leading role Chile is taking:

"We incorporated climate action in the financing side of the central government with the issuance of sovereign green bonds becoming the first sovereign in the Americas to do so since 2019."

"We have been able to issue and thematic bonds they represent roughly 16.6% of our central government debt. To ensure that we have a better understanding of climate change for climate related public expenditures, we are working on a fiscal methodological framework that adequately identifies and measures climate budgeting."

The engagements and actions of Chile are exemplary, particularly when reflecting on the devastating impact of Covid-19 and the challenges that the country is going through, as with many countries in Latin America.

Providing mechanisms for funding

Kate Gordon, Former Senior Adviser to Governor Newsom in California on Climate Policy (now transitioning into a new role in the Biden Administration) described the climate agenda from a North American and Californian state perspective.

"The government obviously has a necessary role to play in funding the cost of climate impacts which are huge but also underscores that the private sector needs to do more. More focus on building resilience, incorporating the real costs of climate into decision making."

Nuin-Tara Key, Deputy Director for Climate, Office of Planning and Research, State of California Explained her focus on climate risk disclosure and the role of the state and the public sector in risk disclosure and in better pricing actual risk into finance and investment decisions.

"Risk must be priced in a way that doesn’t cut off access to finance, access to resources and investments to communities that have already been left behind or have experienced disinvestment," she added.

Vivek Patak described the five focus areas of the World Bank on climate for the next five years; the energy transition, urbanisation, logistics or transport, agriculture and manufacturing. "To make an impact across these five areas we're going to need green finance, so the whole ecosystem of working in capital markets, green bonds, blue bonds coming up with taxonomies and then coming up with sort of some sort of risk mitigation. And eventually to attract large asset managers to come into this space in emerging markets", he concluded.

The role of insurers as a partner

Jackie Higgins, Swiss Re Head of Public Sector Solutions North America: "We all agree that a public and private sustainable approach is required to address the risk. With the Biden-Harris administration's whole of government approach to climate resilience and the recent executive orders on the climate related financial risk, it is now recognised that States need to have a holistic view of climate risks. They want to develop the analytical capability to better understand these risks and to develop risk management and risk mitigation solutions to protect the citizens and taxpayers."

Rubem Hofliger, Swiss Re Head of Public Sector Solutions South America: "There's definitely a need to tackle climate risk resilience. For instance in Mexico there is a very successful cases with the natural disaster fund. It has a long story of growing the disaster risk financing and risk transfer strategy."

"They have the cat bonds which are parametric covers with quick cash payout for the emergency relief and early recovery and indemnity coverage really for the reconstruction."

Andrés Pérez, explained that insurance instruments can play a key role in transferring risk. The Pacific Alliance countries issued catastrophe bonds that collectively provided a $1.36 billion in earthquake protection jointly to Chile, Colombia, Mexico and Peru.

Kate Gordon explained how the economic shock of COVID underscored the lack of resilience in our global economy: "It underscored what happens when we don't pay attention to inequities and to vulnerable communities. It is now about building a more resilient economy but the other side is insurance investment being much more focused on reducing overall costs and building resilience."

"Let's start talking about mainstreaming resilience investment into particularly insurance sector".

Climate resilience investments made today need to be robust enough to meet the climate change risk in years to come. They also need to be financially viable so that spending capital, whether to de-risk threats or deploy resilience, becomes sustainable too. Having the right expertise available to make the necessary assessments and decisions will be an important part of the climate change response.

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We believe that comprehensive risk management approaches and insurance have an important part to play when it comes to building and accelerating resilience strategies for society and the economy.