The Business Case For Progress
The latest science indicates that the physical impacts of climate change will cost the Australian and New Zealand economies hundreds of billions of dollars in the coming decades.
Despite this, Australian institutional investors have made much less progress on identifying and quantifying risks from climate damage and disruption than their progress managing the economic risks from decarbonising the economy, IGCC’s data shows.
Institutional investors are exposed to these physical risks directly and indirectly. More intense and frequent extreme weather events will damage assets and reduce productivity due to altered climate conditions. Indirect impacts may include disruptions to supply chains that interrupt business, more expensive or unavailable insurance and worse overall economic conditions.
On a more positive note, Australia and New Zealand are well-placed to provide international leadership on building resilience. The countries have sophisticated workforces across the financial system and climate science, and unique exposure to physical risks.
Road to Resilience has four key objectives:
- Integrating physical risk and resilience into existing climate-related activities.
Climate risks are often primarily viewed, in the financial sector, through the lens of decarbonisation.
- Developing a shared understanding of physical climate risks among stakeholders.
Information about the likelihood and impact of damage and disruption is currently inadequate, and where it does exist, not widely understood.
- Advocating for investable policy that proactively addresses physical climate risks.
Current policy signals and incentives have not stimulated sufficient private capital investment into resilience and adaptation.
- Mobilising private capital into resilience and adaptation measures.
Significant resources will be required to adapt and build resilience, which cannot come from public sources alone.
Meeting these objectives will help investors protect their beneficiaries from physical climate risk and take advantage of opportunities to build resilience and adapt.
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IGCC CEO Rebecca Mikula-Wright said:
“This action plan that we’re launching today will be an accelerant. It will help investors get up to speed on the least-understood risk in the economy.
“Road to Resilience will also help investors influence all the other parts of the ecosystem that also need to play their part.
“Institutional investors cannot divest from climate risk.
“This strategy is designed for the real, system-wide adjustments that will make sure we’re not divesting, we’re investing in a climate resilient economy.”
Quotes from IGCC Members & Collaborators
Andrew Sellick, Principal – Sustainability, QIC
At QIC, it’s our long-held view that resilient infrastructure is a cornerstone of sustainable development, allowing for the integration of adaptation measures into infrastructure investments and strengthening asset and community resilience in the face of changing climatic conditions. Infrastructure assets play vital roles in connecting people and goods, supporting health care and powering cities and regions. We know their resilience is more than just a good investment decision, it’s a societal need.
“To strengthen asset resilience and protect and grow value over the long-term, we apply a climate resilience lens to our infrastructure investments, analysing asset-specific climate risks as well as wider portfolio exposures. We also play a role in contributing to industry dialogue and developments, like the Road to Resilience strategy, that help to build knowledge and drive action for meaningful progress in climate resilience.”
Robyn Parkin, Head of Sustainability, Ethical Partners Funds Management
“Physical risk represents an increasingly severe risk for investors, with escalating climate and natural capital crisis leading to elevated risks of damage from extreme weather events, supply chain disruptions, stranded assets, productivity impacts, insurance unaffordability, just transition impacts and potential economic instability.
“Unfortunately, our internal analysis and company engagements often find that companies are not adequately understanding and disclosing their physical risks or taking adequate actions on physical risk mitigation and resilience planning.
“Additionally, it is clear investors and financial markets are not yet fully understanding or pricing in physical risk into valuations or portfolio construction.
“Investors, however, have a pivotal role to play, and a key responsibility to ensure that we better integrate physical risk into our analysis, policy advocacy, capital allocation and engagements with companies.
“We are therefore pleased to see the new IGCC Physical risk investor action plan and thank the IGC for their leadership on this issue”.
Stephen Catchpole, Finance Sector Lead, Energetics
“Private capital, enabled by policy, has been critical to the mitigation actions we’ve seen so far across Australia. Now private capital is set to play a similar, driving role, this time to support adaptation. IGCC’s strategy lays out the policy settings that can direct investment to build resilience across the economy.
“Equally important is a consistent framework for climate risk assessment and disclosure that provides transparency: enabling investees who are managing their climate risk to stand out, and investors to confidently pursue opportunities that are resilient to the impacts of our changing climate.
“Energetics is excited to support the work of the IGCC and its members in delivering this strategy which will drive a shared understanding of the impacts of our changing climate, and the policy settings needed to make resilience and adaptation investable.”
Rohan Hamden, Chief Executive Office, XDI
“This groundbreaking work from IGCC plays a critical role in bringing the investment sector together to price physical climate risk and stimulate investment in climate resilience.
“XDI is delighted to have contributed its long experience in physical climate risk analysis to inform the Road to Resilience strategy and looks forward to it being used to drive adaptation and resilience investment both in Australia and around the world,”
Kate Cotter, Founder & CEO, Resilient Building Council
“The Resilient Building Council supports the release of IGCC’s Road to Resilience Physical Risk Strategy. Investors play a crucial role in accelerating adaptation action to reduce risk and create opportunities for their beneficiaries and society.
“As a highly exposed country facing systemic climate impact challenges, Australia stands at the forefront in being able to provide leadership and innovation to develop the skills, knowledge and industry to build resilience across communities and the economy, with the right tools, policy and financing solutions.”
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