Predicting the impacts of climate change is inherently uncertain, and the long timeframes required to realize the benefits of adaptation measures often lead to insufficient funding. In response, adaptation finance is emerging as a critical approach to providing quantitative evaluations of physical and financial risks to inform and encourage investments. However, accurate and ongoing assessment of climate risks and adaptation outcomes as well as the calculation of investment returns require significant policy and regulatory frameworks and also advances in technology and expertise. This paper presents NEC’s digital adaptation finance initiatives that leverage digital technologies to collect and generate necessary data for risk assessment and contribute to the real-world implementation of adaptation finance.

1. Introduction

The impacts of climate change have led to an increase in the frequency and severity of natural disasters worldwide, resulting in widespread devastation. From 2000 to 2019, the global economic losses caused by natural disasters totaled approximately $3.8 trillion (USD) (about ¥420 trillion (JPY)). This marks a sevenfold increase in the latter decade compared to the approximately $540 billion (about ¥60 trillion) in losses recorded between 2000 to 2009.¹⁾ In particular, the effects of climate change are expected to increase the frequency of losses from water-related catastrophes such as floods and storms. There is also concern that the frequency and magnitude of geological catastrophes, such as earthquakes and volcanic activity, may change. The economic damage from natural disasters poses serious challenges for businesses and local governments; disrupts production, infrastructure, and supply chains; and creates significant market instability. In some cases, these disruptions can even threaten business continuity.

Climate change measures can be categorized into two main approaches: mitigation focusing on the reduction of greenhouse gas emissions and adaptation involving the implementation of strategies to cope with the effects of climate change. Businesses and local governments are increasingly expected to implement adaptation measures as part of their disaster preparedness strategies. However, these efforts require substantial financial resources. As shown in the following table, funding for adaptation remains disproportionately low and amounts to only one-eighteenth of the investment allocated for climate change mitigation.

Table Comparison of investment in climate change adaptation and mitigation

Despite growing interest in adaptation finance, securing funding remains a challenge. The benefits and return on investment for adaptation measures are difficult to quantify, making it harder to justify financial commitments. Additionally, adaptation projects often span long timeframes, so accurately assessing risks is complex and leads to hesitation among private-sector investors to take on financial risks.

To address these challenges, NEC is leveraging digital technologies such as remote sensing, AI, and digital twins to enhance risk assessment. By enabling the efficient, accurate, and continuous collection and analysis of critical information, the NEC Digital Adaptation Finance initiative aims to make the benefits of adaptation more visible.

As shown in Fig. 1, adaptation measures generate value in three key areas:

NEC defines the collective impact of these economic, socioeconomic, and greenhouse gas reduction benefits as adaptation value. By leveraging digital technologies to visualize and quantify adaptation value, NEC aims to organize and present the critical information required by investors and financial institutions during project planning and fundraising to ultimately support the scaling of adaptation measures. NEC is also collaborating with financial institutions to explore the development and implementation of financial products tailored to climate adaptation. By promoting adaptation finance from an investment and funding perspective, NEC seeks to drive the practical integration of IT into climate adaptation strategies and advance its real-world implementation.

2. Approach to Implementing the NEC Digital Adaptation Finance Initiative

The Climate Change Adaptation Plan, which was approved by the Cabinet of Japan in October 2021 and partially updated in May 2023, outlines the impacts of climate change and examples of adaptation measures as summarized in Fig. 2. Among the various adaptation themes, disaster prevention and mitigation, which closely aligns with NEC's business activities, is highlighted in red.

NEC is advancing disaster preparedness digital transformation (DX) to help build a safer and more secure society. By leveraging IoT, AI, and other digital technologies, NEC is developing disaster risk prediction solutions and digital tools for the dissemination of disaster information. These initiatives support local governments in strengthening disaster resilience, streamlining response operations, and improving response speed and efficiency.

A working group for the Cabinet Office of Japan compiled the Five Year Acceleration Plan for Disaster Prevention, Disaster Mitigation, and Building National Resilience,²⁾ which categorizes disaster response into three phases: pre-disaster prevention, immediate pre-/post-disaster response, and recovery/reconstruction. In line with this framework, Fig. 3 presents NEC’s initiatives for disaster preparedness DX in accordance with each phase of disaster preparedness and response.

As part of the pre-disaster prevention phase (preparing during normal times), NEC offers an information-sharing platform that connects government agencies, local communities, and private enterprises through urban planning, risk analysis, and disaster prevention education. This platform includes solutions such as the Regional Disaster Prevention Information Platform and River Inundation Simulation, which allow private enterprises to support the evacuation efforts of residents.

As part of the immediate pre/post-disaster phase (critical moments before, during, and after a disaster, including emergency response), NEC offers solutions centered on anomaly detection, prediction, and information sharing. These include data collection through remote sensing, monitoring and prediction systems based on data analysis using AI and other technologies, and anomaly detection solutions.

For the recovery and reconstruction phase, NEC focuses on data-analysis driven solutions, including infrastructure monitoring that uses satellite technology.

These initiatives for disaster preparedness DX utilize accumulated societal data and IoT technologies while integrating remote sensing systems. This approach allows for the visualization of the effectiveness and benefits of adaptation measures, such as disaster prevention strategies for natural hazards and enhancements to infrastructure resilience for urban and community life. By consistently monitoring long-term changes, NEC assesses adaptation value and initiates efforts to encourage the adoption of adaptation finance.

3. Presentation at COP28

In November 2023, NEC participated in the 2023 United Nations Climate Change Conference or Conference of the Parties of the UNFCCC (COP28), held in Dubai, United Arab Emirates (UAE). As part of the Japan Pavilion, hosted by Japan’s Ministry of the Environment, NEC—serving as the lead company of the Adaptation Consortium Prep Office—presented its efforts to visualize adaptation value using disaster impact simulation technologies.

Fig. 4 illustrates a river inundation simulation based on an actual flood disaster that took place in Japan, exploring the potential impact of a 4°C rise in average temperature. The simulation contrasts two scenarios: the actual damage from the past event (left) and the projected damage if additional adaptation measures are implemented (right). Flooded areas are depicted in shades of blue, with darker hues indicating more severe inundation. In the observed damage scenario, two rivers traversing the urban area overflow significantly, submerging much of the city. In contrast, the projected damage scenario assumes a 1-meter increase in levee height along both rivers. The results demonstrate a remarkable reduction in flooding, highlighting the effectiveness of enhanced levees in mitigating river overflow and minimizing inundation. This damage assessment also estimates economic losses, accounting for the destruction of flooded homes, personal property, public infrastructure, business facilities, and operational disruptions due to inundation. Without additional adaptation measures, economic losses are projected at $5.1 billion. However, by raising the levees by 1 meter along the two major rivers, potential losses could be reduced to $1.1 billion.

Additionally, greenhouse gas (GHG) emissions generated during post-disaster recovery and reconstruction were estimated. This includes emissions from transporting supplies, disposing of disaster debris (such as driftwood, fallen trees, sediment, mud, rubble, and submerged vehicles), and rebuilding homes and infrastructure. Without additional adaptation measures, GHG-related costs were estimated at $160 million, whereas with adaptation measures in place, they could be reduced to $40 million.

In this case, although the study did not conduct a quantification of the socioeconomic value—such as the impact on community sustainability, loss of homes, displacement of residents, and the breakdown of local communities due to evacuation, it did estimate the combined economic loss reduction and GHG emissions reduction benefits during reconstruction at $4.1 billion. However, implementing 1-meter increases in levee height along the two rivers presents significant challenges due to existing infrastructure along the riverbanks and the fact that these rivers span multiple municipalities. Nonetheless, conducting preemptive simulations to assess climate-induced disaster risks, potential damage scenarios, adaptation measures, and their effectiveness—as well as evacuation planning—will become increasingly critical in advancing effective disaster preparedness.

NEC is collaborating with insurance companies, banks, and other financial institutions to explore how the calculation of adaptation value can create financial benefits for insurance coverage for residents and business assets, financing for adaptation measures, and investment in adaptation projects. This includes investigating demonstration fields to assess the feasibility and impact of adaptation finance.

Fig. 5. illustrates the example of peatland fires in Indonesia. In the case of forest fires, early detection of ignitions and rapid firefighting efforts can limit the spread of the fire, thus reducing the affected area. Indonesia possesses 94 million hectares of forest resources, which corresponds to about 53% of its land area. This makes Indonesia the third-largest holder of tropical rainforests in the world, following Brazil and the Democratic Republic of the Congo. Additionally, Indonesia is home to the world's largest tropical peatlands, often referred to as major carbon storage sites, containing approximately 36% of the world's peatlands.³⁾ However, forest fires and haze—a smoke or smog caused by such fires—occur annually, posing significant social challenges.

In response to this issue, NEC estimated the extent to which the spread of fires and the resulting economic losses and greenhouse gas emissions could be reduced if the time from ignition to firefighting could be cut in half through simulations based on the assumption that firefighting could be made more efficient by introducing a fire detection system that uses infrared cameras and other equipment.

The analysis results previously mentioned were presented by Takayuki Morita, President and CEO of NEC Corporation, at the Global Innovation Hub Pavilion under the UNFCCC during COP28. In his keynote speech, titled "Advancing Climate Adaptation with Digital Technologies," he highlighted the necessity for private enterprises, financial institutions, government agencies, international organizations, and academia to actively collaborate and take decisive actions to promote adaptation measures. He urged the audience to engage in co-creation efforts to develop tangible examples of adaptation finance leveraging digital technologies.

4. Conclusion

Implementing adaptation finance in society presents many challenges. Traditional climate risk assessments struggle with the uncertainties and regional variations of climate change, making it difficult to extend existing methodologies. Developing financial products based on disaster risk assessment and the adaptation value of countermeasures requires expertise across multiple disciplines. In addition, legal and regulatory frameworks often need to be addressed. This development requires not only the cooperation of the financial and IT sectors but also the coordinated efforts of industry, government, academia, and international cooperation. To create a financial system that effectively adapts to climate change, the use of digital technology alone is not enough; cross-industry and interdisciplinary collaboration is essential. In this context, on March 15, 2024, NEC and Mitsui Sumitomo Insurance Co., Ltd. established the Adaptation Finance Consortium. The consortium aims to utilize digital technology to predict and clearly quantify adaptation value—such as disaster risk reduction and environmental benefits—providing investors with understandable quantitative insights. It also seeks to develop use cases for financial products like insurance, bonds, and loan schemes based on various adaptation strategies and valuation methods in collaboration with member companies, regulatory authorities, and global partners. The consortium’s work has been presented at various international events, including the 2024 United Nations Climate Change Conference or Conference of the Parties of the UNFCCC (COP29)

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