Building in Climate Resilience from the start

E xtreme weather events are growing in frequency and scale. Bushfires. Droughts. Tropical cyclones. Floods that should be one in 100-year events happening every few years. The recent horrific flooding in South Africa that killed more than 400 people, wiping out large segments of transport infrastructure and real estate is, sadly, climate change theory becoming reality. 

Building in climate resilience into infrastructure and real estate investments is no longer an optional extra. It’s an imperative. Click To Tweet

It’s a necessity for citizens and communities who rely on economic and social infrastructure to run their businesses, get to work or school, and pay the bills. Essential, also, for the developers and owners of infrastructure. In some countries, the natural long-term owners of infrastructure are pension funds and insurance companies. Ultimately, that includes everyone with some savings or a pension – increasingly domestic pools of savings capital. Infrastructure and real estate assets that adapt to climate change impacts are going to be more resilient financially and operationally. 

Large-scale retrofitting of existing infrastructure to adapt to climate change is possible and, as risks become reality, is increasingly used around the world. For example, one of the solar energy projects that Macquarie’s Green Investment Group has invested in through our green finance partnership with the UK Government, is in an arid region that is already experiencing water stress. Look ahead 25 years and this is going to snowball into a bigger problem, resulting in more dust on the solar panels, which will require more cleaning due to frequent drought conditions. There will be greater pressure on water supplies for social, agricultural, and other economic uses. With our fellow shareholders, we invested in retrofitting a waterless cleaning system.

Better to get ahead of the game and invest now so that the asset is resilient and productive through its planned life. We want to make sure that we form part of a broader community solution instead of adding to a water shortage problem. Click To Tweet

Retrofitting solar farms in this way is relatively straightforward. But for a lot of infrastructure, it can be a more complicated and expensive undertaking.  If you have a lot of concrete buildings, a railway, or a road in a flood plain, it’s often unrealistic or unfeasible to move them somewhere else.  But as existing infrastructure is renewed or upgraded, as part of normal maintenance capital expenditure, it’s vital to make climate resilience a priority. This could entail:

  • Designing bigger drains to deal with more extreme rainfall events.
  • Designing a building so it is EDGE-compliant by reducing the cooling burden during future heatwaves as much as possible. 
  • Recycling water.  
  • Planting more vegetation on the site for greater soil stability, water retention during flooding, and shade during heatwaves.  
  • Raising the height of the ground floors to reduce flood risk. 

The cost-benefit analysis of this kind of climate upgrading is increasingly compelling for companies, investors, and regulators – decreasing the likelihood of disruption of essential services underpinned by infrastructure, and disruption to project cashflows from failure to supply a contracted service and a potentially expensive repair bill. 
During the recent Adaptation Dialogue for Africa: “Strengthening Climate Resilience of Infrastructure in Africa” hosted by GCA, the other panelists and I discussed that there is a flip side to much of Africa’s problem of unserved infrastructure and energy needs when it comes to climate adaptation. It’s cheaper and easier to include climate resilience in infrastructure design from the outset rather than retrospectively. From an investor perspective, the big challenge is not creating infrastructure with built-in climate adaptation considerations, but being able to build infrastructure at all. Private investors, sometimes with direct or indirect concessional capital support from public funders, have capital to deploy. But there are not enough bankable projects.

There must be a focus on capacity building to get these projects underway. This involves policy, operational, and funding capacity. Building the regulatory and procurement capabilities of public authorities to repeat predictable programs at scale and in a reasonable timeframe will get developers, advisers, lenders, and equity investors – the whole infrastructure investment ecosystem – sufficiently interested to decisively commit not just financial but also management and staff resources. 

Funding capacity for fiscally hard-pressed African public authorities is also important. Giving sufficient certainty of payment to developers and investors may require subsidies or guarantees.  International finance support from more developed economies outside of Africa is crucial.
We should not get too hung up on exactly how to score the same amount of spending on climate adaptation as mitigation.  Often, projects will do both, and adaptation costs can be part of greater costs – the building is going up anyway, and among other things, its design will be as climate resilient as possible. We can sort the scoring out retrospectively. The priority is to get more bankable projects out there, with adaptation considerations designed from the start, so that private capital and innovation can get to work on the infrastructure the continent needs so badly. The Climate Finance Leadership Initiative, of which Macquarie is a founding member, has set out some practical steps in a recent report. We must work harder to make a reality of more infrastructure, future-proofed for our warming planet.     

Richard Abel is Managing Director of UK Climate Investments, Macquarie Asset Management. He was a panelist in the dialogue “Strengthening Climate Resilience of Infrastructure for Africa.” The event was part of GCA’s Africa Adaptation Dialogues, a series of partnership dialogues supported by the UK Government to share solutions to bridge Africa’s adaptation gap and drive the climate adaptation agenda forward building on the commitments made at COP26.

The ideas presented in this article aim to inspire adaptation action – they are the views of the author and do not necessarily reflect those of the Global Center on Adaptation.

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