Weathering the storm

MARCH 2024

By Anthony Casciano and Mary Claire Morris

Climate and weather-related disasters—including droughts, severe storms, flooding, and extreme temperatures—are nearly five times more likely than they were 50 years ago. This poses risks to communities, businesses, and the global economy, highlighting the importance of climate resilience and adaptation. Financing is needed to level-up global efforts, yet recent figures indicate that we are severely under-allocating capital to meet the challenge.

Of the $1.3 trillion in climate finance flows during 2021-22, less than 5% was directed toward climate adaptation or efforts aimed at adjusting to or preparing for the impacts of climate change. The vast majority of climate capital was allocated to climate mitigation or efforts to reduce greenhouse gas emissions and curb global warming.

While rapid decarbonization is critical, it is equally important to ensure our communities, economies and environment are prepared for the impacts of climate change that are already occurring or inevitable. Lenders like Siemens Financial Services (SFS) are helping businesses at every stage of the supply chain reimagine their sustainability strategy. However, more engagement from the private sector is needed in order to progress.

Reversing climate change

An increased global awareness of climate change triggered an explosion of the green economy and commitments to net zero in recent decades.

Resources available to the business sector to help address decarbonization are abundant, including SFS’ Decarbonization Business Optimization (DBO™) tool—a digital tool that removes the initial knowledge barrier and uncovers the high value strategies to cost-effectively decarbonize a company’s facilities.

The DBO™ uses data from a multitude of trusted sources to provide small-to medium size businesses (SMEs) with their current carbon footprint, customized scenarios based on their focus, and a summary of what their return on investment would look like. It allows users to input an address to a building and understand decarbonization pathways based on the energy profile. The tool provides customers with actionable insights to decrease their emissions, supporting climate change mitigation efforts.

Resources like the DBO™ are enabling great strides toward climate mitigation, alongside international commitments like the Paris Agreement and the U.S. Inflation Reduction Act.

However, climate change is still surpassing these efforts. For the first time, the world surpassed 1.5 degrees Celsius of warming above pre-industrial levels across an entire year, as of January 2024. Staying below 2 degrees Celsius remains a daunting task, and people throughout the world are experiencing the consequences. Along with decarbonization efforts, we need to better prepare our communities and global supply chains for the brunt of a warming world.

Investing in climate resilience and adaptation

Climate resilience encompasses both mitigation and adaptation, focusing on building robust systems capable of withstanding and recovering from climate-related shocks and stresses. The most vulnerable communities contributing the least to climate change are disproportionately impacted by climate-related disasters. As the frequency and severity of these disasters continue to rise, the need for substantial investment in climate adaptation becomes increasingly urgent.

The United Nations estimates that up to $387 billion per year of adaptation finance in developing countries will be required by 2030 to bolster technology, agriculture, and water systems for climate risks. Addressing these needs is not only a matter of economic necessity but also an ethical imperative. Though steep, every dollar invested in adaptation could yield net economic benefits ranging from two to 10 dollars, in the form of risk reduction, increased productivity, and innovation.

Of the global climate finance flows directed toward adaptation in 2021-22, over 98% is sourced from public actors, leaving a significant gap in private sector engagement. This imbalance is due in part to the perceived risks and returns associated with adaptation investments.

Unlike mitigation efforts, which often offer clear financial incentives such as energy cost savings or carbon credits, the benefits of adaptation measures are less tangible and harder to quantify. This creates a reluctance among both private and public actors to allocate capital to adaptation projects, especially when faced with competing investment opportunities or capital needs.

Moreover, there's a lack of awareness and understanding of climate risk in the localized context. While a wealth of data on historical climate events exists, integrating future climate projections and their impacts into project planning remains difficult. This lack of understanding stifles capital allocation, hindering progress in climate adaptation.

Driving climate resiliency

As part of Siemens’ Tech for Sustainability Campaign, SFS launched a “Driving Climate Resiliency” challenge aiming to increase awareness of climate adaptation needs and encourage action. Our challenge garnered submissions from 25 countries, proving the pertinence of climate resiliency across the globe.

We challenged participants to build a tool that identifies climate resiliency opportunities and adaptation measures businesses can take—specifically for their buildings—based on location-specific climate risk.

The winning team, CRISP-X, created a tool that once fully developed will provide businesses with insights into the likelihood and severity of climatic events at their locations, offering adaptation and resilience building strategies. The tool aims to empower users with proactive risk management and informed decision-making, while promoting sustainable practices and contributing to a resilient and environmentally conscious business ecosystem.

The proof is in the portfolio

With tools like the one developed by CRISP-X, the private sector can take a more data-backed approach to investments in climate resilience and adaptation. SFS is among the lenders already helping customers boost climate resilience and adaptation measures at their facilities utilizing innovative financing solutions backed by technology. Just as we continue to finance the energy transition, we want to put our dollars to work in ensuring a resilient future.

For example, we helped Plus Power finance five battery energy storage system (BESS) facilities in Texas and Arizona. Weather events caused by climate change, such as heat waves and intense winter storms, are triggering record demand for electricity. Energy storage is essential to maintaining a reliable grid that can withstand extreme weather events, while decarbonizing energy sources to combat climate change.

From a different angle, we provided financing to support Charger Investment Partners’ acquisition of CMI Limited Co., which designs and manufactures sustainable materials for shoreline preservation and marine access. With sea levels rising, the durability of these materials is important for flood zones and ports.

SFS’ vision is to drive forward climate resiliency by helping our customers both decarbonize their operations and adapt their facilities, identifying opportunities for growth.

Conclusion

The impacts of climate change are devastating, and it is critical that both the public and private sectors take action to mitigate and adapt. With smart technology and increased financing, we can build a more resilient future.