As the incidence of climate-related hazards grows, quantifying and pricing these risks within public and private balance sheets represents a challenge to most institutions, often resulting in a systemic mispricing of physical climate risks in operations and portfolios.
According to the G20 Global Infrastructure Outlook, an estimated $93.7 trillion of infrastructure investment is needed by 2040. This infrastructure must be financed and designed with resilience to natural perils in mind.
In an effort to address this situation, regulators are taking action with initiatives such as The Taskforce for Climate-related Financial Disclosures (TCFD), which urges businesses to investigate and disclose the climatic risks they face and act accordingly to mitigate them in a cost-effective manner.
Finance for resilient infrastructure
Willis Towers Watson brings its detailed understanding of physical climate risks and analysis to support governments, multi-lateral development banks and private finance institutions to help ensure that investments are designed, developed, financed and operated with the highest potential to withstand future impacts from climate change. This process is carried out through:
- Incentivization of resilience through accurately pricing climate risk into the financial structuring (debt and equity) of the project
- Allocating and sharing risks among financial sources, including using blended and/or public/private partnerships (PPP) approaches to efficiently deploy public capital to catalyse private investment in resilient infrastructure
- Ensuring adequate risk transfer mechanisms, such as insurance, are part of the full spectrum of climate risk management for these projects
Private finance and climate risk exposure
With our expertise in investment consulting, risk broking and analytics, Willis Towers Watson offers solutions and services to quantify the financial materiality of physical climate risks and price them into asset valuation processes. This helps enhance investment decision making while unlocking investment opportunities.