Falling concern about global warming has prompted a drop in the proportion of companies assessing their vulnerability to climate change, while government policies to manage the risks remain fragmented and uncoordinated, a study released by the Climate Institute has found.
The report, Coming Ready or Not: Managing climate risks to Australia’s infrastructure, found a widespread belief that because taking steps to limit the risks to long-lived assets such as the energy industry and railways is ”expensive, extensive, time-consuming and difficult”, ”no action is often seen as the easiest path”.
Such inaction, though, may carry costs of its own. A separate report out last week by Baker & McKenzie and the Asset Owners Disclosure Project (AODP), argued that trustees in charge of Australia’s $1.4 trillion in superannuation who failed to consider climate change risk may be in breach of their fiduciary duties.
”A rapidly changing climate drives not just warmer but wilder weather,” the Climate Institute report said. ”For our infrastructure - economic, social and natural - this means that the past is no longer a good guide to the future.”
Munich Re, the world’s biggest re-insurer, told BusinessDay that Australia’s weather-related losses rose more than fourfold in the 1980-2011 period (in inflation-adjusted terms), a pace only exceeded among the continents by North America.
Australia makes up less than 2 per cent of the global reinsurance market but over the past five years the country has accounted for more than 6 per cent of global losses, the risk report said.
“Serious climate risks are coming ready or not, and this report finds that our basic infrastructure is not,” John Connor, cheif executive of The Climate Institute, said.
Two surveys by the CSIRO of more than 400 public and private sector organisations found the proportion taking into account risks had fallen from almost 60 per cent in 2008 to less than 47 per cent two years later. Just over a third had taken steps, or planned to, in response to the assessments, the report found.
Coastal confusion
The unco-ordinated response of governments is perhaps best illustrated by the varying state-based land-use planning policies related to expected sea-level rises and storm surges along the nation’s coastline. Some 35,000 kilometres of coastal road and rail assets, worth some $60 billion, are among the assets exposed.
Western Australia predicts a sea-level rise of 38 centimetres by 2100 while South Australia tips one-metre rises. Tasmania doesn’t provide a projection and New South Wales recently dropped its sea-level rise policy and will cease recommending statewide benchmarks.
Port operators, though, are factoring in increases anyway. The proposal for a fourth coal terminal at the Port of Newcastle, for instance, assumes a rise of 90 centimetres.
Surf Lifesaving Australia is one not-for-profit organisation not waiting for a national consensus before taking action, and is examining the risk to its members and properties. Some two-thirds of its 309 separately incorporated clubs scattered around the coastline are located in ”zones of potential instability”, the report said.
Among the actions recommended, the Climate Institute called for coordination at all government levels, noting that much of the burden of policy implementation was left to local councils, the least-resourced level. It also called for a national resilience report card to guage progress against agreed targets, echoing demands from the insurance industry that risks from flooding and other threats be assessed and made public at a federal level.
For business, the institute calls for the disclosure of material climate risks and the strategies reviewed regularly and disclosed. “Laggards face no or little penalty, while early movers are hampered by fragmented information, and inappropriate and inconsistent regulation.”
“Only 11 per cent of Australian superannuation surveyed by AODP rated the likelihood of climate change as high,” the report said.
No fund reported investments in assets to help manage climate risks - such as flood barriers - or were considering their portfolio-wide exposure. Property investment were one exception, with 72 per cent of those investing in the sector assessing climate-related factors, the report said.
Trustees at risk
In its report, Superannuation Trustees and Climate Change, Baker & McKenzie and AODP found ”a general reluctance by asset managers and fund managers to disclose the climate-associated risks of their investment portfolios”.
“There are some funds who do understand (climate change risk) and are actively taking it into account - they’d be in the minority,” said Baker & McKenzie’s Martijn Wilder.
The report argued that super trustees could face future litigation if they fail to take appropriate steps to protect the values of their long-lived assets.
”Trustees have a clear duty to consider climate change risks and relevant laws and policies in making investment decisions where such matters prove to be material,” the report said. ”To fail to do so would be negligent and a breach of their duties.”
AODP have been telling trustees of the risks for several years, said Julian Poulter, the project’s executive director.
“At the very least, they have to discuss to their members, how they are calculating the risks, what the risks are, and how they’re dealing with it,” he said.
The insurance industry may be particularly exposed, he said.
“The insurance industry has a double-edged problem. It’s business is in insuring physical risk and yet, of course, are themselves significant asset owners,” he said. “So they carry both sides of the equation.”
