What will it take to scale investment in adaptation and resilience?

On the heels of our new research, Protecting people from a changing climate: The case for resilience, McKinsey convened a group of experts at COP26 on Tuesday to discuss how finance institutions can innovate to address climate risks. “We are substantially underinvesting in adaptation today,” says McKinsey Partner Mekala Krishnan. “The pace and scale of adaptation investments needs to substantially rise to protect communities and make companies and businesses more resilient.”

Tuesday also marked Gender Day at COP26, and Kathy Baughman McLeod, senior vice president of the Adrienne Arsht Rockefeller Foundation Resilience Center, shared a statistic that reminded guests of the disproportionate impact women face from those risks: They are 14 times more likely to die in a disaster than men. “A lot of that is about the role of a woman in the family to care for the animals or care for the children,” McLeod said.

Excerpts from the entire discussion, edited for clarity, are below. A replay of today’s session can be found here. Please visit our COP26 agenda page to register for upcoming sessions.

Highlights from today

Integrating mitigation, adaptation, and development:Something that should make us careful about adaptation and resilience numbers, which is also highly relevant for financing, is that so much of what we need to do in adaptation and resilience is interwoven with development and mitigation. We had the example of the mangroves: It’s good for fisheries...It protects you against storm surges and is actually very good at sequestering and storing carbon. It’s mitigation, development, and adaptation rolled into one. ...As soon as you start to look at the integration of mitigation, adaptation, and development, the whole range of funding options starts to get richer and people make it happen, whether or not it’s a financial institution or it’s a village money lender or [another source]. Seeing that integration of the three things is very important.”
—Nicholas Stern, IG Patel Professor of Economics and Government and Chair, Grantham Research Institute at LSE

Understanding barriers to adaptation and resilience investment:Adaptation is often treated as the poor cousin of mitigation. There are a variety of reasons for that, including the fact that despite many efforts, it’s still hard to measure adaptation and resilience, unlike avoided tons of carbon in the atmosphere. That’s simple. It also has more obvious technological solutions which can attract private capital. But with that said, the ability to share across communities and nations is unprecedented. If we don’t share, we’re all reinventing the wheel. We don’t have the time for that.”
—Kathy Baughman McLeod, senior vice president and director, Adrienne Arsht Rockefeller Foundation Resilience Center, Atlantic Council

Invest globally, focus locally:We’re often dealing with very local problems in cities and villages that don’t have the experience or the ability to model risk scenarios [that major governments or organizations do]. So I think this question that we have today about financing resilience is more than just financing; it is actually building the solution kits so that we bring the advice, the imagination, and the money.”
—Daniel Klier, president, Arabesque Holding and CEO, Arabesque S-Ray

Paulina Paz Aldunce Ide, Nigel Topping, and Mihir Mysore discuss the Race to Resilience campaign.

Paulina Paz Aldunce Ide, Nigel Topping, and Mihir Mysore discuss the Race to Resilience campaign on Monday evening, November 8.

Paulina Paz Aldunce Ide, Nigel Topping, and Mihir Mysore discuss the Race to Resilience campaign.

The critical role of insurance:Insurance companies probably have the best data in the world to help us identify the areas that are most subjected to climate risk, and therefore adaptation and resilience investments: They are already quite active in leveraging those datasets, helping development banks, helping other financial institutions in finding the areas where investment is most needed. So that’s one really important part of the insurance industry. The second part is insuring the risk. While I agree that there is concern that insurance is moving away from certain segments, the insurance industry also knows that it can’t back itself out of every market. If you no longer insure any coastal property, you actually have a problem because the largest cities in the world are all built on coastlines.”
—Daniel Klier, president, Arabesque Holding and CEO, Arabesque S-Ray

No universal solution:Overall, adaptation in the developed countries may be driven by tech-intensive and expensive innovations, given their competitive advantages in R&D. Developing countries, on the other hand, might continue to adopt nature-based and low-tech proven adaptation efforts, as is commonly observed in many communities that depend on natural resources for livelihoods. In this context, l’ll mention a project underway in India, where the community has restored degraded mangroves along a river estuary and created bass fish farms in response to sea level rise and erosion. We are sure to see more of these solutions in developing countries.”
—Anil Kishora, vice president, New Development Bank

The power of imagination in solving unknown problems:Scenario planning has been very valuable here because it forces us to exercise our imaginations in new ways. And [the lack of solutions] is ultimately a failure of imagination. These are unfamiliar risks. It’s really hard for us to think through: ‘What does it look like with that level of heat in the future?’ Most failure points in history involve a failure of imagination.”
—Alice Hill, senior fellow for energy and the environment, Council on Foreign Affairs

From our venue at COP26

On Monday evening, Paulina Paz Aldunce Ide, a professor at the University of Chile professor, and Nigel Topping, UK high level champion for climate action COP26, joined McKinsey partner Mihir Mysore for a fireside chat on the Race to Resilience campaign, which examines the humanitarian impact of a changing climate.

At a glance

Examples of the financial implications of climate risk can be found worldwide. In Florida, McKinsey’ s analysis estimates that the projected increase in tidal flooding frequency and severity could result in a $10 billion to $30 billion devaluation in exposed properties by 2030, and $30 billion to $80 billion by 2050, all else being equal.

In depth

Learn more about adaptation and resilience with these McKinsey articles:

Protecting people from a changing climate: The case for resilience

How cities can adapt to climate change

Climate risk and response: Physical hazards and socioeconomic impacts

Mobilizing capital for the climate

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