reinsurer to governments as insurers of last resort) Decarbonizing at scale may need examination, looking at whether each There is one critical part of addressing climate constituent is still able to fulfill its role. Without change that the MGI report does not examine: changes in risk reduction, risk transfer, and premium decarbonization. While adaptation is urgent, financing or subsidies, some risk classes in certain climate science tells us that further warming and areas may become harder to insure, widening the risk increase can only be stopped by achieving net- insurance gap that already exists in some parts of zero greenhouse-gas emissions. Decarbonization the world. New questions will have to be asked, and is a daunting challenge that leaders will need to innovative approaches will be needed. address in parallel with adaptation during the years ahead. For a closer look, see “Climate math: What a Finance will also have to adjust if it is to play a 1.5-degree pathway would take,” on McKinsey.com. significant role in funding adaptation measures, especially in developing countries. Public–private partnerships or participation by multilateral institutions is needed to prevent capital flight from To prepare for the climate of tomorrow, stakeholders risky areas. Innovative products and ventures have will have to learn, mitigate, and adapt. Individuals, already been developed to broaden the reach and businesses, communities, and countries will need to effectiveness of such measures. They include recognize physical climate risk and integrate it into “wrapping” a municipal bond into a catastrophe decision making. The next decade will be critical, bond, to allow investors to hold municipal debt as decision makers rethink the infrastructure, without worrying about hard-to-assess climate risk. assets, and systems of the future, and the world collectively sets a path to manage the risk from climate change. Copyright © 2020 McKinsey & Company. All rights reserved. Confronting climate risk 105