In the Resilience 2.0 framework, the role of finance must evolve from being a passive provider of post- disaster capital to an active architect of pre-disaster risk reduction. This transformation of finance is illustrated by the growing use of weather derivatives in China’s power sector. For example, faced with severe financial volatility from heatwave-driven electricity demand, a power company, Guorui New Energy, secured a parametric insurance contract tied to the official CMA-DCE Temperature Index. Jointly compiled by the China Meteorological Administration (CMA) and the Dalian Commodity Exchange (DCE), this index reflects temperature changes in major cities across China and provides intuitive and comprehensive information for temperature-sensitive industries.43 The insurance serves as a pre-disaster hedge: if temperatures exceed a predefined threshold, the company automatically receives a payout to offset the high cost of procuring emergency power on the spot market. By converting an unpredictable climate risk into a manageable financial variable, this approach moves beyond passive post-event compensation, allowing the company to build economic resilience against climate extremes before they inflict financial damage. By moving beyond traditional indemnity models, innovative financial mechanisms can create powerful market-based incentives that reward proactive resilience measures and unlock private capital. Three key innovations can lead this change, described below. Dynamic parametric insurance This product links premiums and payouts directly to real-time, verified risk data. Instead of a static annual premium, a utility’s rate would be dynamically adjusted based on its resilience posture. For instance, a power distribution company that installs smart lightning arresters and demonstrably reduces its fault rate by 20% could receive an automatic 15% reduction in its premium for the following year. Crucially, payouts are triggered by objective data points (e.g. temperature or wind speed exceeding a threshold), not by slow loss adjustment. This ensures that upon a triggering event, capital is disbursed within a guaranteed timeframe, such as 48 hours, injecting vital liquidity when it is needed most. Resilience-building bonds (R-bonds) This hybrid instrument fuses risk transfer with capital formation. A utility or municipality could issue an R-Bond to finance resilience upgrades. The bond’s coupon payments would be contingent on climate outcomes. In a year without a major disaster 3.3 Financial innovation: risk pricing as the architect of resilienceglobal power systems are progressing towards decarbonization. For instance, by mid-2023, renewable sources in China had overtaken thermal power, accounting for more than half the country’s total installed electricity generation capacity.41 On another front, technology companies are pursuing ambitious clean energy goals. Google, for example, aims to operate its data centres on 24/7 carbon-free energy by 2030, a goal supported by direct investments in grid decarbonization and in both nature-based and technological carbon removal solutions.42 Over the longer term, technological advances combined with a greener electricity supply are likely to mitigate AI’s carbon footprint; nevertheless, sustained monitoring, transparency and rigorous assessment remain essential. At the regional scale, it is essential to further strengthen coordination and backup capacity to improve resilience. Feasible solutions must be comprehensively evaluated from technical, economic and security perspectives. For instance, within the new power system, one of the key challenges remains optimizing the understanding, utilization and dispatch of wind, solar and hydropower to maximize both profitability and reliability. This is precisely where AI can play a transformative role. Finally, the ultimate technological frontier is the creation of cross-sector data platforms for integrated risk management. Siloed approaches where the power utility, water utility and transport authority operate on separate data systems will become obsolete. Resilience 2.0 envisions a central “city resilience operating system” or a regional “integrated utility data hub”. Such platforms would ingest real-time data from all critical infrastructure sectors. An AI monitoring platform could see that a power substation outage will knock out the pumps for a specific water district in 30 minutes and cripple traffic signals along a key evacuation route. It could then autonomously trigger contingency plans across all three sectors simultaneously: alerting the water utility to switch to backup reservoirs, rerouting traffic around the affected area and prioritizing power restoration to the most critical assets. This level of integrated intelligence transforms risk management from a sector responsibility into a coordinated, system- wide capability. The ultimate technological frontier is the creation of cross- sector data platforms for integrated risk management. Building Climate-Resilient Utilities: Lessons from China and Future Pathways 20

Building Climate Resilient Utilities 2025