OPINION: Climate change offers opportunities for investors, governments, companies and customers to mitigate risk through collaboration.
OPINION: Many Australians would have been on edge as images and details of the catastrophic fires in Los Angeles led TV coverage and spread across social media platforms.
As summer holidays wound down and heatwaves toasted much of the country, families, businesses and governments were starkly reminded of this continent’s recent history with natural disasters.
For many, these events may be triggering, reflecting the trauma and anticipation for many in our community as we face a new reality.
A reality where the frequency and intensity of such events is expected to increase with the impact of climate change.
This will likely add further inflationary pressure to household budgets, while some will be exposed in a failing insurance market.
For companies, the risk exposure for their investments, operations and assets will be at the top of the agenda.
The human, ecological and economic impact of these catastrophic events is extreme and difficult to quantify, but with insured losses for the LA fires set to be as much as $US30 billion, and the broader economic impact estimated at more than $US250 billion, these events are changing the economic and ecological landscape permanently.
Closer to home, with an elevated risk of fire danger and extreme heat, the Insurance Council of Australia forecasts annual costs of $2 billion for bushfires by 2050. Natural disasters cost the Australian economy $38 billion a year.
That is likely to increase to $73 billion by 2060, even in a low-emissions scenario.
The impact to the environment and biodiversity is incalculable.
The Black Summer bushfires of 2019-2020 left physical and mental scars.
The toll was enormous, with 33 deaths, 3,000 homes destroyed, more than 3 billion animals killed or displaced, and between 12.6 million and 19 million hectares burned.
Locally, the 2021 Wooroloo fire burned through more than 10,000ha, destroyed 86 properties and had an estimated insurance loss of $93 million.
While the human and environmental costs relating to climate change hazards remain top of mind, the economic impact for Australians (and globally) cannot be underestimated.
The Australian economy is facing $1.2 trillion in cumulative costs from natural disasters over the next 40 years, including significant risks to critical infrastructure and assets.
If the ESG debate isn’t sticking, when government and corporate Australia consider the looming risks to its collective balance sheet, it might better appreciate the critical economic risk these natural disasters will have on market fundamentals.
This could hit the pockets of everyday Australians by negatively affecting superannuation funds, hiking insurance premiums, or increasing the cost of the weekly grocery shop.
Often it is what affects our daily lives that creates the demand for change as a customer or voter.
From the shared experiences of trauma from these disasters to the simple financial battles of paying the insurance premium, another year of increasing climate change hazards should be at the top of the agenda for governments and corporates.
The shift to sustainable-oriented global capital markets and increasing pressures on government to underwrite the risk and damage on communities and economies means that this risk is not just financial and environmental.
This is a reputational risk that is at the forefront of activate customers, shareholders and voters.
The leadership opportunity for the corporate sector is to leverage technology, data and good design and planning to build their capability to respond to a changing climate and economy.
Across Australia’s vast landscape, we are seeing more companies leveraging data and AI to review their existing climate risk profile and invest in upgrades or maintenance regimes on key assets: from power poles to the transport routes that underpin a successful export economy and provide the necessary essentials for households across Australia.
There is also an increasing number of companies, from insurers to energy providers, focusing on leveraging intuitive big data and user design to understand and educate customers on how they can practically reduce their risk to climate change.
These include incentives to change household garden design and improving energy efficiency or through balancing community values and environmental values in designing community spaces.
We know the increasing risks are an unfortunate reality, however, we see the opportunities ahead for innovation and collaboration from investors, governments, companies and customers to tackle climate change risk.
• James Curtis is chief executive of Element Advisory
