At New York Climate Week 2024, ICSI, in collaboration with the Global Covenant of Mayors for Climate and Energy (GCoM) and the Institution of Civil Engineers (ICE), convened a roundtable discussion between leaders from the engineering and investing sectors. This was the third event in a series of roundtable discussions aimed at advancing the dialogue on scaling up adaptation finance in infrastructure. The roundtable, held on Wednesday, September 25th, was kindly sponsored by Boston Consulting Group (BCG) and Mott MacDonald, and hosted by BCG.
As the need for equitable, sustainable, and resilient infrastructure grows globally, one key theme emerged from the discussion: cross-sector collaboration is essential to de-risking climate finance and driving meaningful change. The question remains—how can engineers and investors better align to understand and support each other’s roles?
Lack of Standardisation and Data Integration to Attract Investment
The need for mutual understanding between engineers and investors was a critical issue discussed during the roundtable. Participants acknowledged that these professions often operate in silos with little understanding of each other’s roles. Engineers and insurers have the data and models necessary to assess climate risks, but these are not always communicated effectively to investors, who need to weigh the risks and returns associated with adaptation projects.
There was consensus on the need for more collaborative platforms, where insurers and investors can share insights early in the project lifecycle. Ensuring that climate risk assessments informed by robust technical feasibility studies are baked into financial decisions from the outset would not only improve project outcomes but also ensure that investment decisions account for long-term resilience.
Further, several participants highlighted the critical need for standardised frameworks in adaptation finance. Investors emphasised that the current landscape of financial models is fragmented, making it difficult to unify efforts across sectors. This lack of standardisation hampers investment in climate resilience projects, as inconsistent data and metrics prevent investors from making informed decisions. The call for standardised tools like the Physical Climate Risk Assessment Methodology (PCRAM) was echoed by several participants. While a wealth of data exists, it needs to be synthesised and made usable for decision-making. By aligning data across sectors, engineers and investors can work from the same playbook, bridging gaps that currently slow down project development.
De-risking Projects to Attract Investment
The investors present at the discussion highlighted one of the biggest hurdles to scaling finance for climate adaptation: de-risking projects. Climate adaptation projects, particularly in the Global South, face significant uncertainties around long-term returns, regulatory frameworks, and insurance models, all of which deter investors from investing in these initiatives. There are significant barriers to risk pricing in adaptation finance, and it was noted that climate risks are not adequately reflected in this pricing. Some challenges include data gaps and uncertainty, difficulties in quantifying long-term climate risks and in monetising the broader co-benefits of adaptation projects. Investments involve mathematical analysis but perhaps more importantly, they involve persuasive arguments, meaning that demonstrating the risk effectively can be enough to secure investment before catastrophe hits. A suggestion was made that there should not be bailouts for infrastructure developers who don’t account for climate risks and take the necessary preventative action.
However, a challenge was identified in that stakeholders have varying timelines for assessing risk – for example, insurers use one-year cycles, while private investors often consider 30-year horizons. A noteworthy point of contention arose as the discussion turned to projections, with the investors present arguing that they find projections less convincing than empirical data. Collaboration between investors and insurers could improve risk assessments.
To investors, the perceived risks often outweigh the potential returns, stalling progress in adaptation finance. To overcome this, the dialogue underscored the importance of integrating better data and financial instruments, such as resilience bonds, into the project development phase. Fair risk allocation is crucial for incentivising investments and ensuring that risks are shared fairly between stakeholders like investors, insurers, contractors, and governments. Development of these tools could help mitigate risks, making projects more attractive to private investors and unlocking the capital necessary to drive climate adaptation forward. It was also suggested that engineering-led feasibility studies can help reduce investment risk.
ICSI convening the Engineers-Investors roundtable to discuss scaling up adaptation finance at New York Climate Week 2024.
Aligning financial and insurance models and driving capacity-building for resilience
The attendees agreed that there are two aspects that the engineering and finance communities can focus on in order to better understand each other. Firstly, insurance and financial models need better alignment. Traditional insurance frameworks are often misaligned with the long-term nature of infrastructure development. Insurance costs, particularly in developing countries, are prohibitively high and often fail to support investments in climate resilience. The participants called for insurance companies to align their models with climate assessment timescales, working closely with engineers and policymakers to create more flexible, long-term solutions that integrate climate considerations in all due diligence. By developing insurance products tailored to the unique risks of adaptation projects, the industry can become an enabler of resilience rather than a barrier. Additionally, it was suggested that credit agencies can influence climate action by adjusting credit ratings based on adaptation efforts and that these agencies, alongside governments and insurance companies, can spread long-term risks fairly across all actors in a system.
Secondly, a cultural shift needs to take place in the engineering and finance industries, alongside capacity-building efforts. Younger professionals need a voice in these discussions, given their concern for societal and environmental impacts. They also need interdisciplinary training that combines technical expertise with an understanding of financial models and social outcomes. This new generation of engineers and financial professionals must be equipped to integrate physical and social risks into investment decisions. Capacity-building platforms and educational initiatives will play a key role in bridging these knowledge gaps. By fostering a culture of collaboration and interdisciplinary thinking, the engineering and finance sectors can better align their efforts towards building climate-resilient infrastructure.
Climate adaptation is a complex, multi-faceted challenge that cannot be solved in isolation, or at a single roundtable. To bridge gaps, engineers must better understand financial decision-making, while financiers need to appreciate what’s feasible in climate risk management. Engineers, as trusted professionals, can also advocate for climate action with governments and the public. Moving forward, standardisation of data, closer collaboration between engineers and investors, de-risking projects, aligning insurance models with climate assessment timescales, and advancing capacity building will all be essential components to unlocking the capital that is urgently required to build infrastructure resilience in the context of a changing planet.
