Assessing Climate Change Costs with Systemic Resilience Metrics: A
Forward-Looking Approach

22 February 2024

Climate change poses a significant threat to infrastructure, with rising sea levels, extreme weather phenomena, and escalating temperatures posing substantial physical risks. These hazards can lead to the degradation of crucial infrastructure assets, undermining social, economic, and environmental stability.

Recent analysis by EDHECInfra, as featured in the Global Infrastructure Hub's Infrastructure Monitor report, underscores the scale of the situation. Projections based on current climate and policy scenarios indicate that by 2050, infrastructure assets could see a net value decline of 4.4% on average, and up to 26.7% in the most severe scenarios. This depreciation is a direct consequence of the lack of resilience of global infrastructure to the effects of climate change.

The consequences of inaction are far-reaching, affecting not just the financial performance of assets, but also the economic, environmental, and social fabric of communities worldwide. One promising strategy to mitigate these risks involves the adoption of a systemic resilience metrics (SRM) framework tailored specifically to infrastructure. 

The Imperative for Systemic Resilience Metrics

Current tools and metrics for evaluating infrastructure resilience effectively tackle physical climate risks either on a sovereign level or on an individual project basis. However, they fall short of addressing the systemic impacts that would be necessary to correctly price these risks within the financial system. This gap in understanding and application often overlooks the wider, system-wide impacts, such as utility disruptions in urban settings and the domino effects of network failures, which disproportionately impact underdeveloped communities. 

Examples of Systemic Frameworks

Several organisations are already working towards establishing systemic frameworks that demonstrate how the inclusion of physical climate risks in infrastructure investment decisions and prioritisation can significantly reduce macro- and socio-economic risks. 

• The Coalition for Disaster Resilient Infrastructure (CDRI) recently launched its Global Risk Model and Resilience Index (GIRI), a probabilistic risk tool which generates a comprehensive set of publicly accessible financial risk metrics for 243 countries, covering all major infrastructure sectors and hazards. The model estimates metrics, including Average Annual Loss (AAL) in US dollars, which measures the resources that governments would need to set aside each year to recover asset loss and damages due to hazards and climate change.
• The INFORM Risk Index is a global, open-source risk assessment for humanitarian crises and disasters. The database was developed by the Inter-Agency Standing Committee Reference Group on Risk, Early Warning and Preparedness and European Commission to support decisions about prevention, preparedness, and response. INFORM provides disaster risk profiles of 191 countries and utilises 50 different indicators, such as related individual countries’ natural and human hazards, socio-economic vulnerability, and the coping capacity of local infrastructure and institutions. 
• S&P Global Ratings has completed a global assessment of 135 countries’ vulnerability (in terms of economic losses) to the physical impacts of climate change for various climate hazards, and their readiness to adapt or mitigate those losses. This analysis provides insight into the impact that climate change can have on sovereigns’ creditworthiness and rating criteria.

While there is a clear push to establish systemic frameworks, as illustrated by the examples above, formal coordination for a defined set of universal standards to achieve widespread adoption of these metrics at the systemic level is lacking. This absence hinders the ability to make informed infrastructure investment decisions related to climate risks.

CCRI Legacy Programme's Systemic Resilience Metrics Workstream

The CCRI Legacy Programme's SRM workstream (which is currently ongoing) aims to address the lack of systemic resilience metrics by aggregating and mapping metrics and methodologies quoted in literature and that are being used by organisations globally. The workstream will establish the current state for systemic resilience metrics so that a targeted, practical solution can be developed to support financial markets in infrastructure.

The findings from this baseline analysis will be used to develop a framework which aggregates the ‘building blocks’ of key SRMs and their attributes, such as the measurement ranges, metric types, nomenclature, and benchmarking values. To support this, a workshop with public and private sector experts was recently convened. The findings and insights from this workshop will inform our SRM workstream moving forward, making infrastructure risk and resilience more visible to investors.

Expected outcomes from this novel workstream are to encourage financial institutions and credit rating agencies to evolve the way that physical climate risks are accounted and managed within infrastructure projects and systems. Furthermore, the workstream outputs could also help regulators identify the right incentive structures for private capital mobilisation in resilient infrastructure projects. Broadening investment evaluation methodologies to encompass not just asset-specific risks, but also system-wide risk and resilience, is paramount in creating infrastructure investments that are not only resilient but also inclusive, addressing the needs of all individuals, especially those most vulnerable to the ramifications of climate change. 

Our role in addressing the resilience and adaptation gap 

The Global Infrastructure Hub (GI Hub) recently assumed the role of Secretariat of the Coalition for Climate Resilient Investment (CCRI) Legacy Programme. This position enables the GI Hub to foster collaboration and bolster the ongoing efforts of CCRI's legacy partners in weaving climate risks into the fabric of investment decision-making, especially for institutional investors.

The GI Hub will also be delivering a dedicated workstream on systemic resilience metrics (as described above) to advance private capital mobilisation towards more resilient infrastructure projects.

The GI Hub will also work closely with other CCRI Legacy Programme partners to realise the synergies and efficiencies between the workstreams. The CCRI Legacy Programme is funded by UK International Development in partnership with the UK Foreign, Commonwealth & Development Office (FCDO), Institutional Investors Group on Climate Change (IIGCC), Oxford University, and the Caribbean Community Climate Change Centre (CCCCC).