Whether they personally believe in climate change or not, superannuation fund executives’ need to get their heads around the profound impact extreme weather events could have on the assets they’ve invested in, advises Dr Jemma Green, a research fellow at Curtin University.
With extreme weather events likely to affect asset valuations, employment opportunities, the sustainability of a competitive advantage, and even a company’s very existence, Green urges institutional asset owners to get better at collaborating with asset managers and operators on both mitigating and managing risk.
Green says that, despite the efforts already made to manage carbon exposure, local asset owners still need to pay much more attention to emerging climate change risks.
“Bringing the right strategic planning to climate change management and mitigation [requires] companies to [bring] their antediluvian thinking into the 21st century,” Green says. “It’s incumbent on institutional investors and asset managers alike to understand how assets will respond to certain types of climate conditions, and the management/mitigation costs versus the cost of inaction.”
Green is the chair of Climate KIC, Europe’s largest public-private innovation partnership focused on climate change. She also helped establish the JPMorgan Global Environmental and Social Risk Management Office.
Unequal exposure to climate risk
While climate change will be felt by everyone, everywhere, she reminds investors and asset owners that it won’t be felt by everyone in equal measure, and cites Australia’s coastal regions as a prime example. That’s especially true for Australia’s West Coast, where rainfall and stream-flows are considerably below long-term averages.
Extreme weather events can have a profound impact on infrastructure such as roads, bridges, airports, farmland and any built structure; the farther north these assets are, the more direct and obvious Green expects the impacts to be.
She recommends those searching for world best practice examples of how climate change risks are being mitigated and managed look to what’s happening in places such as Holland, New York and California.
For example, measuring and projecting sea-level rises along California’s 1770-kilometre coast has been a priority for the state since 2008. What should resonate with local asset owners and investors here in Australia, Green explains, is the collaborative approach Californian authorities and private entities have taken to gather and share important climatic data.
“The cost of cleaning up a mess [caused by an extreme weather event] is significantly greater than fixing it ahead of time,” Green says. “Given that climate risk assessment and mitigation are significantly cheaper than dealing with a weather incident, the focus clearly needs to be on climate-change adaptation as opposed to mitigation.”
An example of adapting for change
She cites recent developments at Brisbane Airport as a good example of how climate-change adaptation is starting to surface within corporate Australia. Based on its climate and weather risk assessment, Brisbane Airport’s proposed runway site is subject to inundation during flood events and is at risk from future climate change, including storm surges and rises sea in level.
When considering the placement and configuration of the new runway,
a range of issues were presented for comprehensive assessment, including cost, operating and safety standards, noise restrictions, environmental impacts, and climate change resilience.
As a result, the height of the runway above sea level became the major climate change-related design issue, with the final design taking into account the historical and projected severity and frequency of sea level rises, storm surges and floods.
“Based on the available evidence, a design decision was then made to take into account the [likelihood and likely severity] of the risk (e.g., sea level rise) and the cost of mitigation (raising the height of the runway),” Green says. “As a super fund with some of its members’ funds invested in this asset, it would be particularly reassuring to have this level of transparency on how Brisbane Airport was managing future risk.”
Dr Jemma Green will deliver a keynote address titled ‘”How Can the Decisions We Make Today Lead to a More Sustainable Future?” at the FEAL National Conference in Melbourne on August 3, 2017. For more information or to register, visit the event website.