CEFC should expand into bushfire resilience, adaptation, investor group says

The Clean Energy Finance Corporation should be able to invest in climate change resilience measures, which would help spur investments in bushfire responses, a group representing some of Australia’s largest institutional investors has said.

In a submission made by the Investor Group on Climate Change to the Royal Commission into National Natural Disaster Arrangements, instigated after the recent summer of severe bushfires, the group said that the CEFC should have its mandate expanded, to allow the fund to invest in climate change resilience projects.

“The global financial system is increasingly recognising climate change, and the implications for infrastructure and communities, as core business and a financial and economic risk,” Investor Group on Climate Change CEO Emma Herd said.

“One immediate opportunity to create greater private capital flow into building climate change resilience is to draw on the Clean Energy Finance Corporation’s experience in mitigation finance and extend its facilitation of public-private investment to include adaptation projects.”

The Investor Group on Climate Change told the Royal Commission that the investment mandate of the CEFC should be expanded to include co-investments in resilience and adaptation projects and to support the creation of ‘resilience bonds’ that would help leverage private sector investment.

The group also called for the implementation of mandatory reporting of climate change related financial risks, to the under assessment and reporting of the risks that climate change poses to businesses and infrastructure investments.
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“Investment in the resilience of our economy and communities to climate change has been sadly undervalued in Australia for too long and we must urgently rectify this. This royal commission into last summer’s devastating bushfires is the right forum to properly examine the climate risks facing our nation and how we might begin filling the gaps in our response,” Herd added.

“As a trade-exposed, carbon-intensive economy, highly vulnerable to the physical effects of climate change, Australia must take steps to strengthen our climate change response in the face of warming temperatures and the associated impacts on our communities.”

The Investor Group on Climate Change represents a range of Australian and New Zealand institutional investors, and its membership includes most of Australia’s largest superannuation funds. Collectively, the group manages more than $2 trillion of investor funds and has been actively engaged in pushing for the increased treatment of climate change as a financial risk to these investments.

In its submission, the group points out that governments spend an average of $2.75 billion annually on direct recovery efforts following natural disasters, yet the annual expenditure on disaster preparedness is approximately $100 million per year.

Research produced by the Climate Council estimated that the financial cost of climate change by 2030 could see as much as $571 billion wiped off property values alone, as at risk infrastructure and buildings become uninsurable.

The investor group stressed that if governments failed to meet ambitious emissions reduction targets, then it will ultimately lead to higher losses for investors, including those managing Australian’s retirement savings and increased damage due to climate change.

“If governments choose to not reduce emissions in line with the goals of the Paris Agreement, the viability of resilience measures will increasingly become unaffordable as climate impacts increase and the limits of adaptation are breached,” the investor group says.

“Investors are already making decisions in infrastructure assets on the basis of climate risk assessments. The less action we take to reduce emissions the more likely it becomes that investors will withdraw capital from infrastructure, regions and economies vulnerable to the impacts of climate change.

Australia is already seeing the worsening impacts of climate change, having experienced bushfires of an unprecedented scale over the 2019-20 summer. The bushfires led to the destruction of around 6,000 buildings, including almost 2,800 residential properties. While the scale of the impact is still being determined, the economic cost of the bushfires is expected to run into the billions.

The Royal Commission into National Natural Disaster Arrangements was instigated by prime minister Scott Morrison in February and is being led by retired Air Chief Marshal Mark Binskin. The commission has been tasked with providing recommendations for future responses to natural disasters, particularly in light of the increasing threats posed by climate change.

The commission has been tasked with delivering recommendations to the government before the end of August, and confirmed on Thursday that had received more than 1,400 submissions from stakeholders.

The infrastructure threats posed by climate change, caused by rising sea levels, more frequent extreme weather and heat stress, are expected to grow with increasing levels of global warming, prompting groups like the investor group to call on governments to take increased action.

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