A novel approach to climate-proof infrastructure

Before we get into today’s newsletter, I’d like to bring to your attention our climate colleagues’ report that October smashed temperature records. As if it were not already bleedingly obvious, 2023 is poised to be the hottest year ever.

Today, Kaori reports on a UN team developing insurance to help cities cover their costs of hurricanes, fires and other disasters fuelled by global warming.

And I write on new research about increasing emissions from meat and dairy companies. As always, thanks for reading. — Patrick Temple-West

Sustainable development

A new way to take the heat out of climate-related insurance

How can we reverse the exodus of insurance companies from cities vulnerable to climate risks? A team of economists, climate scientists and insurance professionals led by the UN Capital Development Fund is trying to tackle this question.

As extreme weather events become more common, ballooning costs from extreme weather events have pushed insurance companies to withdraw coverage in high-risk locations, as we’ve previously discussed.

To reverse that trend, the UNCDF-led team is developing long-term insurance to help cities cover growing bills related to natural disasters. Pilot programmes to limit flood risk are being planned in South Africa and in the Philippine city of Makati, in Metro Manila.

Under this 10-year insurance plan, which organisers are calling Climate Insurance Linked Resilient Infrastructure Financing (CILRIF), cities would pay a premium that can be reduced if they invest in climate resiliency infrastructure such as sea walls or wider drainage systems.

Abhisheik Dhawan, sustainable finance and partnerships specialist at UNCDF, likens the attitudes around climate insurance to those around our own health: “We are hopeful, so we never think that we will ever go to a hospital.”

But threats to infrastructure are on the rise due to the effects of climate change. According to estimates by reinsurance company Munich Re, climate-related catastrophes such as hurricanes and wildfires cost about $120bn globally in insured losses and $270bn in uninsured losses last year.

Spending $1 on climate resiliency, however, is worth $6 in avoided disaster reconstruction costs, according to research from the National Institute of Building Sciences.

Still, challenges remain for CILRIF to expand beyond its pilot cities to the 100 target cities they’ve identified. First, the team will need to determine the models to use for pricing premiums, said climatologist Adam Sobel, a professor at Columbia University and CILRIF working group member. Sobel stressed the need for “forward-thinking physical modelling”, since available models are derived from historical data.

Insurance companies will also need proof that the climate resiliency strategies are effective.

“How can the insurer be confident that the intervention actually does reduce the risk? How can they ensure that the implementation will be done as planned as agreed?” asked Michael McCord, managing director of the MicroInsurance Centre at Milliman, an actuarial and consulting firm. “One of the biggest challenges is just getting the insurers to be confident that these interventions will work,” he stressed.

While there are still unsolved bits of the puzzle, it’s a novel attempt at solving a growing problem. “Hopefully this will open a new market for insurers . . . without compromising their profitability,” Dhawan said. (Kaori Yoshida, Nikkei)

Corporate carbon emissions

Emissions are on the rise at meat and dairy companies

The COP28 climate summit in Dubai is right around the corner, and one of the major concerns on this year’s agenda will be the role of agribusinesses in carbon emissions.

Meat and dairy businesses are some of the world’s biggest polluters. Livestock emissions comprise 14.5 per cent of all greenhouse gas emissions, according to the UN’s Food and Agriculture Organization.

In its sixth annual report, the Fairr Initiative — founded by the London-based financier Jeremy Coller to track emissions from meat and dairy companies — found a 3.3 per cent rise in emissions disclosed this year by 20 of the largest publicly listed meat and dairy producers.

While emissions decreased at companies including Tyson Foods and Danone, this was offset by increases at other businesses. Danone was one of three dairy companies added to Fairr’s list this year.

“Fairr’s research underlines the urgency with which the livestock producers should act to transition to more sustainable production,” Oshni Arachchi, head of responsible investment at Danske Bank, said in a statement.

The report touches on the role of alternative proteins in cutting carbon emissions. A total of 25 meat and dairy companies have invested in alternative proteins, Fairr said, compared with only a handful in 2019. While plant-based proteins have lower carbon emissions, companies have been investing in these products due to customer demand — not for their sustainability attributes, Fairr said.

And customer demand might be flagging as well. Beyond Meat, a publicly traded alternative protein producer, said on Wednesday that its US retail sales fell by one-third in the third quarter of this year, and its share price is down 40 per cent from a year ago.

Fairr’s report comes as European regulators are getting tougher on the agriculture sector’s carbon output. Earlier this month, Denmark’s climate minister said EU farmers should pay for their greenhouse gas emissions. Agriculture is the third-biggest emitter of greenhouse gases in the EU, and could become the biggest by 2040 if it does not cut pollution as fast as other business sectors.

At COP28, companies are expected to be pressured to accelerate emissions cuts. Lucrezia Tincani, head of policy at Fairr, said the group was hoping for two things at the meeting. First, the FAO should create a 1.5C road map for the agri-food sector, which would match the Paris agreement’s goal of limiting global warming to 1.5C. Second, G20 countries must include agricultural emission cuts as part of their national climate contributions.

“It is clear that food emissions have a place at the top table alongside energy this year,” Tincani told me. “The foundations are in place for significant progress on reducing emissions from the agri-food sector. But, as always at COP, success will be determined at the negotiating table.” (Patrick Temple-West)

Smart read

Shell is suing Greenpeace for at least $2.1mn in one of the largest-ever legal claims against the environmental group after its protesters occupied a vessel for 13 days earlier this year, our colleague Tom Wilson reports.