Transformative adaptation: It's what we need for the consequences of climate change

Mitigating climate change by reducing greenhouse gas emissions and limiting global warming to around 1.5 degrees Celsius from pre-industrial levels remains our generation's biggest challenge. According to science and policymakers, this requires permanently decarbonising our economies by greening industry and energy systems, deploying large-scale carbon capture, and putting an externality congruent price on residual carbon emissions.

Since our planet has already grown warmer, however, mitigation efforts aimed at cutting future emissions won't be enough. In parallel, society must direct trillions of dollars to finance transformative climate adaptation action to make our world more resilient now, not decades from now.  

That's why the United Nation's COP27 climate summit in Egypt in November, which I'm attending, comes at such a pivotal moment. It offers nations an opportunity to work together not only on cutting emissions, but also to grapple with accelerating the adaptation needed to protect our natural and built environments from forces unleashed by climate change that's already happened.

Its clear governments cannot do this alone. Public-private partnerships are necessary, and re/insurers are critical supporting partners in this global race to resilience. 

I'm aware the world is facing many challenges right now, as war in Ukraine fuels energy and inflationary shocks. Three years after COVID broke out, it's clear we all suffer from constrained capacity to manage yet another crisis. Even so, it's critical that we keep our focus when it comes to mitigating and adapting to climate change. 

Adaptation efforts have some unique features that make them difficult to accomplish on a large scale; here are four reasons why we have not seen an 'adaptation boom' yet:  

While climate change is a global phenomenon, much of the adaptation necessary to counteract its effects are local. They include projects to prevent coastal erosion, buttress ports against wind and waves or to shield vulnerable cities from intensifying flooding or heatwaves.

Such fragmentation of adaptation actions requires multiple (often local) stakeholders and makes it difficult to see the big picture or align behind a single metric of success (like GHG reduction is for mitigation targets anywhere in the world).  

It’s challenging to compare proposals and projects competing for the same limited funds and take comfort that we are indeed taking the right decisions. After all, we don’t have holistic adaptation roadmaps that cut across all levels of societies and sectors, backed by common assessment methodologies to give us confidence our efforts (and money) are well spent.  

Adaptation efforts are also costly. And since climate change often hits vulnerable populations hardest, that means adaptation work is often most needed in regions where people and governments have limited financial resources. Lack of adaptation funding and well-informed technical assistance fuels a spiral of progressive poverty with each year of inaction.

Lastly, these projects often don't lend themselves well to traditional commercial financing models, as "adaptation dividends" often come as a "loss avoided" rather than additive cash flow an investor can invest into.

Nonetheless, adaptation is essential if we are to sustain our productivity, since both slow-onset perils such as droughts and high-intensity events like hurricanes can bring an ill-prepared society to its knees, including by leaving hydropower facilities with insufficient water to operate or hospitals and emergency services overwhelmed. The sooner we acknowledge adaptation is a global and challenge we must tackle with urgency, the sooner we will devise sustainable and effective strategies that protect our societies - not just in isolated pockets, but as holistically as possible. 

This demands partnerships, since adaptation needs are so widespread and so monumental that they cannot remain the remit of actors working alone. Statistics suggest the public sector now accounts for almost all adaptation projects financed, and that's just a fraction of all projects we collectively need to safely adapt.

The public sector can't do it alone. Leveraging more private investment capital and expertise is needed to drive forward adaptation on the scale necessary to protect a world where climate change has long since arrived. Fortunately, there are good examples of how governments and private entities can link up on adaptation goals.  

For instance, the Red River that crosses from the US into Canada's Lake Winnipeg overflows its banks with alarming regularity, swamping communities including Fargo, North Dakota. That's about to change: A public flood control project will manage flooding by rechanneling a portion of the river. Swiss Re is among private partners helping with financing, demonstrating how re/insurers use their investment muscle to support adaptation. 

Another public-private project where Swiss Re has lent its insurance expertise is the Prince Hendrik Sand Dyke, on Texel Island off the Dutch coast. The project not only protects against rising sea levels and intensifying North Sea storms, but also improves fish production and water quality along the Netherlands Atlantic Coast.  

While local at their core, such projects illustrate how adaptation can transcend borders, and how well-devised projects with a range of backers, ex ante de-risking and financing models that optimize the capital stack for broader mobilization of private and public funds - even from overseas investors - can protect local communities, align economic interests, and result in positive outcomes.  

Re/insurance has potentially another important role to play, by embedding climate adaptation criteria in underwriting considerations that raise awareness and encourage future-oriented, good decision-making. Over time, adaptation-informed insurance products may emerge, expanding choices for public sector authorities, corporates and consumers alike. 

Coherent policies and building codes promoting higher resilience outcomes and encouraging adaptation efforts must be scaled up quickly for maximum impact. Policies should require the assessment of potential harm or co-benefits, while aligning incentives across stakeholders so we can build back better after disaster strikes.

Many regions are making progress. Adaptation initiatives embedded in Europe's "Green Deal" and China's National Strategy on Climate Adaptation 2035 are indicators that policy makers take adaptation seriously. There are similar efforts in the US and New Zealand, while Canada  is about to publish its first national adaptation strategy. 

Over the next two decades, massive global infrastructure investments of USD 3.3 trillion annually, or USD 66 trillion total by 2040, are needed, according to the Swiss Re Institute. Two thirds of these investments are needed in emerging markets, which represent places most vulnerable to climate change and which will require significant adaptation. These countries' ability to amp their institutional capacity to run multi-year, complex infrastructure programs is a condition necessary to attracting more private financing.  Just as critical is the ability of private sector players to access properly de-risked investments in these countries, and that requires a much bolder role of multilateral development banks, one that may even lead to a reform of these institutions, as suggested by the US Secretary of the Treasury Yellen – with the double aim of preserving the DFIs  capitalization and AAA status whilst allowing for much higher private capital mobilization.  

Though we currently remain far from unlocking the necessary financing at scale to accomplish this, I am heartened by the recent launch of adaptation-specific funds backed by a blend of public and private capital, subscribing to world class transparency and impact disclosure standards, that I hope will serve as trailblazers for others.

When Hurricane Fiona made landfall in Canada in September, it immediately caught my attention, given my years working there. Fiona is due to be the country's most expensive, destructive hurricane ever. Experts called it a warning for Canada to adapt its infrastructure to withstand natural catastrophes – hurricanes, but also wildfires and flooding – that will become more frequent and more extreme. 

Ultimately, however, events like these also send a global message: We must think bigger as we leverage public-private partnerships to create a world capable of withstanding the consequences of climate change and thriving despite them.