First Tool of Its Kind Is Improving Climate Resilience Evaluation for Infrastructure Investments

Climate resilience has become a crucial part of today’s infrastructure investments, which is why stakeholders need new methods for evaluating the impact of crucial financial decisions.

The Physical Climate Risk Assessment Methodology (PCRAM) is a vital new tool for this infrastructure challenge. Created through a partnership with the Coalition for Climate Resilient Investment (CCRI), of which WSP USA is a founding member, and the global engineering firm Mott MacDonald, PCRAM enables asset owners and investors to accurately comprehend the exposure of critical infrastructure to climate risks.

PCRAM launched Version 1.0 in September and provides infrastructure stakeholders worldwide with a framework to identify and evaluate the climate resilience of assets.

This is the first tool of its kind to integrate climate considerations into asset valuation, allowing these evaluations to be used seamlessly in the investment decision-making process.

As part of CCRI’s Asset Design and Structuring Working group, WSP conducted a technical review of the first version of PCRAM and identified future areas for improvement for the development of PCRAM 2.0. WSP is a proven leader in assessing climate risk for a wide range of infrastructure sectors, as well as mainstreaming this information into infrastructure decision making.

“This approach will help funding agencies, investors and other stakeholders better understand the climate risk associated with infrastructure investments and, when adaptation is needed, the benefits of adapting such investments to climate change,” said Juan Carlos Lam, resilience practice director in WSP’s climate and resilience business and WSP’s primary liaison to CCRI.

CCRI is a global coalition that aims to improve society’s infrastructure investments by considering potential impacts of climate change. Comprised of a wide range of organizations involved in various aspects of sustainable investment decision making, this initiative is uniquely positioned to lead the development of this new methodology.

“CCRI delivers rigorous analytical solutions that clearly demonstrate resilient investments are good investments,” Carlos Sanchez, executive director at CCRI, said in a press release. “Strong market forces are pushing the industry towards improved enforcement and reward of these integration practices, translating into opportunities for those that take early action.

“CCRI analytics offer the potential to drive a more efficient allocation of capital towards climate resilient investments, without which we are unlikely to future-proof our communities for the decades ahead.”

WSP provides subject matter expertise to advance this work, especially in technical contributions to the asset design and structuring working group.

“I am proud of our team at WSP for having contributed to this work, using our global experience acquired across industries with public agencies and the private sector,” Lam said.

PCRAM uses new methods to help infrastructure stakeholders evaluate physical climate risks (PCRs) to infrastructure and analyze their long-term impact on asset performance. It is also novel in that it utilizes climate data providers, resilience practitioners, asset managers and investors to assess and quantify PCRs.

This four-step process is flexible for any asset type at any stage in development, in any ownership model and incorporates different performance indicators.

The first step identifies the key motivations and desired outputs behind the assessment and defines the scope of the work and the risk assessment, including climate hazards, relevant assets and components and the commercial/financial elements. This is followed by data collection.

The second step puts the collected data through a materiality assessment to determine if the PCRs are relative to the asset in question, based on the previously identified key performance indicators (KPIs).

A risk assessment develops a range of scenarios that can link climate change hazards to loss, increased maintenance, temporary or permanent downtime or a reduction in productivity.

If the PCRs are deemed to be material to the infrastructure asset, then the third step has specialist teams identify potential resilience options that can build resilience into the asset against these material risks.

The fourth and final step compares the benefits of the interventions with the costs of implementing them and the downsides of doing nothing, which will determine if there is a case for investing in resilience.

This will produce a set of “climate cases” that incorporate the impacts of PCRs on forecasted cash flows, which are compared to the set of “resilience cases” from step three that capture the costs and benefits of each resilience option. The two sets are then compared by analyzing changes in project internal rate of return and other KPIs, including total life cycle costs.

The methodology has been tested on real-world infrastructure assets, including a nearshore wind farm in Southeast Asia and a hydropower plant in Africa, and each case delivered a “resilience dividend,” according to a CCRI press release.

“We set out to create a framework that enables public and private sector infrastructure investors to assess their exposure to PCRs, quantify this exposure and improve their asset performance,” said Denise Bower, executive director at Mott MacDonald.

“Put simply, PCRAM presents a compelling business case for resilient investment, unlocking the finance needed to protect vulnerable communities from the impacts of climate change,” she continued. “PCRAM is a result of close collaboration that has brought together a wide range of disciplines, sectors and organizations. It is only through this way of thinking — systemwide, connected and collaborative — that we will meet the challenges posed by our changing climate.”

The need for effective climate resilient infrastructure investment is more than urgent, as investments in resilience are falling behind the financing of climate mitigation.

According to the Climate Policy Initiative (CPI), total spending on climate financing during 2019-2020 reached $632 billion, with mitigation finance accounting for $571 billion, compared to just $45 billion on adaptation and resilience.

This is significantly less than the multiple trillions of dollars needed to meet the challenges posed by climate change, according to the CPI.

“The time to invest in climate resilience is now,” Lam said. “Our industry needs PCRAM and similar frameworks to ensure that infrastructure sectors are ready to cope with the effects of climate change.”

WSP’s resilience team will continue to support tools and resources to clients that address climate uncertainties, define potential consequences, and support effective investments in resilient communities and infrastructure, such as PCRAM.

“Our team hopes to continue our partnership with CCRI and other members to advance PCRAM,” Lam said. “There is an increasing need to integrate systems thinking into climate-informed infrastructure decision making to help navigate the complexities of climate resilience, avoid maladaptation and consistently measure progress made on climate impact reduction.”

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