Last week, I attended the 3rd Climate Smart and Disaster Resilient ASEAN International Conference held in Kuala Lumpur, Malaysia via Zoom. The 3-day conference (November 23 – 25, 2021) addressed climate disaster diplomacy challenges amidst the pandemic and what struck me most was the speech delivered by Atty, Karen Jimeno, a World Bank Consultant, during the plenary session. She evaluated the challenges ahead of the pandemic and made a recommendation to address it.
The Plenary Session on Partnership and Collaboration (held on November 25) focused on the importance of collaboration to strengthen the resilience of society, identify gaps in knowledge and practice, and recommend solutions to increase communication among all stakeholders of the community, incorporate flexibility into collaborative networks, and encourage standard evaluations of missions, goals, and practices.
Atty. Karen Jimeno’s recommendation: My recommendation therefore is that we must move towards creating a clear and universal valuation framework and policies that enable its implementation at the global, regional, and local levels.
She made her recommendation based on her experience and best practices as Director & Chief Legal Counsel for SofCap Partners Private Equity Fund and as a consultant for the World Bank.
Here’s her speech delivered during the plenary session: The impact of climate change is becoming an increasingly important consideration when making investments or financing decisions. We have also come to realize that climate change and valuations are inextricably linked.
SofCap Partners is a growth equity investment firm that partners with Philippine enterprises to create value and positive impact. The investments we evaluate include direct investments in infrastructure, services, real estate, food and agriculture, technologies, health, and education.
Valuations are an essential aspect of guiding our decisions in order to achieve positive impact. SofCap, like other private equity funds, uses ESG metrics to
measure the impact of our investments. While ESG metrics include “Environment” as one of the considerations, it is admittedly insufficient to fully evaluate businesses in relation to its contributions on resilience, or climate change mitigation or adaptation. Currently there is no universal standard for ESG metrics, and stakeholders in the industry are left to themselves to create their own guidelines and standards. Even more difficult is finding ways to value investments in relation to resilience and climate change. We are compelled to consider all risks
and opportunities in evaluating investments.
The Philippines is one of the most disaster risk prone countries in the world. It is also ranked highly as one of the countries at most risk for climate change impacts. Since SofCap is a private equity fund focused on investments in the Philippines, we’ve acknowledged that climate risk is a systemic risk for our investments. But regardless of where investments are located, it is undeniable that climate risk is a systemic risk that affects financial stability, policy decisions, and geopolitics, among others.
Climate change risks can trigger social instability, migrations, health impacts, food insecurity and other effects. Despite this, climate risks are rarely priced into costs of investments or lack thereof.
The benefits of mitigating or preventing climate change impacts are also not considered when evaluating projects. In my work with the World Bank, I also witnessed how risks and benefits related to resilience or climate change adaptation projects are not fully evaluated. For instance, in one of our resilience projects for a country affected by sea-level rise, the cost of alternatives such as raising land seemed financially indefensible. Some people suggested that mass migration may be a more practical solution. A participant in our stakeholder consultation, a citizen of a country which was losing their land to sea level rise, asked: “how can you put a price on the loss of our heritage, our culture, and our identity?”
Experiences like this should lead us to reflect on the impact of climate change risks in investment valuations—whether they relate to investments by private entities, governments, or multilateral institutions. Currently, there is a lack of policy or guidance on the valuation framework that would facilitate a consistent approach to account for climate change risks or opportunities into valuations and investment analyses.
It is currently difficult to assess climate change risks and opportunities because of lack of consistency in the information disclosed, lack of guidelines to even determine what information and variables are considered relevant, and the absence of a robust market that would price the benefits of resilient or climate change adaptation investments.
In 2020, I wrote a thesis at UC Berkeley on Cost Benefit Analysis for Disaster Risk Reduction Investments. I found that value of “benefits” or risks of losses avoided tend to be skewed in favor of high value assets—such as the loss of expensive buildings, large facilities, or equipment.
Applying a cost-benefit analysis to low-value assets such as poor communities yield Cost-Benefit ratios less than ONE—meaning there is little to no financial benefit in investing in disaster risk reduction or resilience projects when the proxy for the benefit is measured in terms of avoiding losses of assets belonging to poor communities. However, when we price other variables such as loss of human lives and well-being losses, the Cost-Benefit Ratio rises. The reality, however, is that there is no accepted practice on pricing-in other types of non-traditional variables such as human lives or well-being.
Thus, the lack of a valuation framework is one of the biggest challenges in resilience investments, and consequently a challenge in enhancing regional and multilateral collaboration in funding such types of investments.
My recommendation therefore is that we must move towards creating a clear and universal valuation framework and policies that enable its implementation at the global, regional, and local levels.
So, climate change risks and opportunities impact multiple sectors and require involvement from investors, policymakers, civil society and all people down to the community level. Thus, all stakeholders must be involved in developing this valuation framework and the policies that are needed to implement it.
Atty. Karen Jimeno is a Director & Chief Legal Counsel for SofCap Partners Private Equity Fund. She is also a Policy and Regulatory Consultant for the World Bank. Prior to joining SofCap, she served as Undersecretary for the Presidential Management Staff, Undersecretary for the Department of Public Works and Highways, Legal Counsel for the Senate Ethics Committee of the 17th Congress of the Philippines, and Program Host and News Anchor for CNN Philippines. She holds a degree in Master of Development Practice Certified in Engineering and Business for Sustainability from UC Berkeley (where she was a Fulbright Scholar), a Master of Laws from Harvard Law School, a Bachelor of Laws from the University of the Philippines (cum laude & Dean’s Medal for Academic Excellence), and a Bachelor’s Degree in Management from the University of Asia and the Pacific. She is licensed to practice law in the Philippines and in New York.
Plenary session speaker Atty. Karen Jimeno is the wife of my fraternity brother from the University of the Philippines – Diliman’s Beta Rho Omega Fraternity (BRO) Atty. Nicanor Jimeno.
The climate change is a real issue internationally. We need to address it globally as a partnership for all nations in all aspects: technically, financially, and academically!
With the ASEAN initiative to address the issue, we can we can set the pace and surely succeed in addressing the issue globally!