Risk to Reward 2025

Investors emphasize the need for credible, science-based data, including transition plans and standardized metrics to manage risk, reduce due diligence costs and build trust. The insurance industry serves as an important source of macroeconomic climate risk data. As outlined by Howden and the UN Climate High-Level Champions, quantified climate risk modelling is needed to inform and scale up climate finance.52 This involves leveraging data-driven assessments to understand physical and transition risks, which can guide both public and private investment decisions. To date, catastrophe modelling has relied on historical data rather than predicting future risks. To address this, some insurers have developed forward-looking climate risk models using geospatial data, analysing various Intergovernmental Panel on Climate Change (IPCC) scenarios up to 2100 and providing asset-level insights. However, many regulations and financial practices fail to incorporate forward-looking price curves for climate risk integrating climate science, actuarial modelling and financial data. Another challenge is that many investors do physical risk assessments at a high level instead of at an asset level. Without this, risk is mispriced, capital is misallocated and resilience is underfunded. To address these persistent data challenges, a fit-for-purpose solution designed with users in mind is required. This solution should focus on building robust, standardized and transparent climate finance data architectures, including working with insurance industry climate models. By integrating open-access project registries, harmonized impact measurement frameworks and systematic third-party validation, stakeholders can bridge information gaps and build trust. Zurich Insurance’s parametric insurance model builds climate resilience for Indonesian coffee farmersBOX 7 Zurich Insurance, with Blue Marble, launched a parametric weather index insurance product for over 3,000 smallholder coffee farmers in Aceh, Indonesia, protecting them from income losses due to erratic rainfall or drought. Using satellite data, payouts are triggered automatically based on specific weather measurements, ensuring fast and transparent compensation without onsite assessments. Covering the full crop cycle, this insurance helps farmers recover quickly and supports financial stability, promoting financial inclusion and climate resilience. The initiative demonstrates how technology-driven insurance can address agricultural risks in emerging markets.53 A lack of transparency in risk assessment – and the resulting imbalance in negotiations between investor types – remains a core barrier to financing climate projects. Laurence Tubiana, Chief Executive Officer, European Climate Foundation In the survey, 35% of investors identified local partnerships as their top risk-mitigation strategy, ranking above blended finance, grants and guarantees. Investors emphasized that building strong relationships with local actors – including suppliers, developers, partners, customers and financial institutions – is critical to navigating EMDE markets. Having boots on the ground helps to unlock many of the relationships needed to deploy climate finance at scale in EMDEs. A few global pension funds have established local offices to support deal sourcing, counterparty relationships and due diligence. This model allows them to be active owners and build long-term relationships in foreign markets. For example, La Caisse – a global institutional investor and one of Canada’s largest pension funds – has offices in Mexico City, São Paulo and New Delhi. Based on stakeholder discussions, local partnership is critical and while permanent offices are valuable, even small, mobile teams of three or four members can be highly effective. These agile teams help measure the real-time pulse on policy, access and market dynamics, accelerating deal flow and enabling deeper engagement. For serious investors, such Help global private investors establish local partnerships in EMDEs EMDE governments MDBs and DFIs Donor governmentsSOLUTIONS: SHORT-TERM From Risk to Reward: Unlocking Private Capital for Climate and Growth 27