Cascading climate risks: strategic recommendations for European resilience

Cascading climate risks: strategic recommendations forEuropean resilience Ruth Townend, Chris Aylett and Magnus Benzie November 2023 All rights reserved. No part of this publication may be reproduced ortransmittedin any form or by any means, electronic or mechanical includingphotocopying, recording or any information storage or retrieval system,without the prior written permission of the copyright holder. Pleasedirect all enquiries tothe publishers. Front cover: an aerial view of a flooded district just outside Bangkok, Thailand, on 7 November 2011. Thailand experienced the longest duration flooding event in its recorded history, causing the closure of seven major industrial parks and thousands of factories supplying key components to the car and electronics industries, with knock-on supply chain disruption for European manufacturers. Photo: Copyright © Paula Bronstein/Getty Images. designbysoapbox.com This project received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 821010. The study is published in the framework of the Cascading Climate Impacts (CASCADES) Project (2019–2023), funded through the European Commission’s Horizon 2020 programme, see www.cascades.eu. Cascading climate risks: strategic recommendations for European resilience Ruth Townend, Chris Aylett and Magnus Benzie November 2023 About CASCADES CAScading Climate risks: towards Adaptive and resilient European Societies This report is adeliverable of the CASCADES project, which ran fromSeptember 2019 until December2023, funded by the European Union under Horizon 2020 (Grant Agreement 821010). The Potsdam Institute for Climate Impacts Research (PIK) coordinated aconsortium of 12partners from across Europe with expertise on climate change, foreign policy, trade, finance, development and policy andstakeholder engagement. The CASCADES project has produced in excess of 50 deliverables, morethan 30 journal articles and several policy briefs and communication products such as videos, podcasts, policy simulations, serious games and other resources. For more information see the project website: www.cascades.eu. Contents Acknowledgements 2 Executive summary 3 Introduction 10 Relevance of risk across European policy domains 16 European institutions 18 Climate diplomacy 24 Trade 32 Finance 38 Global governance 43 European societies 47 The policymakers’ toolkit 52 Conclusions 55 Appendix 58 References 64 About the authors 68 Cascading climate risks: strategic recommendations for European resilience2 Acknowledgements This report combines recommendations from wider CASCADES publications with new thinking. It draws on the huge wealth of expertise within the CASCADES consortium, nurtured under the framework of the CASCADES project (2019–2023). The consortium team have been active contributors to the development and refinement of these recommendations. The authors would particularly like to acknowledge the valued contribution and leadership of Christopher Reyer and Hetty Saes-Heibel to this report, and the wider culture and work of the CASCADESconsortium. It was important in the recommendations development process that perspectives from beyond the CASCADES consortium were sought and incorporated. Circa 60stakeholders were involved in a strategic simulation exercise in London in October 2022, and provided a fresh stream of perspectives on cascading climate risks. The wealth of expertise within Chatham House provided invaluable context. TimBenton and Anthony Froggatt of the Environment and Society Centre have been a pair of rocks throughout the entire process and fed in on many occasions. Particular thanks are due to Patricia Lewis and Armida van Rij of the International Security Programme, Pepijn Bergsen of the Europe programme, and Chris Sabatini ofthe USand the Americas Programme for their contributions on the wider context of therecommendations. The group of stakeholders that attended the validation workshop on the Stockholm archipelago in March 2023 provided nuance and challenge as the recommendations moved towards their final state. The organisers, speakers and audiences of the CASCADES Roadshow events gave us fresh perspectives on the recommendations as we refined them. Special thanks to Diana Acconcia of DG CLIMA, Peter Bentley of the FCDO, and to Her Excellency Ambassador Josefa Leonel Correia Sacko of the African Union. Our discussion at the Chatham House event in June 2023 was instrumental in forming recommendations for both the EU and beyond. The report has benefitted greatly from being carefully reviewed by CASCADES colleagues including Cornelia Auer, San Bilal, Francesco Bosello, Giacomo Bressan, Katy Harris, Hanne Knaepen, Glada Lahn, Irene Monasterolo, Ilona Otto, Christopher Reyer, Fabien Tondel, Chris West and others. Thanks to Caitlin Douglas of the UK Climate Change Committee, and Daniel Quiggin and Laurie Laybourn of Chatham House, for their thoughts and reflections. Anonymous external peer reviewers, your insights were hugely valuable. We cannot name you here, but you know who youare! We are grateful to Anna Brown for her diligence and flexibility throughout the editing process, and to Ian Blenkinsop of Soapbox for bringing the report to life with his design and typesetting work. Special thanks finally to Katy Harris and Sara Talebian of the Stockholm Environment Institute, whose unwavering support, guidance and challenge vastly improved both the process and the final outputs. Executive summary3 Executive summary Direct climate change impacts such as increasing heatwaves, floods and wildfires pose a serious risk to European societies. Impacts beyond Europe’s borders, incountries with less capacity to prepare, respond and adapt, will be even greater. ‘Cascading climate risks’ connect European and wider vulnerability, as climate hazards in remote locations create knock-on impacts that spread across borders and through systems, affecting European societies and economies. Europe’s exposure to cascading climate risks increases if countries, communities and companies outside the European Union (EU) do not have the capacity to prevent initial climate impacts from escalating and propagating. Cascading climate risks are, as yet, little understood and seldom assessed or managed. This is extremely dangerous. Such risks will only grow in coming years. This report therefore recommends how European stakeholders, particularly theEU,should respond across policy domains, scales and systems. To meet the cascading climate risk challenge, a stepwise approach to implementingthe recommendations is needed. This summary suggests how thismight proceed, to enable European institutions and policymakers to hardwire consideration of cascading climate risks into policies and processes. It moves from the level of individual understanding, through institutional change, to systemic transformations. Figure 1. A stepwise approach to implementing the recommendations European institutions Climate diplomacy Trade Finance European societies Global governance Step 1 Step 2 Step 3 Step 4 Laying foundations Responsibility and cooperation on a global stage Promotion of better global governance for resilience Preparing society Cascading climate risks: strategic recommendations for European resilience4 Step 1: Laying foundations The European Commission must build a European Civil Service fit for the cascading climate risk challenge, increasing the capacity of staff and institutions tounderstand and manage cascading climate risk. This process will require effort and commitment, but is not without precedent. The COVID-19 pandemic, the response to Russia’s invasion of Ukraine, and the subsequent war and cascading impacts, are case studies of inter-service cooperation, responsiveness and flexibility in the face of systemic crises. In approaching cascading climate risks, the EU can learn from these experiences. There are limits to the predictability of cascading climate impacts, but much more can be done to build understanding (Rec 1.1), including identifying the cascades the EU faces and perpetuates, and those that are initiated within its borders. By building cascade identification into risk assessment practices, and taking steps to better map cascading climate risk, the EU can be better prepared to establish risk ownership (Rec 1.2), allocate resources and measure success (Rec 1.3). Eventually, countries will need to develop a ‘whole-of-government’ approach for cascading risk ownership. Wider stakeholders in cascading climate risks, including in the private sector and civil society, will also need to continuously and effectively engage in cascading riskmanagement. The development of a risk and resilience mindset (Rec 1.4) across EU institutionswill have wider benefits for Europe. Cascading risk, including from non-climatic shocks, will become an increasingly common challenge for policymakers in an interconnected and potentially resource-strained world. As an acknowledged risk amplifier, climate change and its effects will play a role in many of these risk cascades. The capability to understand and manage cascading risks willonly become more important in years to come. Step 2: Responsibility and cooperation onaglobalstage No country, region or sector can govern cascading climate risks alone; yet cascading climate risks must be better governed if resilience is to be achieved. The EU must therefore effectively deploy climate diplomacy and foreign policy for European resilience to cascades. At the same time, the EU must demonstrate commitment and investment by making trade and financial flows work for resilience, not against it. Through combining direct investments with more just, fair and resilient financial and trade flows, the EU can pull more forcefully in the direction it will needto go. The EU will need to build its capability to deploy external action for coherence and efficacy. A first step in this will be to meet and exceed adaptation finance commitments (Rec 2.1) combined with increased technical assistance and political engagement with partner countries (Rec 2.3). Recognizing the shared, though not equal risks and opportunities stemming from cascading climate risks, the EU must effectively contribute to the resilience of lowand middle-income countries. This means meeting existing climate finance and official development assistance (ODA) spending commitments, and ambitiously ramping up adaptation support and finance. This is both in the EU’s self-interest, and for the global publicgood. Executive summary5 It is possible to build resilience with one hand, while undermining itwith the other. Inter-service cooperation is therefore needed to improve policy coherence to avoid harm and harness synergies (Rec 2.2). The need to improve policy coherence is relevant not just to development policy, but also wider foreign policy and security actions, and through trade and financial activities. Such an approach would enable the EU to iteratively cooperate, lead and build trust within the international system (Rec 2.4), by demonstrating its firm and ongoingcommitment to EU and wider resilience to cascading climate risks. Trade If a more strategic approach is taken, trade can both support and benefit from resilience. As a first step towards this, it will be necessary to formulate a trade resilience strategy for Europe (Rec 3.1). Such a strategy would enable a move away from narrow cost reduction/profit maximization motives and towards an approach that supports wider societal objectives and global goods via trade policy. Countries will need to balance investment in long-term, stable trade partnerships with flexibility to maximize resilience to shocks and dynamic responses in a more volatile world of cascading risk. As part of this, the EU would need to expand the scope ofthe Critical Entities Directive (Rec 3.2), support and facilitate supply chain ‘restructuring’ (Rec 3.3) and improve risk data and disclosure (Rec 3.4). Finance Financial institutions and actors need to better understand and manage climate riskswhich cascade within financial systems. Enhancing cooperation, communication and disclosure (Rec 4.1) and action to reform risk assessment and monitoring approaches (Rec 4.2) will enable cascading climate risk to be priced. This, inturn, will incentivize investments in adaptation and shift the dial on which projects are considered ‘risky’. These changes support proper allocation of funding for climate action and adaptation, bolstering the contribution of private finance and better enabling the EU to mobilize innovative European finance forwidespread resilience (Rec 4.3). Such changes would enable both public and private finance to fulfil their crucial roles in achieving global climate action. This requires unprecedented levels of investment in adaptation, and financial commitment to building widespread resilience. Step 3: Promotion of better global governance forresilience Action by the EU to build its own capabilities on cascading climate risks, and concrete assumption of responsibility and cooperation on the global stage will give the EU much-needed credibility and legitimacy in working to promote better global governance for resilience. Countries across the world need to take steps to both lead and cooperate forbettergovernance of cascading risks, with high-income countries acting in a spiritofsolidarity with lowand middle-income countries, based on an acknowledgment of deep interdependence. Tracing and acknowledging the Cascading climate risks: strategic recommendations for European resilience6 threadsof cascading climate risks through globalized systems will transform the incentives for high-income actors, including the EU, to engage in global efforts tocombat and address climate change-related risks. There is much to be learned about cascading climate risks, and how they should bestbe addressed. As learning advances, knowledge, skills and best practice should be shared within and across sectors and borders. Development of ‘seats’ of resilience leadership in government, the private sector and in civil society should be to the benefit of all stakeholders who will be affected by cascading risks, including those initiated and exacerbated by climate change. By considering the implications of the CASCADES project, and supporting the wide dissemination of CASCADES findings, the EU is taking a first step towards this. Leadership for effective cascading climate risk management will need to champion global governance that is fit for cascades (Rec 5.1): in essence, multilateral, inclusive, rules-based global governance with the aims of justice, sustainability andresilience. To achieve these aims, the EU would need to support reform of international structures (Rec 5.2) through concerted efforts, strategic vision and persistent diplomacy. Cascading climate risks are shared, though not equally, and their management requires good faith engagement and redoubled commitment tobuilding, rather than diminishing global trust and cooperation. This will come ataprice and require compromise on behalf of the EU and its member states; butitisaninvestment that will rapidly pay dividends. The EU needs to give climate security a home (Rec 5.3). This will help the Commission to build a collective and cooperative approach to managing climaterelated security challenges. Avoiding the securitization of resilience can help to avert the possibility of destabilizing and reactive responses, which are likely to create traps and negative cascading feedback loops for the EU. Step 4: Preparing society The role of society in cascade management and response cannot and should notbe ignored or treated as an afterthought. Businesses, local governments, civil society organizations and individuals will all be affected by cascading risks. All will play a crucial role in ensuring society’s resilience. Cascading climate impacts have the potential to increase inequality, impact political stability, feed extremism and destabilize societies. Preparedness across society should therefore be a key pillar ofthe EU’s approach. In the face of increasing cascading climate risk, the European Commission should proactively work with member states to engage and support wider society (Rec 6.3). Reactive approaches are likely to decrease political capital to effect necessary changes. It will be important to provide technical support to member states in developing resilient local economies and communities (Rec 6.1) andtosupport member states to reduce social inequality and strengthen cohesion (Rec 6.2). European resilience will depend on having informed, thriving societies, with sufficient political and social capital to endure shocks and participate in adaptation. Table 1 summarizes the recommendations in this report. More details on each individual recommendation can be found in the corresponding chapter. Executive summary7 Summary of recommendations by report chapter European institutions The EU needs to organize itself internally to be fit tohandle the complexchallenge ofadapting to cascading climate risk. Recommendation 1: Build a European Civil Service fit for the cascadeschallenge 1.1 Build understanding of cascading climate risks 1.2 Establish risk ownership 1.3 Allocate resources and measure success 1.4 Develop a risk and resilience mindset  Climate diplomacy Coherent external action by the EU will facilitate the type of mutually beneficial partnerships that Europe needs to reduce vulnerability tocascading climate riskglobally. Recommendation 2: Promote widespread resilience through externalaction 2.1 Meet and exceed adaptation finance commitments 2.2 Improve policy coherence to avoid harm and harness synergies 2.3 Increase technical assistance and political engagement with partner countries 2.4 Cooperate, lead and build trust within the international system Trade The fragility of European supply chains trade is becoming apparent; the EU needs atrade system that builds and benefits fromresilience. Recommendation 3: Take a strategic approach to resilient trade 3.1 Formulate a Trade Resilience Strategy for Europe 3.2 Expand the scope of the Critical Entities Directive 3.3 Support and facilitate supply chain ‘restructuring’ 3.4 Improve risk data and disclosure Cascading climate risks: strategic recommendations for European resilience14 Relevance of risk across European policy domains15 Figure3. Overarching cascading climate impacts for Europe Initial impact System component Societal and governance component Recipient risk Transmission of impact Border Climate triggers Short-period weather shock Slow-onset event Agriculture and food Infrastructure and economy Reduced crop exports Food price spikes Livelihoods Food security and inflation Urbanization Human mobility State response Geopolitical tensions Water Violent conflict and unrest Global food commodity markets and commodity co-movements International supply chains Business and finance Cascading impacts for the EU Humanitarian crisis in partner countries Migration to the EU Challenges to EU security policies EU price shocks Financial portfolio losses of EU banks Foreign policy, security, development Extreme events Slow-onset climatic changes Value of portfolios of banks Equity and asset values, dividents Extreme events More variable climatic conditions Droughts, floods, storms Extremist groups Cascading climate risks: strategic recommendations for European resilience16 Relevance of risk across European policy domains Figure3shows the breadth of different policy domainsthat can be impacted by remote shocks fromclimate change. These domains, shown top right, range from humanitarian and development policies, through migration, security and counterterrorism, to price shocks, financial portfolio losses in EU commercial banks,and lower profitability and resilience of businesses in the EU. The figure outlines archetypal paths for cascading climate risk. An archetype isusedbecause the complexity of real-life cascades can quickly become unwieldy. Taking the policy domains of foreign policy, security and development (topgreydotted box), figure3shows how initial climate shocks to ecosystems (thepurple hexagons on the left) can impact agriculture, water, infrastructure and the economy (blue boxes). Chains of impact ‘transmission’ are shown bythe red lines, demonstrating how impacts can move through and between systems and sectors. Further blue boxes show factors that can mediate climate impacts, such as ‘state response’. In the absence of resilience and effective mediation, impacts can escalate further, causing– in this archetype– forced mobility and violent conflict and unrest (blue boxes, topcentre). Implications of an archetypal cascade in these domains might, for example, require intervention by DG ECHO (European Civil Protection and Humanitarian Aid Operations), DG HOME (Migration and Home Affairs), DG DEFIS (Defence Industry and Space), DG INTPA (International Partnerships), DG NEAR (Neighbourhood and Enlargement Negotiations), FPI (Service for Foreign Policy Instruments), and the European External Action Service (EEAS), the EU’s diplomatic arm. Figure3also shows archetypal impacts on international supply chains (lower left grey dotted box) from more variable climatic conditions outside Europe. Reduced crop exports can impact global food commodity markets and lead to price spikes. This can in turn can drive food insecurity and inflation outside the EU, with implications for EU development policies, as well as price shocks within the EU itself. Policy domains that can be impacted by remote shocks from climate change range from humanitarian and development policies, through migration, security and counterterrorism, to price shocks, financial portfolio losses in EU commercial banks, andlower profitability and resilience Relevance of risk across European policy domains17 Implications in this domain may require intervention by DG TRADE (the European Commission’s trade department), DG CLIMA (Directorate-General for Climate Action), as well as DG AGRI on food exports/imports. Impacts on business and finance are also shown (lower right grey dotted box). Climate impacts on infrastructure and economies outside of the EU can result in reduced equity and asset values and lower dividends, and in turn to financial portfolio losses for EU banks, with policy implications for DG FISMA (Financial Stability, Financial Services and Capital Markets Union), DG ECFIN (Economic andFinancial Affairs), and DG BUDG (Budget). Protestors pushing symbolic empty shopping trolleys lead a demonstration against rising food costs and energy bills in Rome, Italy in October 2022. Photo: © Stefano Montesi/Getty Images. Cascading climate risks: strategic recommendations for European resilience18 European institutions European institutions The EU needs to organize itself internally to be fittohandle the complex challenge of adapting tocascading climate risk. Fragmented responsibilities around risk The European Union and its member states are currently ill-prepared to meet the challenge of cascading climate risk. Risk management is limited and siloed and is given little political priority. Concerted effort is needed to build recognition of cascading climate risks, and to ensure the European Civil Service is fit for the cascades challenge. As part of these efforts, aspects of the EU institutions and howthey work together will need to be transformed. EU institutions need to be equipped with the capability to build resilience to current and future risks through aconcerted, coherent and strategic approach. Resources are needed to build understanding of and capability for cascades management. The EU institutions then need to clearly define and assign risk ownership and set measures ofsuccess for cascading climate risk governance. Within the European Commission, the Directorate-General for Climate Action (DG CLIMA) is responsible for formulating and implementing climate policies and strategies. In addition to crisis response, the Directorate-General for European Civil Protection and Humanitarian Aid Operations (DG ECHO) is charged with disaster prevention and preparedness, which encompasses climate adaptation andresiliencemeasures in Europe and beyond. Other DGs are responsible for managing risks within their remits. Risk assessments are performed at project and programme level. They do not cover cascading climate risks as standard, and seldom reference or engage with risks within the remits of other DGs. While broader risk assessment exercises do exist, these may not always include climate risks explicitly, and are not currently set up to cover cascading climate risks. DG CLIMA and the European Environment Agency are co-leading the first European Climate Risk Assessment (EUCRA), with implementing partners including the Joint Research Centre and the Copernicus Climate Change Service. EUCRA will focus specifically on cross-border, cascading and compound climate risks, and is due for publication in the first half of 2024. This assessment should help support the coherence and cross-DG working needed to manage cascading climate risk. Other external instruments can be used as part of the EU’s response to managing these risks. For example, the new Neighbourhood, Development and International Cooperation (NDICI) Global Europe instrument merges various external financing instruments to help the EU achieve its international commitments, including those related to climate change. Additionally, the EU’s new Global Gateway strategy aims European institutions19 to balance similar initiatives by other major powers to support investment into sustainable infrastructure in line with the EU’s global commitments, such as the Paris Agreement. While adaptation and resilience are reflected in these instruments, cascading risks are not, as yet. Recommendation 1. Build aEuropean Civil Service fitfor the cascades challenge Institutional capacity for resilience to cascading climate risks can be built in at least two ways. First, individuals and teams working inside EU institutions should be equipped with the appropriate: ▪ knowledge: for example, of what cascading climate risks are and potentialresponses; ▪ tools: to support risk mapping and governance; ▪ skills: to embed risk and resilience thinking in their work. Second, institutional structures need to develop in ways that are conducive to strategic, coherent risk management. This will require some level of institutional reform to overcome the current limited and siloed approach to climate risk. The European Commission’s 2020 Strategic Foresight Report identified ‘resilience asanew compass for EU policies’ (EC, 2020). While resilience is gaining prominence as aEuropean concern, this aim has not yet been realized. The EU will need to go still further, for example by reviewing existing policies and meaningfully mainstreaming resilience in policymaking. Tackling cascading climate risk will require resilience tobemade aguiding tenet, central to European Commission policymaking and implementation across all sectors. Responses to COVID-19 and the Russian invasion of Ukraine have demanded rapid, cross-departmental responses from the EU, and provide lessons for how European institutions might break silos and work coherently on common, multifaceted challenges. Cascading climate risks will demand that this type of cross-institutional response from the EU, member states and all planning entities in Europe becomes entrenched and commonplace. Essentially, a‘whole-of-government’ approach (EC,n.d.a) to resilience needs to become business as usual. Recommendation 1.1. Build understanding ofcascading climaterisks While there are limits to the predictability of such complex impacts, much morecan bedone to identify and map cascading climate risks. The EU and member states must be informed and transparent about the cascading climate risks that travel through andend in their own territories, as well as those that are initiated within theEU. The EU will need to go still further, forexample by reviewing existing policies and meaningfully mainstreaming resilience inpolicymaking Cascading climate risks: strategic recommendations for European resilience20 New and updated tools and approaches are needed to enable this, including: ▪ Imperatives to consider and include cascading climate risks as part ofproceduralrisk assessment practices. ▪ Proactive identification and mapping of cascades, for example, by drawing on theCASCADES Conceptual Framework and Response Framework (seeCASCADES Resources). ▪ Stress-testing all major EU Directives and Strategies against shocks from cascading climate risks. This is atask that could be undertaken by the Vice President in charge of Strategic Foresight. ▪ Updated National Adaptation Plans (NAPs) to clearly identify and describe potential cascading climate impacts that might begin, travel through and end in EU and member state territories. Communication of these cascades to the stakeholders they are likely to affect, both within and beyond national borders, will then be needed. ▪ Via Climate-ADAPT, existing risk management tools (for example, the Adaptation Support Tool2) should be updated to account for cascades. New guidance should be issued for adaptation planning in non-traditional policy domains such as trade, security and finance. This guidance should encourage users to identify cascades and allocate responsibility for their management (see Rec.1.2: Establish risk ownership). This ownership needs to focus on convening and coordinating stakeholders in risk, rather than creation of yet more silos. ▪ Make resilience akey criterion in EU policy impact assessment. Recommendation 1.2. Establish risk ownership Once risks are better known, they must also be owned. Specifying ‘risk owners’ encourages accountability and enables convening and coordinated involvement of the many departments and teams implicated in individual cascading climate risks. ▪ DG CLIMA and DG ECHO should collaborate to provide strategic leadership on cascading climate risks, and should play amore prominent strategic role. These DGs should co-lead to coordinate action and stipulate overarching ‘risk owners’ at DG and inter-service levels to manage and respond to specific cascades. Forexample, ownership of climate risks to critical supply chains shouldbeassigned toaspecific unit in DG TRADE, and so on. –The results of the EU Climate Risk Assessment (EUCRA) and similar assessments should be used to inform allocation of risk ownership. –Recognition of ‘ownership’ should be flagged in forthcoming iterations ofeachDG’s Strategic Plan. ▪ A new interservice ‘Resilience Agenda’ should be developed and assigned toarelevant Commission Vice President (VP). The responsible VP should set out options for structural or procedural reform to clarify and elevate the resilience agenda within the Commission. ▪ Implementation of the EU Adaptation Strategy should become apolitical priority for the next Commission. 2 See Climate Adapt’s Adaptation Support Tool at: https://climate-adapt.eea.europa.eu/en/ knowledge/tools/adaptation-support-tool/index_html. European institutions21 ▪ Cascading risks should be acknowledged by the European Council through Council Conclusions on cascading climate risks. ACouncil resolution can set out future work foreseen and invite the Commission to make aproposal or take further action (Council of the European Union,n.d.). ▪ The need for ownership should feature in the European Council Strategic Agenda2024–2029. ▪ The EU must work towards a‘whole-of-government’ approach to cascading climate risk. This should enable work across policy domains, stakeholders and governance levels. This approach should be reflected in corresponding institutional restructuring at member state level. ▪ Carry forward and enhance commitments to future generations in EU Missionsfor the next Commission mandate. Cross-cutting commitment to future generations across the decisions of EU DGs, as seen across public bodies in Wales under the Well-being of Future Generations Act 2015, would help to embed along-term resilience perspective in policymaking. Recommendation 1.3. Allocate resources and measure success Resilience cannot be built without the necessary resources and metrics for success: ▪ The 2028–2035 Multiannual Financial Framework should clarify the resilience budget. If this were to align with global aims for climate finance, 50percent ofclimate investment would need to be devoted to adaptation. Given the cascading nature of climate risk, it would be important for some of this investment to happen outside Europe’s borders, bolstering resilience inwaysthatreflect and strengthen Europe’s international role. ▪ The EU could lead by example on adaptation reporting under the second Global Stocktake, by setting its own indicators for building domestic and global resilience to cascades. –Define resilience targets for each cycle of the Global Stocktake (2028, 2032, and so on) and under the EU Adaptation Reporting framework, articulating how to assess: –resilience gains in Europe to cascading climate risk; –how the EU’s own adaptation contributes to resilience beyond the EU’sborders. Recommendation 1.4. Develop arisk and resilience mindset Cascading climate risks are complex and systemic, and those dealing with themneed the skills to think in complex, systemic ways. To prepare for increasing cascades, ‘risk and resilience thinking’ needs to become both abasic competency andaleadershipskill. ▪ Climate change should be approached as agenerator and amplifier of systemic, rather than localized, risk, with limited predictability. ▪ The Horizon Europe programme for researchand innovation should continue to support research on cascades. Experts from regions linked to Europe by cascading climate risks– both inbound to and outbound from Europe, and regions otherwise likely to experience transition impacts from European action to reduce or manage cascading climate risks– should be integral to consortiums, bringing their perspectives on risk and resilience. Cascading climate risks: strategic recommendations for European resilience22 ▪ More diverse decision-makers should be brought into adaptation processes relating to cascades at an early and formative stage. This should include representatives of EU regions and local authorities via the EU Mission on Adaptation to Climate Change, and from beyond Europe via existing international partnerships. Examples could include EU–African Union (AU) exchanges on climate change via the EU–AU Summit and other diplomatic channels, aswellasglobal forums such as the UNFCCC Adaptation Committee. ▪ Risk and resilience thinking should be included in the European Civil Service competencies for policy and programme management roles, and at the core of leadership development programmes. This needs to include development of the capacity to learn as asystem unfolds, changes, or is challenged, and as system dynamics emerge. ▪ Cascading climate risks should be integrated into the activities of the Union CivilProtection Knowledge Network. ▪ Risk and resilience should be made acentral focus of the European Skills Agenda2025–2030. Institutional arrangements for resilience Difficulties faced by national governments, regional blocs and the international communities in adequately responding to mounting, interlinked global crises has sparked debate* about the institutional arrangements that are needed to build resilience. Many global institutions, such as the UN Security Council, or the Bretton Woods institutions, reflect post-war geopolitical dynamics that have since changed radically. Furthermore, the nature of systemic risk in the 21st century differs significantly from challenges faced in the mid-20th century. The risks of financial contagion, biodiversity collapse, unregulated artificial intelligence, cybercrime, pandemics and climate change require acoordinated approach. Particularly when interlinked, such risks might not fit easily into the remit or field of expertise of single government departments. These risks are also ‘external’, arising outside national borders and government structures, and there is limited predictability and finite potential to control them. Two potential approaches to increase institutional preparedness for such risks are: ▪ Mainstreaming governance of cascading climate– and other– risks into existing sectoral policies– for example, health plans that prepare for pandemics, trade strategies that build resilience to external shocks; ▪ Institutional reform that creates new structures and mandates to lead and coordinate the process of building institutional resilience to cascades. This report focuses on processes for mainstreaming governance of cascading climate risk, as recommendations developed by the CASCADES project tended to fall within this approach. An alternative approach would be the creation of new institutions to lead cross-sectoral resilience planning in response to multiple threats or crises. ‘Ministries of Resilience’ at national level, for example, might cover: strategic foresight of new risks and updates to national systemic risk registers; crisis response across multiple and interlinked threats; strategic resilience-building at home and abroad; and coordination of the resilience agenda across government. In the European Commission, an equivalent wouldbe anew DG RESILIENCE. Coordinated investment and cooperation at an international level might be achieved through convening Ministries of Resilience via aGlobal Resilience Council. Such astructure might provide support to systemic resilience-building and offer acounterpoint to trends towards fragmentation and zero-sum approaches to risk and resilience governance at the international level (FOGGS, 2022). European institutions23 New institutions, however, might serve to reinforce or create new silos, especially ifpolitically weak and unable to work effectively across government. Institutional reform would be helpful and necessary only if it strengthened, centralized and networked– rather than fractured– the governance of resilience. *For example: Karlsson-Vinkhuyzen and Dahl (2021); World Economic Forum (2023); BoydandWilson (2021); UK Parliament (2022). What is at stake? In an increasingly unstable geopolitical context, failure to mainstream resilience andreform institutional risk governance within the EU will leave Europeans exposed to awide range of cascading risks, including those which do not have climate triggers at their origin. Opportunities will be missed for proactive, early, strategic interventions which could prevent harm and disruptions to European societies. Itisnot always possible to quantify the severity and probability of cascading climate risks and the cost of managing them as they unfold, due to their complexity (Quigginet al., 2021). However, the economic and social costs are likely to far outstrip the costs of strategic adaptation and resilience-building. Without changes to institutional governance for resilience, the EU will struggle toachieve its aims of contributing to peace, security and sustainable development, solidarity and mutual respect among peoples (European Union,n.d.). Related CASCADES resources ▪ Detges,A. and Foong,A. (2022), Foreign Policy Implications of Climate Change in FocusRegions of European External Action, https://www.cascades.eu/publication/ foreign-policy-implications-of-climate-change-in-focus-regions-of-europeanexternal-action ▪ Knaepen,H. and Vajpeyi,I. (2022), European responses to transboundary climate impacts and insecurity, https://www.cascades.eu/publication/europeanresponses-to-transboundary-climate-impacts-and-insecurity ▪ Mackie,J. (2020), Promoting policy coherence: Lessons learned in EU development cooperation, https://www.cascades.eu/publication/promoting-policy-coherencelessons-learned-in-eu-development-cooperation ▪ Ranger,N., Mahul,O. and Monasterolo,I. (2021), ‘Managing the financial risks of climate change and pandemics: What we know (and don’t know)’, https://www.cascades.eu/publication/managing-the-financial-risks-of-climatechange-and-pandemics-what-we-know-and-dont-know ▪ Talebian,S. et al. (forthcoming) Aconceptual framework for responding to crossborder climate change impacts, https://zenodo.org/record/7817615 ▪ Thiery,W. et al. (2021), ‘Intergenerational inequities in exposure to climate extremes’, https://www.cascades.eu/publication/intergenerational-inequitiesinexposure-to-climate-extremes Cascading climate risks: strategic recommendations for European resilience24 Climate diplomacy Climate diplomacy Coherent external action by the EU will facilitate the mutually beneficial partnerships that Europe needs to reduce vulnerability to cascading climate riskglobally. External action for coherence and efficacy The European External Action Service (EEAS), launched in 2011, is the EU’s diplomatic service, responsible for carrying out foreign and security policy. Within theCommission, DG INTPA (International Partnerships) is responsible for formulating and implementing international partnership and development policy. DG NEAR (Neighbourhood and Enlargement Negotiations) leads negotiations with countries seeking to join the EU and broader engagement within the ‘neighbourhood’. The Service for Foreign Policy Instruments works on implementation of foreign policy priorities, including climate security. Published in 2016, AGlobal Strategy for the European Union’s Foreign and Security Policy (EEAS, 2016) recognizes that investing inclimate resilience abroad is also in the interests of European citizens. Climate finance to third countries is provided by the Commission, EU member states, and the European Investment Bank, totalling €23.04 billion in 2021. This made the EU the largest provider of public climate finance in the world. In 2021, more than 54percent of climate finance was for adaptation or cross-cutting action (Council of the European Union, 2022). Increasingly, official development assistance (ODA), of which the EU provided €67 billion in 2020, is integrating climate action, with the EU’s main financing tool for external action (the Neighbourhood, Development and International Cooperation Instrument) now holding a35percent spending target for climate-relevant objectives over the 2021–2027 period (EC,n.d.c). The regulation establishing the Instrument recognizes the transregional effects of climatechange and commits to providing technical and financial assistance to partner countries tomitigate these. The Mid-Term Review of NDICI, forthcoming at the time ofwriting,will also assess these commitments. The European Security Strategy labelled climate change as asecurity risk in 2003. Many EU policies and strategies in this domain recognize the potential of climate impacts to cross borders, such as the New Pact on Migration and Asylum (EC,n.d.d) and the Concept for an Integrated Approach on Climate Change and Security (EEAS, 2021). The 2023 ‘Joint Communication– A new outlook on the climate and security nexus’ (EEAS, 2023) states that Europe must prepare itself for the increasing ‘spillover effects’ of climate impacts occurring outside its borders, and sets out actions designed to integrate the ‘climate, peace and security nexus’ into all levels ofEU external action. Ensuring the coherence of its externally focused policies, especially regarding development, has long been aconcern of the EU. Coherence is one of the Maastricht Climate diplomacy31 ▪ Knaepen,H. and Vajpeyi,I. (2022), European responses to transboundary climate impacts and insecurity, https://www.cascades.eu/publication/europeanresponses-to-transboundary-climate-impacts-and-insecurity ▪ Lahn, G. and Shapland, G. (2022), Cascading climate risks and options for resilience and adaptation in the Middle East and North Africa, https://www.cascades.eu/ publication/cascading-climate-risks-and-options-for-resilience-and-adaptationin-the-middle-east-and-north-africa ▪ Mackie,J. (2020), Promoting policy coherence: Lessons learned in EU development cooperation, https://www.cascades.eu/publication/promoting-policy-coherencelessons-learned-in-eu-development-cooperation ▪ Wolfmaier,S., Foong,A. and König,C. (2021), Climate, conflict and COVID-19: How does the pandemic affect EU policies on climate-fragility?, https://www.cascades.eu/ publication/climate-conflict-and-covid-19-how-does-the-pandemic-affect-eupolicies-on-climate-fragility Cascading climate risks: strategic recommendations for European resilience32 Trade Trade The fragility of European supply chains trade is becoming apparent; the EU needs atrade system thatbuilds and benefits from resilience. EU policies and agreements on international trade lag behind other sectors, suchasforeign policy, security and development, regarding the extent to which they account for cascading climate risk. The EU’s 2021 Trade Policy Review, for example, does not consider how climate impacts may be transmitted through trade networks, although it asserts that trade policy should ‘unequivocally support the Green Deal inall its dimensions’. A key pillar of the European Green Deal is the Farm to Fork Strategy, which directly addresses trade resilience, among other issues, as well as production and consumption aspects of the food system. This is an example of sectoral European policies that address trade-related risks, despite the relative lack of engagement from trade ministries on climate change risks in supply chains and markets. Since 2009, the EU has included chapters on trade and sustainable development in its Free Trade Agreements (FTAs), with climate change increasingly integrated through, for example, commitments to implement the Paris Agreement. While agreements such as the pending EU–Mercosur FTA note the positive role that trade can play in climate-resilient development, they generally do not flag or explore tradesystems as conveyors of climate risk. Trade system fragility in focus The relationship between trade policy and climate risk is beginning to receive attention at the global level– for example, through WTO’s World Trade Report 2022 (WTO, 2022). The increasing use of trade restrictions to manage agricultural production shocks, in part driven by climate change impacts, is also drawing greater political attention to these issues. Overall, there is agrowing recognition that today’s trade system is increasingly fragile. Decades of specialization in products and services– and the globalization of supply chains– have delivered gains in efficiency and profitability, albeit with an uneven distribution of benefits globally. But in afragmented and shock-prone world, the lack of diversification that results from this specialization is increasingly being understood as asource of instability. Trade33 ‘Resilience thinking’ for trade and supply chains Global events such as the COVID-19 pandemic and Russia’s invasion of Ukraine have triggered cascading risks that are still unfolding across international supply chains. As aresult, there has been an upsurge in ‘resilience thinking’ across businesses and governments. Recent events have provoked aclear recognition of trade-related risks, without producing aconsensus on the preferred pathway to amore resilient trade system. Action to address these risks is as yet lacking. One of the key challenges for European actors is to develop ashared understanding of what aresilient trade system would look like. This should include aspects such asthe diversity and connectivity of European trade links, the level of redundancy, storage capacity and domestic production in Europe, the flexibility of European trade diplomacy, and issues relating to the equity and affordability of resilience in Europe and beyond. Achieving trade resilience may require striking abalance between investing in long-term partnerships with exporters and retaining flexibility toreactwith agility and to adapt during and after shocks and crises. Mounting political momentum for amore strategic and resilient approach to trade policy and supply chain governance presents an opportunity. Building resilience tocascading climate risk can become an important objective of this new approach toconceptualizing, planning, disclosing and managing international supply chains. There is adanger, however, that climate change considerations might be lost in therush to restructure, which is primarily driven by other concerns than climate– and that European reactions may worsen vulnerability over time. ‘Strategic autonomy’ for Europe carries its own dangers. If European actors restructure supply chains or reshape the patterns of regional and global trade without systemic thinking, exposure to climate and other types of risk may be inadvertently increased. For example, EU policies to shorten supply chains and produce more food in Europe would concentrate risk inside European borders, where climate impacts will also be felt. European food security would then depend more profoundly on the success of adaptation in Europe and reduce the diversity of suppliers to the European market. Withdrawing from international supply chains might also exacerbate thevulnerability of producer regions in lowand middle-income countries. This,inturn, increases the danger of climate risks cascading back into Europe. Transforming trade to deliver strategic, systemic resilience for Europe is essential. To achieve this, ashift in mindsets is needed, away from narrow efficiency and maximized profit, and towards resilience. Astrategic approach to trade is needed that identifies and delivers on broader societal and international objectives. Usingnew insights from data and disclosure will be crucial, enabling complex risktobefactored into decision-making. Mounting political momentum for amorestrategic and resilient approach to trade policy and supply chain governance presents anopportunity Cascading climate risks: strategic recommendations for European resilience34 Recommendation 3. Take astrategic approach toresilient trade Recommendation 3.1. Formulate aTrade Resilience Strategy forEurope As afirst step, an interservice consultation is needed on how the EU can incorporate ‘systemic resilience’ into its current ‘open, sustainable and assertive’ trade policy. This should be consistent and coherent with the objectives of the EU Adaptation Strategy, as well as other dimensions of the European Green Deal. In asystemic resilience approach, mutual resilience benefits to the EU and trade partners would be achieved via long-term, stable trade relationships within arobust multilateral rule-based trade regime. Building on the interservice consultation, DG TRADE, in close collaboration with other DGs, the EEAS, member states and international partners, should lead the formulation and implementation of aTrade Resilience Strategy that promotes resilience to cascading climate risk. This should bebased on afresh trade policy review that identifies: ▪ how EU trade policy currently contributes to third-country resilience; ▪ where EU trade policy undermines third-country resilience (for example, through major incoherences, such as those between European agricultural subsidies, widely seen as harmful to food and water security in lowand middle-income countries, and EU adaptation support, which aims to boost food security inrecipient countries); ▪ which EU trading partners and regions should be prioritized for resilience investments to create long-term, stable partnerships that maximize mutualresilience; ▪ options for diversifying critical supply chains to manage cascading climate risk; ▪ demand-side measures to reduce risk exposure– for example, policies that incentivize changes to industrial processes to reduce waste and enhance circularity, and changes to diets and consumption patterns that reduce the ‘import-intensity of consumption’8 in Europe; ▪ comparative resilience benefits of ‘just in time’ and ‘just in case’ supply chain models, alongside wider implications such as for emissions and waste; ▪ intersections between the internal and external dimensions of European trade strategy, including the desired balance between demand-side measures, diversification and resilience-building in third countries. The Trade Resilience Strategy should also: ▪ provide guidance on how new EU trade agreements can mainstream clauses toaddress potential cascades and specify options to boost mutual resilience withtrade partners; ▪ develop Trade Crisis Response Plans that prepare European industry and society for major trade disruptions, including those from cascades; 8 The volume and number of imported products that are embedded in what is consumed in Europe. Trade35 ▪ articulate how existing international, informal trade policy forums (like the Transatlantic Initiative on Sustainable Trade) can be used to boost preparedness. For example, early warning systems could alert members of potential supply chain shocks and enable coordination for recovery. Aprecedent is offered by the‘crisis response network’ agreed by the 14 countries of the US-led Indo-Pacific Economic Framework (IPEF) at their May 2023 meeting (Lawder, 2023). Recommendation 3.2. Expand the scope of the Critical EntitiesDirective The European Commission should identify critical and strategic imports that are subject to potential cascades. After formal adoption of the Resilience of Critical Entities (CER) Directive, its scope should be expanded to include critical supplychains. ▪ An assessment of the Corporate Sustainability Due Diligence Directive (CSDDD) should be conducted to determine its role in supporting supply-chain resilience tocascades. Synergies with the CER Directive should be clarified. ▪ In its report to Parliament (scheduled for July 2027) the Commission should highlight and request risk management plans and guidance under the CER Directive to build resilience in Europe to cascading climate risks faced by criticalentities and their supply chains. Recommendation 3.3. Support and facilitate supply chain‘restructuring’ The Commission should establish aworking group with European businesses on strategic restructuring of European supply chains 9 in response to changing geopolitics including other nations’ industrial strategies, for example the US InflationReduction Act (IRS). The remit of the working group should include thefollowing points: ▪ Just and systemic resilience to cascading climate risk as akey topic for discussions within the working group. The role of EU coordination and ‘pre-competitive’ knowledge transfer and sharing10 should be considered in these discussions. ▪ Mechanisms for aligning businesses’ commercial strategies with the sustainability, foreign policy and resilience objectives of the EU and member states as part of the working group discussions. This would contribute toCommission efforts topromote such alignment. ▪ Action by the working group to identify businesses’ needs and clarify expectations of all parties, in recognition that the EU’s diplomatic, financial, legal and logistical capacities are needed to ensure the feasibility of new supply chain networks. 9 This refers to the practice of changing the structure and operations of supply chains to avoid orreplace areas of weakness, or high risks, and to capitalize on new opportunities. The discussion around supply chain restructuring is very active among businesses, particularly in the wake of the COVID-19 pandemic, which revealed many such weaknesses in companies’ existing supply chain networks. ‘Strategic restructuring’ refers to the process of aligning this process with broader strategic objectives, such as sustainability, resilience and new geopolitical realities. 10 ‘Pre-competitive’ collaboration is where businesses in the same industry facing common challenges come together to invest in research and knowledge-sharing that does not impact ondirect competition or create unfair advantage. Cascading climate risks: strategic recommendations for European resilience36 The proposed working group should commission aspecial report on the role ofEuropean and member state policy in facilitating atransition from ‘just in time’ to‘just in case’ supply chains. The report should address how to: ▪ create mechanisms for smoothing the distribution of costs during trade shocks,between private firms and the state, and between income levels in society– forexample, through the use of innovative tax (e.g.windfall taxes) and/orinsurance mechanisms; ▪ ensure fair societal distribution of costs and benefits from supply chain restructuring, including affordability concerns, job security and other socialimpacts; ▪ engage diplomats and investors to reduce Europe’s vulnerability to ‘choke points’ in international supply chains. Recommendation 3.4. Improve risk data and disclosure Improved data are needed to increase the transparency of risk in supply chains. Working with industry bodies, existing investment and supply chain transparency initiatives and civil society, the EU should do the following: ▪ Develop risk assessment tools, models and practices that better incorporate complexity. Encourage adoption of these tools, models and practices by public and private decision-makers. ▪ Build capacity to track, disclose and use data on complex risk across policy domains by facilitating exchanges of best practices between planning communities (for instance, in defence, cyber, health). The EU can improve risk disclosure processes for private and public actors via the implementation of the CSDDD. Abroader scope of risks than those currently included (i.e.human rights and environmental impacts) should be disclosed to increase transparency and inform investment and governance decisions that boostresilience to cascading climate risks. Existing supply chain transparency initiatives (such as labelling schemes and footprint analyses) should evolve to provide specific insights on climate risk and resilience. Civil society and the EU should encourage corporate members of these initiatives to embrace the evolution towards greater risk disclosure, given the wider societal benefits that greater supply chain resilience would deliver (such as price stabilization, job security, and so on). Risk assessments by public and private entities should also take better account ofhow actors will respond to climate change impacts both within and outside Europe, including protectionist and securitization responses. Examples of responses of this kind include border fortification in response to immigration, framing of climate impacts as security threats, and militarization of crisis response with longer-term consequences for military power balance. Data on the type and plausible effects of responses to shocks and crises should be developed, for example, under HorizonEurope. Special attention should be paid to the likelihood of risk (mis)perception, ‘irrational’ responses and the variation of actor interests and objectives in the international arena. Current risk modelling studies tend to neglect these factors, and therefore inaccurately portray how crises may unfold. Trade37 What is at stake? Without coordinated, long-term strategies for managing trade-related cascading risks, European actors will have to react to multiple crises in ways that will likely undermine their resilience over the long term. A short-term and incoherent form of adaptation is not in the strategic interests of Europe. It will lead to increasing disruption to the profitability of European businesses, with implications for competitiveness, investment and jobs. It will reduce the EU’s ability to access critical and strategic resources via trade and to achieve its twin green and digital transitions (European Commission, 2022). European citizens will be exposed to repeated affordability crises, and pressures on the environment inEurope and elsewhere will increase. Related CASCADES resources ▪ Adams,K.M. et al. (2020), Climate resilient trade and production, https://www.cascades.eu/publication/climate-resilient-trade-and-production ▪ Birkbeck,C.D. (2021), Priorities for the climate-trade agenda, https://www.cascades.eu/publication/priorities-for-the-climate-trade-agenda ▪ King,R. (2022), ‘Exploring the cascading impacts from climate shocks to chokepoints in global food trade’, https://www.cascades.eu/publication/ exploring-the-cascading-impacts-from-climate-shocks-to-chokepointsin-global-food-trade ▪ Stockeld,E. et al. (2021), ‘Climate change, crops and commodity traders: subnational trade analysis highlights differentiated risk exposure’, https://www.cascades.eu/publication/climate-change-crops-and-commoditytraders-subnational-trade-analysis-highlights-differentiated-risk-exposure ▪ West,C. et al. (2021), ‘Europe’s cross-border trade, human security and financial connections: Aclimate risk perspective’, https://www.cascades.eu/publication/ europes-cross-border-trade-human-security-and-financial-connectionsa-climate-risk-perspective ▪ West,C. et al. (2023), Report on preliminary impact and policy insights from model and sectoral case study analysis: trade-linked cross-border impacts, https://www.cascades.eu/publication/report-on-preliminary-impact-and-policyinsights-from-model-and-sectoral-case-study-analysis-trade-linked-crossborder-impacts Cascading climate risks: strategic recommendations for European resilience38 Finance Finance The low carbon transition already under way in the finance sector must also deliver resilience to cascading risks– public and private finance each have important and complementary roles to play. Moves towards transition and resilience Recent changes to EU sustainable finance regulations and supervisory interventions are designed to facilitate transitions to alow-carbon and inclusive economy. They also hold the potential to build the resilience of the financial system, including tophysical climate risks beyond Europe. These changes fall into three categories: ▪ disclosure regulations, such as the Corporate Sustainability Reporting Directive(EC,n.d.h); ▪ technical standards and consultations, such as the European Banking Authority’s Technical Standards on Prudential Disclosures on ESG Risks; and ▪ stress tests led by the European Central Bank. The stress test exercise, first carried out in 2021, assesses the ability of Eurozone banks to weather both transition and physical risk. It also considers how the geographical distribution ofabank’s lending activity exposes it to climate shocks. The European Commission and member states are also under growing pressure tocommit climate finance to build climate resilience and support transitions in other countries, particularly those most vulnerable to climate impacts. Such action is afundamental tenet of the EU’s commitments under the UNFCCC and the Paris Agreement. It is also one of the primary policy mechanisms via which European actors can reduce exposure to cascading climate risk both in Europe and beyond, by preventing or reducing the number and severity of cascades initiated by climate triggers and impacts beyond Europe’s borders. In this context, recipient countries are frustrated with donor country counterparts’ failure to deliver on existing promises, and with the slow pace of transformation in climate and development finance. They are leading initiatives to rethink the global financial architecture in ways that have the potential to boost collective resilience to intersecting shocks and challenges, including from climate change. These include the Task Force on Climate, Development and the International Monetary Fund (G-24,n.d.), which includes the Vulnerable Group of Twenty (V20), and the Bridgetown Initiative, spearheaded by the prime minister of Barbados, which hasgathered buy-inand momentum at an international level. Finance39 Governance and regulation adequate to manage cascading climate risks European financial institutions invest and lend in markets outside Europe, in all regions of the world, and therefore expose themselves to climate risks overseas. Financial markets are aclassic example of cross-border systems, where events, changes and trends in one part of the world can influence asset values, operations and profits for European-based actors (see Figure3. Overarching cascading climate impacts for Europe). European financial institutions have generally been successful in pursuing their core purpose of maximizing profit and efficiency. As the financial crisis of 2008 revealed, financial institutions are less proficient at weathering shocks. Current stress-testing models and regulations are not necessarily geared towards building resilience in the financial sector to novel systemic risks like compound and cascading climate risks. This is problematic because the lack of resilience in financial networks endangers not just profits, but also social cohesion and political stability. It is therefore necessary to ensure that the methodologies and regulations that are used to govern the finance sector are adequate to manage climate risks that cascade through markets. Enhanced coordination between financial institutions and governments may alsobeneeded to align private and public investment strategies that actually build societal resilience, rather than simply resilient profits. This would help to avoid, for example, the abandonment of high-risk markets outside Europe which might then become trigger-points for cross-border cascades. Recommendation 4. Promote transparency andaccountability for broad resilience As climate risks and impacts intensify it will be hard, if not impossible, for financial institutions to sustain their profitability without contributing to broader resilience. It will therefore be necessary to shift from apure profit-maximization paradigm in European financial institutions, to one that strives also to deliver resilience for all stakeholders: the recipients of finance and investments outside Europe, financial institutions themselves and European societies. As astarting point towards this paradigm shift, European financial institutions must better assess and manage the physical risks posed by climate change. They should close data gaps on climate risk indicators and develop the business cases for investing in resilience to multidimensional shocks outside Europe. Arobust approach to monitoring cascading climate risks will support better pricing of such risks. Improved pricing should reveal the financial and wider incentives for funding climateadaptation at multiple scales. The methodologies and regulations thatgovern the finance sector must be able to manage climate risks that cascadethrough markets Cascading climate risks: strategic recommendations for European resilience40 Recommendation 4.1. Enhance cooperation, communication anddisclosure Efficient mechanisms and standards are needed to facilitate cooperation across financial institutions and with public sector, scientific research and civil society organizations. This will support coherent action to address cascading risk inthefinance sector. European institutions and member states should: ▪ Enhance disclosure regulations for climate and sustainability risks across thefinancial sector, including for SMEs. ▪ Foster cooperation between financial supervisory authorities, scientific research and civil society organizations to better understand the propagation of climate risk in markets and to identify resilient investment opportunities. The Directorate General for Economic and Financial Affairs (DG ECFIN) should: ▪ Explore opportunities for sharing data and insights on systemic climate risk atlarge scales (i.e.markets, regions) with reinsurance companies and other actors inthe insurance industry. Reinsurance companies operate across borders and hold valuable insights on cascading risk from which the EU could benefit. ▪ Support fulfilment of the potential for risk-guarantee mechanisms that combine the resources of public and private actors, including through private reinsurance of public guarantees. European development finance institutions should: ▪ Establish dialogues between private and public sectors to share insights on climate risk and to seek opportunities for coordinated action to invest in resilience. This would stimulate joint endeavours and help to identify needs for improved guidance and tools. It would also help to avoid incoherences thatworkagainst societal resilience. ▪ Seek to increase coordination and communication with private investors inhighlyvulnerable markets. It is not in the EU’s interest to encourage capital flight from vulnerable countries (a possible unintended consequence of better risk pricing). In some cases, public investment (i.e.adaptation finance) may be required to build resilience where market incentives are lacking. Clearer communication will help to avoid surprises and increase the consistency ofinvestments in places where adaptation is needed most. Recommendation 4.2. Reform risk assessment andmonitoringapproaches The financial sector and supervisory institutions need new methods to accurately assess and effectively address climate risk. European institutions and member states should: ▪ Develop accurate, transparent, harmonized climate risk assessment methods, including by providing or creating reliable databases of climate-related impact and risk information. ▪ Help financial institutions to accurately quantify risk in their portfolios, to make the financial case for more ambitious and effective investments in resilience. European societies47 European societies European societies Individuals, communities, businesses and civil society must be prepared for disruption and be capable ofcontributing to resilience. Within its borders, the EU is committed to promoting its values, peace and the well-being of its citizens. It aims to combat social exclusion and discrimination, to promote social justice and protection, and to enhance economic, social and territorial cohesion and solidarity among EU countries (European Union,n.d.). There is broad variation of approaches to governance, social contracts and politicalideologies both within and across member states, and the authority andinfluence of the EU as an institution over member states waxes and wanes over time and differs across these contexts. Among the public, there is widespread popular disenchantment. Both these factors increase the challenges the EU facesinpromoting common values and pursuing common goals and ideals. In the EU, as across the rich world, economic inequality and stagnating living standards have fuelled support for formerly fringe political figures and projects, withpolarizing and destabilizing consequences. Increasing inequality, particularly, has prompted scepticism of the current system’s ability to address complex problems,including climate change, in what is seen as afair or equitable manner. Preparing for disruption Cascading climate risks have the potential to disrupt European societies at multiplescales via networks of trade, finance, mobility and communication. InEurope, as elsewhere, society’s most vulnerable members are likely to face thegreatest impacts. As elsewhere in the world, European societies are practically andpsychologically underprepared to meet and manage the impacts of climate change,including cascading climate impacts (Creutzig et al., 2022). Communication about climate change between governments and citizens, inEuropeas elsewhere, has tended to focus on improving efficiency and consumer choices which achieve only minor mitigation gains. Current policies on consumer action are not in line with climate mitigation goals, and tend to avoid potentially economically disruptive or politically unpopular aspects of transition, such Local resilience can help toavert or halt cascading consequences that might otherwise have national orinternationalimpacts Cascading climate risks: strategic recommendations for European resilience48 asreducing meat and dairy consumption and avoiding flying (Ibid). Attempts to engage the European public on adaptation have been even less successful (Mulholland et al., 2020), although this is now increasing in step with the escalation ofdirect climate impacts in Europe, such as heatwaves and wildfires. Shocks from cascades have the potential to impact individuals, communities, businesses and civil society. Conversely, these groups are integral to Europe’s strategic response to cascading risks. Local resilience can help to avert or halt cascading consequences that might otherwise have national or international impacts. Recommendation 6. Support strong societies forcascade resilience Societies will need strong political and social capital to endure shocks from cascades. Action by the EU to reduce inequality, and to promote participatory leadership and democratic health can help to maintain or strengthen the social fabric and enable society to play apart in the management of cascades and wider resilience-building. Recommendation 6.1. Develop resilient local economies andcommunities One way that cascading impacts will affect local economies in Europe is via financial cascades that disrupt firms (see Figure3. Overarching cascading climate impacts for Europe). Such impacts could harm entire local economies, especially where they relyon amajor employer or sector that dominates local industry and jobs. Other impacts for local communities from cascading climate risks are likely toinclude disruptions to food supply and volatile food prices, fertilizer shortages and price volatility impacting agricultural regions, as well as inward migration to European communities. If such impacts are not well managed, political destabilization and damage to social capital are likely to result as further cascadingimpacts of the above. ▪ Transparency, consultation and coordination should be enhanced around European climate policies and regulations to manage cascading climate risk, which themselves have cascading impacts on local economies. The Commission should support member states and local governments to anticipate and proactively manage adversecascading effects on economies at local level. ▪ Local resilience plans should be created as part of sub-national adaptation strategies, which directly consider the role of local economies in offering resilience to cascading climate risk. These plans could also feature or link to Action Plans under the Urban Agenda for the EU. ▪ DG AGRI should collaborate with member states and local government representatives to build local visions for food production which support resilience in European agri-food systems in line with European and global visions of resilient, sustainable food systems. The strategic dialogue on the future of agriculture in the EU, announced by President von der Leyen in her September 2023 State oftheUnionaddress, should advance this approach. European societies49 Recommendation 6.2. Reduce social inequality andstrengthencohesion Cascades, like other climate impacts, disproportionately affect the most vulnerable in society. Reducing inequality, and providing targeted support, can help to prevent some of the worst cascading impacts for European citizens. A redefinition of strategic economic objectives could help to build resilience atmultiple, interconnected levels. This would require local and national economies to adopt and pursue abroader suite of performance metrics in addition to gross domestic product (GDP). These redefined objectives would ideally have along-term focus and would target and promote human well-being, including societal and ecological resilience. Trust in government is also vital for managing cascading climate risks, which will often seem intangible to wider society, and which are likely to encompass impacts in politically sensitive domains such as security, food prices and migration. The EU and its member states must therefore re-double their efforts to build and engender trustin society and of government in particular. ▪ To support such trust, the Directorate-General for Communication (DG COMM) should act to address disinformation and support accurate understanding of politically sensitive issues such as climate-induced mobility, migration and displacement. Such disinformation can undermine European unity and international solidarity and can feed extremism. ▪ Feelings of political disempowerment have been shown to undermine trust, while openness, integrity and equal treatment are critical for trust in democracy (OECD,n.d.). –The European Parliament should recommit to better informing the publicabout climate change, including on complex areas such as cascading climaterisks. –Inclusive consultations should be held, where appropriate, on responses tocascading climate risks. Public will should be incorporated into solutions, and process and outcomes should be clearly communicated to the public toreinforce trust and asense of democratic agency. Recommendation 6.3. Engage and support wider society Despite best efforts, Europe is likely to experience an increase in cascading climate impacts resulting from hazards originating beyond its borders. To prepare for and manage such risks, European civilians will need to be engaged as part ofcomprehensive responses, which are likely to be different to those needed for direct climate risks, such as Emergency Alert Systems for wildfires or flooding. These more traditional forms of adaptation may, however, act as astepping stone toengaging the public with more complex responses to cascades– for example: ▪ Longer-term engagement in demand reduction and resource conservation during crises, as seen in the ‘Playing my part’ campaign by the Commission andInternational Energy Agency (European Commission, 2021b), in the wake ofRussia’s invasion of Ukraine. Cascading climate risks: strategic recommendations for European resilience50 ▪ Shifts in consumption of certain goods to help with supply chain insecurity as aresult of climate impacts, such as shifting staple grains in the event ofbreadbasket failure. ▪ Participation in humanitarian responses to buffer cascading impacts, such assupport for climate refugees or donations to disaster response funds. Public engagement of this kind is likely to be ajoint responsibility between civil society organizations and local and national governments within member states. Those supporting European citizens in cascades response should themselves be supported through EC dissemination of access to the best available tools, skills and information, and the sharing of best practice. These parties should be informed of the steps that the Commission and member states are taking, and be enabled toadapt these to the contexts in which they operate. What is at stake? The cascading impacts of climate change are becoming increasingly difficult for European citizens, businesses and civil society to ignore. Political reticence to actively engage the public as part of the solution cuts off an avenue of responses, reducing options for building European resilience. Resilience requires long-term planning that may run against short-term societal, economic and political incentives. As stresses increase, such long-term agendas may become increasingly politically unpopular and difficult to prioritize, trapping theEUand member states in ‘fire-fighting’ mode, while risks continue to escalate. If the public is insufficiently prepared, shocks from cascading risks, including known political ‘triggers’ such as rising food prices and entrenched negative perceptions of the impacts of increased migration, will compound existing strains on societies, with potentially negative consequences for political and social stability. This in turn will undermine the potential for measured, constructive government responses totheseissues. Related CASCADES resources ▪ Bodirsky,B.L. et al. (2020), ‘The ongoing nutrition transition thwarts long-term targets for food security, public health and environmental protection’, https://www.nature.com/articles/s41598-020-75213-3.pdf ▪ Hildén,M. et al. (2020), Cascading climate impacts: anew factor in European policy-making, https://www.cascades.eu/publication/cascading-climate-impacts As stresses increase, long-term agendas maybecome increasingly politically unpopular and difficult to prioritize, trapping theEUand member states in ‘fire-fighting’ mode, while risks continue to escalate European societies51 ▪ Knaepen,H. (2022), Looking back at the 5th European Climate Change Adaptation Conference (ECCA 2021), https://www.cascades.eu/publication/looking-back-atthe-5th-european-climate-change-adaptation-conference-ecca-2021 ▪ O’Neill,B.C. et al. (2021), ‘Achievements and needs for the climate change scenario framework’, https://www.cascades.eu/publication/achievements-andneeds-for-the-climate-change-scenario-framework ▪ Ringsmuth,A.K. et al. (2022), ‘Lessons from COVID-19formanaging transboundary climate risks and building resilience’, https://www.sciencedirect.com/ science/article/pii/S221209632200002X?via%3Dihub#f0005 ▪ Thiery,W. et al. (2021), ‘Intergenerational inequities in exposure to climate extremes’, https://www.cascades.eu/publication/intergenerational-inequitiesin-exposure-to-climate-extremes ▪ Van den Hurk,B. et al. (2020), ‘What can COVID-19 teach us about preparing for climate risks in Europe?’, https://www.cascades.eu/publication/what-canclimate-risks-teach-us-about-preparing-for-climate-risks-in-europe Cascading climate risks: strategic recommendations for European resilience52 The policymakers’ toolkit CASCADES tools and resources have been developed, which may be useful to policymakers in learning about, understanding and building approaches to manage cascading climate risk. The CASCADES conceptual framework The CASCADES project proposes a‘conceptual framework’, which includes aset ofterms for describing and analysing cascades: The framework distinguishes: ▪ initial impacts caused by aclimate trigger (often within aspecific region); ▪ the ‘impact transmission system’ through which impacts propagate, oftenacross borders; ▪ the ‘response transmission system’ through which adaptation responses interact with the impact transmission system. To help understand cascades, the framework recognizes different types of climatetriggers, categories of cross-border impacts, scales and dynamics of impact transmission and the targets and dynamics of responses. The framework also accounts for the current and future socio-economic and environmental context inwhich cascades occur. The framework can be used to identify relevant causal relationships, both inretrospect, and proactively. Aretrospective approach is useful for learning, while proactive usage can help policymakers plan for, adapt to or potentially preventcascades. Carter,T., Benzie,M., Campiglio,E., Carlsen,H., Fronzek,S., Hilden,M., Reyer,C.P.O. and West,C. (2021), ‘A conceptual framework for cross-border impacts of climate change’, Global Environmental Change, Vol.69, https://doi.org/10.1016/j.gloenvcha.2021.102307 The policymakers’ toolkit53 Figure2. Examples of cascading climate impacts from the CASCADES conceptualframework The CASCADES response framework The CASCADES response framework can be used to identify and filter different types of responses to cascading climate risk. The framework: ▪ links cascade and response typologies; ▪ defines ‘constellations’ of actors involved in cascade responses; ▪ proposes aset of ‘governance modalities’ that may be appropriate for specific types of cascading risks. Early applications have revealed that most of the responses identified to date by planners and stakeholders tend to focus either on addressing the triggers and initial impacts of cascading risks (i.e.upstream), or alternatively on coping measures for risk recipients (i.e.end of pipe). The framework also helps to focus attention on the options for cooperative responses throughout the impact transmission system (i.e.pipeline solutions). This focus broadens the set of options available to those tasked with managing cascading climate risks, and enables more proactive responses once acascade has been initiated, but before its full impacts have materialized. An important element is the recognition that responses to cascading risks can themselves exacerbate or trigger ‘cascading’ impacts. The response framework offers astructure to potentially minimize undesirable outcomes. TalebianS., BenzieM., HarrisK., JarząbekŁ., MagnuszewskiP., CarterT.R., and ObermeisterN. (2023). ‘A conceptual framework for responding to cross-border climate change impacts (Version 01)’, Zenodo, https://doi.org/10.5281/zenodo.7817615 Impact transmission scales Impact transmission dynamics System component Neighbouring regions Cascade tiers Escalating cascade Diminishing cascade Feedback cascade Compound impacts Single Double Triple Transmission of impact Direct response Indirect response Recipient risk Climate trigger Initial impact Border Barrier Remote regions External impact; local transmission Multi-regionalExternal impact and transmission Cascading climate risks: strategic recommendations for European resilience54 The CASCADES policy simulations and serious game Policy Simulations11 Policy simulations allow participants to explore plausible, research-based stories ofthe future with realistic effects of several cross-border cascading climate impacts. Using roleplay and design elements from serious games to structure communication, the experience involves real-world stakeholders: experts and practitioners concerned about the future of aregion or an organization. The simulation allows them to develop strategic insights by building on selected, fictionalized representations of real-world structures and processes. Conceived as alearning and creative opportunity, it offers asafe space for experimentation, and gives participants novel tools to confront natural-human systems complexities. The policy simulation sessions conclude with adebriefing that bridges the simulated experience with the real world and leads to stakeholder dialogue about required changes that can bring them closer to their desired futures. Three policy simulations were developed based on CASCADES research: FutureofFood, Raw Materials Crisis, and Arctic Future. The CASCADES Serious Game12 The CASCADES game is an interactive educational tool introducing the concept of cascading climate impacts and policy responses to address and tackle them. The storyline presents participants with aconcrete, complex challenge that is first generated by aseries of climate triggers outside the European Union, and then, through asequence of teleconnected cascading impacts, severely influencesEuropean society, economy, and politics. The CASCADES game was created for policy and climate educators and university teachers searching for an interactive introduction to the topics connected with cascading climate risks. It is also possible to use the game during workshops andother initiatives engaging policy makers. 11 https://www.cascades.eu/topic/simulations-and-serious-game/ 12 https://www.cascades.eu/multimedia/the-cascades-multiplayer-game/ Conclusions55 Conclusions Relevance of CASCADES recommendations beyondEurope While the focus of CASCADES is on Europe, the findings of the project, as with cascading climate risks themselves, have implications across the globe. The CASCADES project explores climate risks which are not, or cannot be, confined within national borders. Different regions, countries and sectors will, of course, need to approach cascading climate risk in different ways, and each face their own unique challenges and circumstances. There are, however, many points of common interest: ▪ All regions, countries and continents need to consider what cascading climate risks mean for them, including how they might be affected, and how their action or inaction will affect those beyond their borders. ▪ Countries’ actions to address cascades will themselves have cascading impacts for other countries, for example: –changes to adaptation finance; –changes to foreign policy, security and development; –changes to international operations, including attempts to build alliances andtrust with countries who might partner in cascade response. ▪ Strategies to build resilience require interventions in global systems which willaffect all countries. Adaptation therefore needs to be inclusively planned and implemented, withcooperation at international and global scales. Figure3. Foundational principles for cascades resilience Prevent Do no harm Be transparent Cooperate, compromise and lead Work for just resilience Cascading climate risks: strategic recommendations for European resilience56 Foundational principles for cascades resilience Cascading climate risks are likely to exceed what climate projections and models canaccurately predict. In response, astrategic and transformative approach is needed. The tools, structures and mindsets needed to manage cascading climate risks will improve resilience to arange of emerging and growing threats in acomplex and uncertain world. The following principles cut across the recommendations and could help to inform efforts to build cascading climate risk resilience in Europe. 1. Prevent– mitigating climate change is the best, most certain and efficient risk management policy option available. The more effective mitigation is, the lower the costs of adaptation, including the uncertain, potentially astronomical costs ofadapting to cascading climate risk. 2. Do no harm– in external action and international relations, building resilience with one hand, while undermining it with the other, exacerbates vulnerability for all, further driving cascading risks. It also damages legitimacy and credibility. ‘Policy coherence for resilience’13 needs to become athread throughout governance. Doing no harm by acting coherently and strategically reduces thescale of the adaptation challenge. 3. Be transparent– countries and regions will need to be informed and honest about the cascading climate risks that begin, travel through and end in their territories. National Adaptation Plans and the EU Adaptation Strategy should clearly identify and communicate to affected stakeholders: –which cascades may originate in or pass through their territory; –where and how domestic or regional policies, including those aimed at adaptation and resilience-building, may drive, exacerbate or redistribute cascading risks within or beyond their borders. 4. Cooperate, compromise and lead– recognizing the need for international solidarity in the face of common risks, countries and regions should be willing toinvest in resilience beyond their borders, and accept near-term costs for longer-term resilience gains. Higher-income countries especially should demonstrate willingness to work with others to reform regional, internationaland global institutions to better respond to cascading risks. 5. Work for just resilience– Cascading climate risks reveal the interdependence between countries at all levels of development, and how systemic resilience benefits all. Attempts to build resilience beyond borders that are solely or primarily intended to protect the narrow self-interest of high-income countries are unlikely to be accepted by lowand middle-income countries. Such an approach would be neo-colonial, divisive and ultimately ineffective. High-income actors, such as the EU, should, therefore work for just systemic resilience, with outcomes that fairly benefit all parties touched by the relevant cascading climate risk. Procedural justice is important– meaning that those affected by adaptation outcomes must be involved in assessment, planning and evaluation. This represents anew approach to global adaptation. 13 ‘… the idea that it will be necessary to align objectives and means of implementation across awide variety of policy domains– such as trade, finance, security and foreign policy– in order to build resilience to future climate risks that originate both at home and abroad.’ Source: Adaptation Without Borders (2023) EU recognition of cascading climate risk63 EU recognition of cascading climate risk The European Green Deal does not mention cascading climate risk. It does, however,recognize climate change as asignificant ‘threat multiplier’ whose challenges are complex and interlinked. The Green Deal instructs the EU to integrate climate policy implications into external policy and action, and to channel influence, expertise and financial resources to increase the climate resilience of its neighbours. The EU Strategy on Adaptation to Climate Change, updated in 2021 (EC, 2021a), dedicates asection to ‘Stepping up international action for climate resilience’, andrefers repeatedly and explicitly to cascading climate impacts. It recognizes that climate change can have ‘knock-on’ effects and that climate impacts elsewhere can spill over into the EU from elsewhere in the world. The strategy notes that the‘pervasiveness’ of climate change demands asystemic approach to adaptation andcoordinated international action. In 2022, the Council of the European Union published its Conclusions on Civil Protection Work in view of Climate Change, which … considers that, as aresult of climate change, Member States and Union institutions must be prepared to tackle large-scale, multi-sectoral, cross-border disasters with cascading effects, which may occur simultaneously and more frequently, within and outside the Union. 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(2023), ‘Greece fires: Warning Rhodes fires could worsen as thousands flee homes and hotels’, BBC News, 23 July 2023, https://www.bbc.co.uk/news/world-europe-66279520 References67 UK Parliament (2022), Climate Change and Security, Number 680 September 2022, London: Parliamentary Office of Science and Technology United Nations (n.d.), ‘Early Warnings for All’, https://www.un.org/en/climatechange/ early-warnings-for-all United Nations Framework Convention on Climate Change (UNFCCC) (2023), Technical dialogue of the first global stocktake. Synthesis report by the co-facilitators onthe technical dialogue, https://unfccc.int/documents/631600 von der Leyen,U. (2023), State of the Union Address, https://ec.europa.eu/commission/ presscorner/detail/en/speech_23_4426 World Economic Forum (2023), Global Future Councils, https://www.weforum.org/ communities/global-future-councils World Trade Organization (2022), World Trade Report 2022. Climate change and international trade, https://www.wto.org/english/res_e/publications_e/wtr22_e.htm Cascading climate risks: strategic recommendations for European resilience68 About the authors Ruth Townend is a research fellow with the Environment and Society Centre at Chatham House. Her work at Chatham House focuses on climate risk and diplomacy and builds on 11 years exploring public attitudes and behaviours around sustainability and climate change. Ruth has anMAin Social Anthropology from the University ofCambridge. Chris Aylett is a research associate in the Environment and Society Centre at Chatham House. Hisworkfocuses on the geopolitical impacts of climate policies and the energy transition. Chrisholds anMSc in Global Energy and Climate Policy from SOAS, University of London. Magnus Benzie is a senior research fellow at the Stockholm Environment Institute, Oxford. Hiswork focuses on the concept, science and governance ofcross-border cascading climate risk. He holds an MA in politics (University of Edinburgh) and aMSc inenvironmental policy (LondonSchool ofEconomics and Political Science). www.cascades.eu