This research project, divided into three separate papers, takes a practical approach by focusing on the real estate and water sectors in London and the UK.
Based on industry insights, this three-part research is part of the “Financing Adaptation and Resilience in London and the UK” project. The project identifies and discusses drivers and challenges for investing in adaptation and resilience and necessary changes for developing capital market solutions in London and the UK. This research has been conducted by the Centre for Climate Finance & Investment (CCFI) at Imperial College Business School and the Singapore Green Finance Centre, following papers focusing on adaptation and nature financing (Buhr, B. (2022; Holtedahl, P., Köberle, A. & Koci I. (2023); Whittaker, S. & Nguyen, T. (2023)).
Financing Adaptation and Resilience in London and the UK: Moving from Aspiration to Reality – Part I – Case Studies Analysis
June 2024 | Authors: Stella Whittaker, Raffaele Della Croce, Claudia Hlavackova
Part I: Case Studies Analysis of the research project highlights various adaptation and resilience investment and financing models, with eight case studies in London and the UK. The analysis responds to the following three questions: What is the investment proposition and the role of the private sector in adaptation and resilience? What are the main investment models and financing instruments for private investors in these areas? What are the major investment drivers for institutional investors such as pension funds and insurers?
Financing Adaptation and Resilience in London and the UK: Moving from Aspiration to Reality – Part II – Urban Adaptation Financing
August 2024 | Authors: Stella Whittaker, Raffaele Della Croce, Claudia Hlavackova, Phuong Nguyen
Part II: Urban Adaptation Financing delves into the current state of adaptation finance in London, making a comparison with Copenhagen and Singapore. This comparison is particularly significant as it allows us to draw lessons from cities with different approaches and experiences, enriching our understanding of urban adaptation financing. The research primarily focuses on private investment and aims to learn about the experience of London (covering the greater London area) in the delivery of climate finance and financing for urban climate change adaptation and understand the potential barriers and opportunities to mobilising finance. The research question ‘To what extent can cities and investors build for innovation in climate adaptation in cities?’ aims to inform and promote a better understanding of financing for climate change adaptation actions.
Financing Adaptation and Resilience in London and the UK: Moving from Aspiration to Reality – Part III – Policy Recommendations
November 2024 | Authors: Raffaele Della Croce, Stella Whittaker, Claudia Hlavackova
Part III: Policy Recommendations develops policy recommendations, taking into consideration the current policy context. Drawing on insights from the case studies analysis and the London urban adaptation finance research (Part I and II), this paper develops several recommendations; addressing policymakers, regulators, and the financial industry — primarily banks, asset managers,exchanges, and marketplaces. Several recommendations need to be addressed simultaneously to enable private investment into adaptation in London and the UK and these activities need to be embraced byall actors: investors, regulators, Government, Ofwat, The Bank of England, standard setting agencies,corporations, and development companies.
Key takeaways:
Cities are highly vulnerable to climate change, and London faces increasing risks from extreme rainfall, flooding, storm surges, and droughts. Without substantial investments in adaptation, urban areas, their economies, infrastructure, and inhabitants face significant vulnerability to climate-induced extreme events, resulting in substantial costs. At the urban level, climate change intersects with health, social, and economic inequalities. As climate change does not impact the population in the same way, it is critical to identify those who are most exposed and vulnerable to climate hazards.
London lags behind other cities, such as Singapore and Copenhagen, in its adaptation financing efforts. As reported by the London Climate Resilient Review, published last July, a lack of financial and human resources is a major challenge to the implementation of adaptation measures at the local level. Despite its reputation as a green finance centre, London relies heavily on public funds, highlighting the need for greater involvement of private capital. The policy and financing ecosystem in Greater London is fragmented, with multiple layers of policies and funding sources not aggregated. While planning and strategic initiatives have been present longer, financing initiatives have only started to emerge more recently.
Investing in nature-positive city infrastructure remains crucial to addressing biodiversity loss and climate change impacts. Urban vegetation, including street trees, green roofs, and green walls in urban green spaces and green buildings, can be a crucial adaptation measure for heat and air pollution risks while enhancing biodiversity. Bioswales, rain gardens, and retention ponds can improve flood management and soil quality. To fully appreciate the wide range of ecosystem benefits generated by natural capital and nature-based solutions in cities, economic valuation has gained a significant role.
Investors are undertaking climate-proofing measures for infrastructure and property driven by new regulations such as the Biodiversity Net Gain and TNFD Guidance. Measures include retrofitting office buildings with energy-efficient systems, installing flood barriers, and diversifying their investment portfolios to include more climate-resilient assets.
The London housing crisis is an opportunity to rethink urban planning and better incorporate social and environmental sustainability. London is currently facing a severe housing crisis with a shortfall of over 60,000 homes, affecting the most vulnerable members of the population. To improve urban adaptation and preserve biodiversity, we need changes in human behaviour driven by holistic urban planning, sustainable transportation, and incentives highlighting sector interconnections.
There are opportunities at the local level to innovate in climate finance, such as mobilising community and cooperative forms of finance, crowdfunding, or extending the Green Gilts and Bonds offered by the government and National Savings and Investment (N&SI) to allow investors and retail savers to contribute to the supply of capital for adaptation.
The UK Infrastructure Bank has a significant role in supporting local capability in addition to financing. It can contribute with dedicated lending offerings for climate projects or borrow from markets through Green and Sustainable Bonds. Developing a local municipal bond market in the UK requires setting local adaptation plans and targets.
Singapore offers best practices for Greentech and new instruments for insurers to cover the protection gap. Global reinsurers are developing digitalisation, data analytics, and sustainability solutions for bespoke disaster risk financing, carbon credits, and renewable energy infrastructure. Given the sizeable protection gaps in Asia, Singapore is also focusing on better data for climate and alternative risk transfer instruments to expand capacity and become a hub for the region. The Monetary Authority of Singapore has a leading role and is focusing in particular on three alternative risk transfer initiatives: insurance-linked securities, captive insurance, and sovereign catastrophe risk pools.
Artificial intelligence technology and ‘big data’ can help financial actors manage hazard risks more effectively while offering investment opportunities. Technologies such as digital twins, remote sensing, and smart sensors can be leveraged to provide regularly updated and automated information processes, thus enabling regular monitoring of the status of infrastructure systems and their resilience. However, while synergies between FinTech and sustainable finance are promising, the broader trend towards digitalisation in economic and financial realms necessitates careful consideration of associated trade-offs, such as the increased energy use of data centres.