Today, institutional investors in the OECD countries alone manage assets worth almost 80 trillion USD. If just a fraction of this large volume of capital were directed towards investments in infrastructure resilient to extreme weather, both societies and investors would benefit. For instance, local and national governments would receive the help they need to meet the vast capital costs of investments required to protect cities and infrastructure from increasingly frequent extreme weather events. At the same time, institutional investors would get the chance to invest in asset classes with a steady income stream in the long term. These assets also have a low association with other classes of assets, thus lowering investors’ overall risk profile.
The World Bank estimates that just one percent of the assets managed by pension funds today are invested in infrastructure, but sees great potential in increasing this figure. The number of climate-related bonds has almost tripled since 2005, showing that these asset classes are becoming more attractive to investors. However, governments and markets alike can take further action to help mobilize private sector capital for infrastructure resilient to extreme weather. To achieve this, governments could create clear and predictable policy frameworks combined with a transparent pipeline of investable projects. Public-private partnerships or other innovate joint financing schemes can also be used to create attractive investment opportunities with low risks for private investors. For their part, investors could upgrade their capacity to understand and predict the special challenges and risks associated with these investments.