Climate change adaptation in industry and business

This report delivers a best practice framework to integrate financial risk assessment, governance and disclosure with existing governance principles around climate change adaptation.AbstractThe Australian business community has long been aware of the risks and opportunities associated with greenhouse gas mitigation and climate change policies. Some businesses have taken initial steps to adapt to the expected effects of climate change; however, most enterprises are only vaguely aware of the breadth of adaptation that may be required. Associated with strategic adaptation are the principles of financial/operational risk management and governance, as well as financial impact disclosure to investors and regulators. We develop a consolidated framework in which boards and executive managers can develop a robust approach to climate change adaptation governance, climate change risk assessment and financial disclosure. The project outlines a matrix of disclosures required for investors to enable them to evaluate corporate exposure to climate change risk.The project initially comprised a set of workshops with members of the Australian business community, industry representatives, regulatory authorities and academics with expertise in business risk and disclosure effects. Each workshop focused on a separate theme that built upon the work of previous workshops. A set of follow-up discussions was held with some of the key members who contributed to the project, including the Australian Stock Exchange (ASX) Investor Group on Climate Change (IGCC), the Australian Accounting Standards Board (AASB) and the Australian Institute of Company Directors. This discussion permitted each body to comment on the final report, advise on the mechanics of the costing, reporting and disclosure approaches of climate change adaptation, and lend their expertise to the formulation of an appropriate framework.The scope of the research is constrained to firm behaviour and the requirements for investor disclosure and governance of adaptation activities. The project therefore focuses on financial analyses – including real options – undertaken by firms with regard to investing in climate change adaptation activities and projects. While the economic costs and benefits are important to organisational adaptation activities, they represent a secondary level of analysis that may need to be carried out on either an independent or cumulative scale by governments or other bodies to measure the wider effects.As the degree of sophistication in climate change adaptation activities, modelling and cost estimation increases, along with the anticipated growth in interest of both company boards and managers, it is expected that accounting standards, ASX listing rules and disclosures required under the Corporations Act would need to explicitly reflect these corporate actions. The asset allocation of banks, mutual funds, superannuation funds and other investments is also likely to adapt as companies quantify their exposure to climate change. The makeup of assets in investment portfolios may therefore markedly shift, and thus indirectly adjust to the climate change adaptation activities of companies in the broader market

Valuing adaptation under rapid change

AbstractThe methods used to plan adaptation to climate change have been heavily influenced by scientific narratives of gradual change and economic narratives of marginal adjustments to that change. An investigation of the theoretical aspects of how the climate changes suggests that scientific narratives of climate change are socially constructed, biasing scientific narratives to descriptions of gradual as opposed rapid, non-linear change. Evidence of widespread step changes in recent climate records and in model projections of future climate is being overlooked because of this. Step-wise climate change has the potential to produce rapid increases in extreme events that can cross institutional, geographical and sectoral domains.Likewise, orthodox economics is not well suited to the deep uncertainty faced under climate change, requiring a multi-faceted approach to adaptation. The presence of tangible and intangible values range across five adaptation clusters: goods; services; capital assets and infrastructure; social assets and infrastructure; and natural assets and infrastructure. Standard economic methods have difficulty in giving adequate weight to the different types of values across these clusters. They also do not account well for the inter-connectedness of impacts and subsequent responses between agents in the economy. As a result, many highly-valued aspects of human and environmental capital are being overlooked.Recent extreme events are already pressuring areas of public policy, and national strategies for emergency response and disaster risk reduction are being developed as a consequence. However, the potential for an escalation of total damage costs due to rapid change requires a coordinated approach at the institutional level, involving all levels of government, the private sector and civil society.One of the largest risks of maladaptation is the potential for un-owned risks, as risks propagate across domains and responsibility for their management is poorly allocated between public and private interests, and between the roles of the individual and civil society. Economic strategies developed by the disaster community for disaster response and risk reduction provide a base to work from, but many gaps remain.We have developed a framework for valuing adaptation that has the following aspects: the valuation of impacts thus estimating values at risk, the evaluation of different adaptation options and strategies based on cost, and the valuation of benefits expressed as a combination of the benefits of avoided damages and a range of institutional values such as equity, justice, sustainability and profit.The choice of economic methods and tools used to assess adaptation depends largely on the ability to constrain uncertainty around problems (predictive uncertainty) and solutions (outcome uncertainty). Orthodox methods can be used where both are constrained, portfolio methodologies where problems are constrained and robust methodologies where solutions are constrained. Where both are unconstrained, process-based methods utilising innovation methods and adaptive management are most suitable. All methods should involve stakeholders where possible.Innovative processes methods that enable transformation will be required in some circumstances, to allow institutions, sectors and communities to prepare for anticipated major change.Please cite this report as: Jones, RN, Young, CK, Handmer, J, Keating, A, Mekala, GD, Sheehan, P 2013 Valuing adaptation under rapid change, National Climate Change Adaptation Research Facility, Gold Coast, pp. 192.The methods used to plan adaptation to climate change have been heavily influenced by scientific narratives of gradual change and economic narratives of marginal adjustments to that change. An investigation of the theoretical aspects of how the climate changes suggests that scientific narratives of climate change are socially constructed, biasing scientific narratives to descriptions of gradual as opposed rapid, non-linear change. Evidence of widespread step changes in recent climate records and in model projections of future climate is being overlooked because of this. Step-wise climate change has the potential to produce rapid increases in extreme events that can cross institutional, geographical and sectoral domains.Likewise, orthodox economics is not well suited to the deep uncertainty faced under climate change, requiring a multi-faceted approach to adaptation. The presence of tangible and intangible values range across five adaptation clusters: goods; services; capital assets and infrastructure; social assets and infrastructure; and natural assets and infrastructure. Standard economic methods have difficulty in giving adequate weight to the different types of values across these clusters. They also do not account well for the inter-connectedness of impacts and subsequent responses between agents in the economy. As a result, many highly-valued aspects of human and environmental capital are being overlooked.Recent extreme events are already pressuring areas of public policy, and national strategies for emergency response and disaster risk reduction are being developed as a consequence. However, the potential for an escalation of total damage costs due to rapid change requires a coordinated approach at the institutional level, involving all levels of government, the private sector and civil society.One of the largest risks of maladaptation is the potential for un-owned risks, as risks propagate across domains and responsibility for their management is poorly allocated between public and private interests, and between the roles of the individual and civil society. Economic strategies developed by the disaster community for disaster response and risk reduction provide a base to work from, but many gaps remain.We have developed a framework for valuing adaptation that has the following aspects: the valuation of impacts thus estimating values at risk, the evaluation of different adaptation options and strategies based on cost, and the valuation of benefits expressed as a combination of the benefits of avoided damages and a range of institutional values such as equity, justice, sustainability and profit.The choice of economic methods and tools used to assess adaptation depends largely on the ability to constrain uncertainty around problems (predictive uncertainty) and solutions (outcome uncertainty). Orthodox methods can be used where both are constrained, portfolio methodologies where problems are constrained and robust methodologies where solutions are constrained. Where both are unconstrained, process-based methods utilising innovation methods and adaptive management are most suitable. All methods should involve stakeholders where possible.Innovative processes methods that enable transformation will be required in some circumstances, to allow institutions, sectors and communities to prepare for anticipated major change

Possible impact of corporate governance profile on a Russian bank valuation

This paper aims at explaining the differences in valuation of banking firms in Russia through the impact of selected elements of corporate governance. We rely upon value-based management theory to test the hypothesis that expenses on corporate governance system create shareholder value. The price at which share stakes are acquired by strategic foreign investors is for us a criterion of market-proven value, so we use the standard valuation tool, i.e. price-to-book-value of equity (P/BV) multiple, as the dependent variable. The set of corporate governance parameters whose materiality for a would-be external investor we would like to test includes: the degree of concentration of ownership and control; maturity of corporate governing bodies; degree of Board independence; qualification of external auditors; stability of governing bodies (Management Board and Board of Directors); and availability of external credit ratings from the world's leading rating agencies. We test our approach on a sample of acquisition deals and public offerings over the period 2004-2008 that we develop for the first time. Firstly, we find out which factors are statistically significant and relevant to a bank's selling price. Secondly, a least squares multiple linear regression model is devised to check how each individual variable impacts the dependent variable. We discover that external investors attach value to high concentration of ownership, external credit rating coverage, stability of the Board of Directors, and involvement of well-established external auditors. Investors of a strategic nature tend to pay a higher acquisition premium. Independence of the Board of Directors might be perceived by external strategic investors as a disadvantage and might destroy shareholder value

Risk Management of Daily Tourist Tax Revenues for the Maldives

International tourism is the principal economic activity for Small Island Tourism Economies (SITEs). There is a strongly predictable component of international tourism, specifically the government revenue received from taxes on international tourists, but it is difficult to predict the number of international tourist arrivals which, in turn, determines the magnitude of tax revenue receipts. A framework is presented for risk management of daily tourist tax revenues for the Maldives, which is a unique SITE because it relies entirely on tourism for its economic and social development. As these receipts from international tourism are significant financial assets to the economies of SITEs, the time-varying volatility of international tourist arrivals and their growth rate is analogous to the volatility (or dynamic risk) in financial returns. In this paper, the volatility in the levels and growth rates of daily international tourist arrivals is investigated.Small Island Tourism Economies (SITEs), International tourist arrivals, Tourism tax, Volatility, Risk, Value-at-Risk (VaR), Sustainable Tourism-@-Risk (ST@R)

Reliance Remedies at the International Centre for the Settlement of Investment Disputes

Examines situations in which the International Centre for the Settlement of Investment Disputes has awarded damages for the cost of the investment, which may be compared to the contract law concept of reliance damages. Notes that this measure of damages is often used where lost profits are difficult to calculate because of the speculative nature of the future investment

How Can We Improve Evaluation Methods for Public Infrastructure?

Given the smaller total budget for public expenditure and the fact that the cost of public funds to Ireland has increased, it is more important than ever to ensure that public investment is prioritised properly in order to derive maximum benefit. Inorder to prioritise we must evaluate. A variety of evaluation methods can be utilised, but perhaps the most widely used is cost benefit analysis. The usefulness of costbenefit analysis crucially depends on a number of parameters and inputs. This paper considers the international literature on two issues, namely, the impact of risk in theform of inaccurate cost or benefit estimates and the setting of the appropriate discount rate, both of which can impact significantly on the usefulness of costbenefit analysis. The evidence on the expected costs and benefits of projects highlights that projects often do not go according to plan and that these estimates are subject to systematic optimism bias, which, while not universal, appears to be widespread. In relation to the appropriate choice of a discount rate, a riskless rate should in general not be used unless all risks have been properly assessed and costed within the analysis. This paper concludes that the discount rates that are currently used in Ireland appear to be low. Furthermore, the paper highlights that if the conventional exponential discounting is used then costs and benefits that occur in the distant future are essentially ignored. A declining discount rate accounts better for costs/benefits that occur in the distant future and is consistent with the observed pattern of time preference of individuals. This paper recommends a hybrid approach be adopted where costs and benefits are discounted using exponential discounting up to a point at which the discounting is switched to declining discounting.

From Government to Regulatory Governance: Privatization and the Residual Role of the State

This paper reviews the state of thinking on the governance role of public ownership and control. We argue that the transfer of operational control over productive assets to the private sector represents the most desirable governance, due to the inherent difficulty for citizens to constrain political abuse relative to the ability of governments to regulate private activity. However in weak institutional environments the process needs to be structured so as to avoid capture of the regulatory process. The speed of transfer should be timed on the progress in developing a strong regulatory governance system, to which certain residual rights of intervention must be vested. After all, what are “institutions” if not governance mechanisms with some degree of autonomy from both political and private interests? The gradual creation of institutions partially autonomous from political power must become central to the development of an optimal mode of regulatory governance. We advance some suggestions about creating accountability in regulatory governance, in particular creating an internal control system based on a rotating board representative of users, producers and civil society, to be elected by a process involving frequent reporting and disclosure.Regulatory Governance, Privatization

How macroeconomic policies affect project performance in the social sectors

The main objective of this study is to explore the realationship between a country's overall economic policy environment and the performance of investment projects in the social sectors. The authors focus on the impact of economy-wide policies including a range of fiscal, monetary, exchange rate, trade, and pricing indicators. Particular emphasis is put on the analysis of projects in education, which comprise the large majority of the Bank's social projects. The methodology combines statistical analysis and case studies, with the latter based on a broad range of sectoral reports, Project Completion Reports, Project Performance Audit Reports, and sustainability analysis conducted by the Operation Evaluation Department (OED) of the World Bank. The statistical analysis draws on the OED project data as well as the country-level policy performance variables of the World Development Report 1991 data set. The paper also briefly reviews the literature, and examines some country and project case studies which begin to suggest the relationship between economy-wide policies and projectperformance. It presents a simple analytical framework of the possible linkages between the economic policy environment and project performance. It discusses the data and empirical method and presents the results from statistical analysis.Environmental Economics&Policies,Economic Theory&Research,Health Monitoring&Evaluation,Health Economics&Finance,ICT Policy and Strategies

Economic Valuation of Black-faced Spoonbill Conservation in Macao

The general objective of this study is to estimate the economic benefits of black-faced Spoonbill conservation in Macao based on public preferences. The specific objectives are as follows to investigate the public's awareness, attitudes and behaviors regarding black-faced Spoonbill conservation in Macao; to estimate the public's willingness to pay (WTP) for the conservation of black-faced Spoonbills in Macao; to identify the factors that affect the WTP; to determine the cost and benefits of a conservation program for black-faced Spoonbills in Macao, to recommend potential funding mechanisms; to run an experiment on hypothetical and real WTP in Macao to validate the large scale CVM study.economic valuation, Macao