Climate Resilience Handbook 2018

CLIMATERESILIENCE2 018 H A N D B O O K

CLIMATERESILIENCE2 018 H A N D B O O KFOREWORD2017 sparked new momentum towards building organizational climate resilience.Milestones included many influential public and private organization initiativesand a renewed commitment to limit global warming to two degrees Celsius andnew opportunities in the low-carbon economy. Costly, volatile extreme weatherevents demonstrated that organizations must prepare for a new normal.In June, the Financial Stability Board’s Task Force on Climate-related FinancialDisclosures (TCFD) called on companies to disclose how physical climate–related risks and the transition to a low-carbon economy may affect corporateperformance. By December, nearly 250 companies and financial institutions hadcommitted to implementing the recommendations, and 130 investors with overUS 13 trillion in assets encouraged the G20 to include the recommendations intheir financial disclosure rules.The June G20 Summit concluded that green finance is an important solutionto a range of complex, interconnected global challenges and the momentumcontinued with the G20 Green Finance Conference in Singapore in November.Throughout the year, regulators around the world have taken steps to stimulateand support green financing. For example, implementing new disclosurerequirements for the issuance and listing of green debt securities from India’sSecurities and Exchange Board.

In December, two years since the signing of 2015 Paris Accord, France hostedthe Climate Finance Day and the One Planet Summit to energize the financialsector to “shift the trillions” to support a low-carbon economy. A growing rangeof investors also reduced holdings in fossil fuel companies, and many largeinsurers have stopped covering coal-related projects.Governments and regulations further drove the shift to a low-carbon economy,aided by new technology developments. The UK and French Governmentscommitted to phasing out petrol and diesel cars by 2040. In June, renewablesprovided 10% of the US’ electricity; and in November, Australia hit the on switchon the world’s largest battery, strong enough to power 30,000 homes.Taken together, with the convergence of the low-carbon economy and thefourth industrial revolution, experts predict that US 1 trillion worth of newmarkets will develop over the next decade. Incumbents are facing disruptivestart-ups in determining who will capture the opportunities.Climate-related risks dominated the rankings of the top five threats to globalprosperity in the World Economic Forum’s Global Risks Report 2018. Fromhurricanes to wildfires, heatwaves, and droughts to prolonged floods, 2017 wasa record year for natural disasters with 31 billion-dollar weather events globally.We do not yet know what is in store for 2018, but the focus on building climateresilience must continue.In this context, I am pleased to present the inaugural edition of 2018 MMCClimate Resilience Handbook. Drawing on the expertise and capabilities of ouroperating companies—Marsh, Guy Carpenter, Mercer and Oliver Wyman—these articles provide our collective insights on three distinct areas of action:strategies for climate resilience, financing for climate resilience, and how toleverage risk management tools to increase climate resilience.We trust you find these articles informative and stimulating.David BatchelorVice ChairmanMarsh LLC, Chair, MMC Climate Resilience Working Group

TABLE OFCONTENTSS T R AT E G I E S3WHY RESILIENCE ISESSENTIAL IN AVOLATILE WORLDJoel Makover7HOW CLIMATE RESILIENT ISYOUR COMPANY?Lucy Nottingham and Jaclyn Yeo13SUSTAINABLE RETAILMichael Lierow and Sirko Siemssem17SETTING STRATEGIES FORSUSTAINABLE ENERGY19SUPPORTING THE CIRCULARECONOMY TRANSITIONCornelia Neumann andAndreea Achimescu25AVIATION FUELS, STAGE TWOBob Orr, Eric Nelsen, Geoff Murray,and Bjoern Maul29SUSTAINABLE URBANLOGISTICSJohn DaviesCopyright 2018 Marsh & McLennan Companies

FINANCINGRISK MANAGEMENT3571A STRESSING CLIMATE?Jane Ambachtsheer, John Colas,Ilya Khaykin and Alban PyanetUNLOCK GROWTHBY INTEGRATINGSUSTAINABILITYLucy Nottingham39FINANCING CLIMATERESILIENCE75EXTREME WEATHERTHREATENS GLOBALSUPPLY CHAINS77EXTREME WEATHER MAKINGLANDFALL ON BUSINESSPeter Reynolds and Gaurav Kwatra45HOW BONDS CAN CLOSE THECLIMATE ADAPTATIONFINANCING DEFICITTom MarkovicAlex Bernhardt49FINANCING FLOODPROTECTION83Charles Whitmore53FINANCING A GREEN FUTUREJaclyn Yeo57INCREASING CLIMATERESILIENCE THROUGH RISKFINANCINGThomas London and Robert Wykoff63PATH TO SUSTAINABLEINFRASTRUCTUREUSING CAPTIVES TOMITIGATE CLIMATECHANGE RELATED RISKSEllen Charnley87CLIMATE CHANGE AND THEEVOLVING CORPORATEGOVERNANCE LANDSCAPEMelita Simic91 "EYES IN THE SKY" NOWROUTINE FOR DISASTERASSESSMENT AND RECOVERYBev Adams and Duncan EllisAmal-Lee Amin andJane Ambachtsheer65SOLD! USING AUCTIONS TOUNLOCK CAPITAL MARKETSFOR CLIMATE ACTIONBenjamin Chee and ChantaleLaCasseiv

Copyright 2018 Marsh & McLennan Companies

STRATEGIESFOR CLIMATE RESILIENCEHow countries, communities, and companies canthrive as technological innovation and the shift toa low-carbon economy converge.2

S T R AT E G I E S F O R C L I M AT E R E S I L I E N C EWH Y R E S ILIE N C EIS ESSENTIAL IN AVO L AT I LE WO R LDJOEL MAKOVERCopyright 2018 Marsh & McLennan Companies

A NEW FOCUS ON RESILIENCEFor decades, “sustainability” has embodied thefull measure of environmental and social goals —aligned, always, with economic ones. That triplebottom line has nicely described the overarchinggoal of a wide range of endeavors by individualsand families, companies and institutions,communities and nations.Increasingly, though, a new word is on the scene,one that similarly articulates a state of beingand that acknowledges that meeting the needsof both present and future generations in adynamic and dangerous world likely will involvemyriad twists and turns.4

THE WORD: RESILIENCEUnlike sustainability, resilience already resonatesfor the uninitiated: Being a resilient personmeans withstanding shocks of many kinds —job loss and financial setbacks, death of lovedones and other relationship endings, illnessand disabilities, and other life challenges. Beingresilient means bouncing back from adversity,adapting to change, and coping with whateversurprises come our way — in essence, beingready for anything.FOR COMPANIES, COMMUNITIESAND THE PLANETIn a world roiled by extreme weather, massmigration, political turmoil, cybersecurity,economic swings, terrorism, wars and otherconflicts, resilience has become a cornerstoneof sustainability. As our brittle infrastructure andsupply chains increase risk to organizations’finances, reputations, and business continuity,being resilient is key to being sustainable, inevery sense of the word.The military gets this. Defense Departmentdirective 4715.21, issued in early 2016, entitled,“Climate Change Adaptation and Resilience,”aims to facilitate federal, state, local, tribal, andprivate- and nonprofit-sector efforts “to improveclimate preparedness and resilience.” It is thelatest in a long series of assessments, strategy,and planning documents from the Pentagondating to 2003, during George W. Bush’s firstterm as president.The latest directive states: “All DoD operationsworldwide must be able to adapt currentand future operations to address the impactsof climate change in order to maintain aneffective and efficient U.S. military.”Also last year, a coalition of 25 military andnational security experts, including formeradvisers to Ronald Reagan and Bush, warnedthat climate change poses a “significant risk toU.S. national security and international security”that requires more attention from the federalgovernment. The DoD has called climate changea “threat multiplier” that could demand greaterhumanitarian or military intervention and leadCopyright 2018 Marsh & McLennan Companiesto more severe storms that threaten cities andmilitary bases and heightened sea levels thatcould imperil island and coastal infrastructure.The building and infrastructure sectors are alsotalking increasingly about resilience. Last year,the architecture-and-design firm Perkins Willintroduced the RELi resilience standard,aimed at encouraging city planners, projectdevelopers, and companies to build and operatefacilities that can better withstand superstorms,sea-level rise, drought, heat waves, or evensocial unrest. Meanwhile, the U.S. GreenBuilding Council, creator of the LEED greenbuilding standard, approved three LEED pilotcredits on resilience in design.And what’s good for buildings is good for thecities where they reside. The resilient citiesmovement — spurred by the 100 Resilient Citiesinitiative, which supported the creation of ChiefResilience Officer positions in cities aroundthe world — has helped metropolitan areas inharm’s way of sea-level rise and other calamitiesimprove planning and emergency services. Andit’s not just about climate change: Resilience forcities often means shoring up the social fabric,addressing housing and other inequities andcreating a unified sense that in the face of shocksof any kind, everyone needs to come together.What about companies? They, too, arerecognizing they need to be prepared for shocks— climate shocks, of course, but also political,public health, economic, and terrorism shocks —so that they can adapt and bounce back quickly.The experience of extreme weather eventssuch as Superstorm Sandy in 2012 disruptedan estimated 10,000 manufacturing facilities inthe Northeast U.S. and stalled an estimated 20percent of the U.S. commercial trucking industryfor a week or more, according to an assessmentby the U.S. Department of Commerce. Localutilities found themselves without sufficient fuelto send trucks to fix the storm’s damage, amongother signs of a lack of preparedness for suchinevitable natural disasters.Around the world, Hurricane Katrina in NewOrleans in 2005, the Sendai Earthquake andtsunami in 2011 in Japan, the 2012 floodsin Thailand, and Typhoon Haiyan in the