The financial services industry is beginning to recognise that climate risks are not always adequately priced in investments, says Carlos Sanchez, director of climate resilience investment at Willis Towers Watson (WTW).
Because of that valuation risk, "we need to develop very practical solutions for a better integration of climate risk in investment decision making," he says.
Hence the launch of the Coalition for Climate Resilient Investment (CCRI) in 2019, a public-private coalition spearheaded by WTW with the support from the UK government, the World Economic Forum and the Global Commission on Adaptation to foster an accurate pricing of physical climate risks in investment decision-making.
Sanchez thought with the pressure to respond to the Covid-19 pandemic, the partners would deprioritise action on climate change.
"But what we saw was rather the contrary. Institutions were doubling up their support for the CCRI. The reason we believe is that Covid-19 has highlighted the potential impact of the risk that we are probably mispricing."
The initiative has quickly grown with more than 65 members representing over $11trn in assets including institutional investors, banks, insurers, the State of California, and governments of the UK, Canada and Jamaica. In January, the Australian government became the latest to join the CCRI.
One judge says: "The volume of institutions signed up and the level of support from other stakeholders suggest this could have a real difference."
Sanchez attributes the coalition's victory to the diversity of industries involved in the initiative.
"We have asset owners, large pension funds, asset managers, banks, credit rating agencies and engineering firms. It is maybe an initiative that is [succeeding] in bridging the gap between industries."
By 2025, the CCRI intends to implement solutions to manage exposure to social and economic value at risk, and maximise investment, in at least 30 economies.
