‘Beware of climate change’, Marsh warns

The insurer argues that infrastructure investors are not adequately factoring in the impact of climate change.

Insurer Marsh, in a new report released today, warns that infrastructure investors are not adequately protecting themselves against the impact of climate change.

“While some infrastructure investors are starting to take environmental risk criteria into account when undertaking project appraisals, there is a prevailing lack of urgency among firms that have yet to be affected by the changing climate and extreme weather,” Dr. Cliff Warman, Marsh’s environmental practice leader for Europe, the Middle East and Africa (EMEA) commented in a statement.

In its report, titled Sustainable Infrastructure – Weathering the Storms, Marsh argues investors need to undertake more thorough climate change due diligence to improve on project delivery and operational efficiency; manage Force Majeure events more effectively; and put in place “robust risk pricing and risk mitigation measures” to avoid disruption of debt service.

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On the Force Majeure front, for instance, Marsh highlights that, whereas “Force Majeure risk is often insurable […] the resulting interruption to business and consequential financial loss may not be,” which means investors will have to better recognise these disruptions in their risk assessment and find a balanced approach to allocating them between the public and private sectors.

The insurer also warns lenders to make sure they are comfortable with the risk mitigating procedures implemented by sponsors, given that “inadequate risk pricing or risk mitigation measures could impair debt servicing capability and consequently, in pure financial terms, the lenders have the most to lose if a project fails”.

Marsh is a corporate partner of the United Nations International Strategy for Disaster Reduction agency.