Engineering and insurance leaders come together to discuss scaling up adaptation finance

There is an urgent need to unlock funding for equitable, sustainable and resilient infrastructure across the globe and to prioritise infrastructure that delivers positive outcomes for people and the planet. This is a complex undertaking that requires everyone across the value chain of infrastructure to play their part.

At London Climate Action Week 2024, ICSI, in collaboration with the Global Covenant of Mayors for Climate and Energy (GCoM) and the Institution of Civil Engineers (ICE), convened the first in a series of roundtable discussions to address the critical task of scaling up adaptation finance in infrastructure. 

The series is co-sponsored by Mott MacDonald and BCG and aims to bridge the gap between the engineering community and key decision-makers in adaptation financing, providing a collaborative environment to tackle some of the most pressing challenges around building climate resilience in infrastructure.

The inaugural roundtable, kindly hosted by Howden Insurance Group, was held on June 26th and brought together leaders from the engineering and insurance sectors to share their perspectives on de-risking investment in adaptation and resilience and to explore ways in which they could collaborate to remove blockers.

Tapping into engineers’ and insurers’ expertise through early involvement in project development

Insurers and engineers have a lot more in common than expected. They both emphasise the importance of understanding risks for setting grounds for protection. The integrated approach marrying engineering with insurance has contributed to the development of global finance risk-sharing mechanisms. By assessing and pricing risks, insurers can spread and share these risks globally, making the financial system more resilient to catastrophic events. However, the paths of these two industries need to intersect more. By forging a closer partnership, both industries can amplify their influence and ensure their insights are heard.

The roundtable discussion delved into the challenges and best practices in assessing, quantifying, and communicating risks and returns. It was evident that both sectors have a role in educating private investors about the opportunities in financing climate adaptation. A key point raised was the need for tangible actions and cross-sector collaboration to scale up adaptation finance.

From an engineering perspective, quantifying climate risks and resilience is crucial for better investment decision-making. Engineers can provide valuable insights into the impacts of risks and the measures needed to mitigate them. This information is essential for insurers to optimise their processes and create more accurate risk models.

On the insurance side, there are challenges in perceiving insurance as an enabler rather than a blocker. Insurance requirements can sometimes be seen as a hindrance to innovation, especially in new and challenging markets such as climate adaptation. Regulatory requirements and country investment ratings are among the barriers that prevent insurance from being an effective enabler. This perception needs to change. Insurers now have the potential to drive ambition and ensure high standards through early engagement and honest communication. 

Project development of infrastructure projects would benefit from early involvement of both engineers and insurers. This would help improve climate risk assessment in project portfolios and embed resilience measures into project CapEx and OpEx.

Leveraging data, tools and existing frameworks and taxonomies to better quantify and communicate the adaptation investment rationale 

The roundtable also addressed the question of what data, tools, analytics, and skills can be leveraged by the insurance sector to support de-risking investment in adaptation and resilience. There is a need to transfer data outside academic and engineering environments to inform policymakers effectively. This transfer of knowledge is vital for informed and effective policymaking and investment. 

Participants emphasised the importance of aligning different frameworks and taxonomies to foster a more accessible understanding of climate adaptation and finance. Engineers need to embrace these taxonomies and incorporate physical climate risks into their methodologies. Similarly in the insurance sector, it is crucial to convey the message that data and catastrophe modelling enable a wider understanding of how we protect our assets, but these models need to be reconciled with climate risk assessments. 

For example, PCRAM (The Physical Climate Risk Assessment Methodology) is a useful tool that provides a common language between the infrastructure and financial industries through consistent data-driven climate assessment. This is an excellent demonstration of working collaboratively on an approach for quantifying climate risks and resilience for better investment decision-making while ensuring its scalability. Effective communication between the industry and planners/civil servants is essential, as they may not always be familiar with or interested in these technical frameworks.

In the absence of mandatory policy requirements, the development of new standards and guidelines is slow but urgently needed, along with establishing metrics to monitor the performance of adaptation solutions and incorporating feedback into risk assessments. Engineers have a role in monitoring and evaluating the performance of resilience and adaptation interventions. However, the performance of these interventions over time needs to be captured and this evidence should be used to adjust insurance metrics. This would greatly help the adaptation investment rationale, especially when it comes to solutions that integrate nature-positive approaches.

Helping mobilise private sector capital for adaptation 

From 2019–2022 the private sector has consistently financed less than 3% of adaptation activities globally. Meaningful conversations are needed using examples of these projects, which will contribute to developing an adaptation investment pipeline. Encouraging private sector engagement involves helping businesses understand the benefits and opportunities of investing in climate resilience. Engineers and insurers can help through their combined capabilities, offering investors a coherent assessment to help them understand the benefits and opportunities of investing in climate resilience. 

Overcoming barriers and driving adaptation forward through collaboration

The ICSI roundtable event highlighted the commonalities and importance of collaboration between engineers and insurers to scale up adaptation finance in infrastructure. Both engineers and insurers have a deep understanding of risk and work from the ground up, yet often struggle to be heard at higher levels of public policymaking and finance. 

Looking forward, engineers and insurers can create a powerful partnership that influences decision-making and drives progress through a more intentional alignment of their thinking, and a greater knowledge sharing and cross-pollination on their respective data, tools, and techniques. 

By leveraging their combined expertise and aligning their efforts, these communities can drive significant progress in building climate resilience. The path forward requires a concerted effort to educate and engage the private sector, align taxonomies, and develop clearer, more compelling communication to policymakers.

As we continue to face the escalating impacts of climate change, these collaborative efforts will be crucial in creating a sustainable and resilient future.