2009 Climate Change Summit Synthesis Report

Synthesis Report:
A Climate Risk Report
Climate Change and
Infrastructure Expert
Summit

Convening Partners:

Climate Risk

Climate Risk Pty Ltd provides specialist professional services to business and
government on risk, opportunity and adaptation to climate change.

www.climaterisk.net Climate Risk
i
Climate Change and Infrastructure Summit
Climate Risk

Climate Risk Pty Limited (Australia) This Synthesis Report was prepared by:
Sydney: + 61 2 8243 5767
Brisbane: + 61 7 3040 1621 Karl Mallon
www.climaterisk.net karl@climaterisk.com.au

Climate Risk Europe Limited Donovan Burton
London: + 44 752 506 8331 donovan@climaterisk.com.au

Maria Mackiewicz-Turner
maria@climaterisk.com.au
The Climate Change and Infrastructure Summit
took place on the 29th of July 2009 and was held
at the head office of Zurich Financial Services
Australia in Sydney. The Climate Change and
Infrastructure Summit was led by Dr. Karl Mallon
and Mr. Donovan Burton of Climate Risk Pty
Ltd, in partnership with infrastructure advisory
firm Evans & Peck, law firm Mallesons Stephen
Jaques, and the infrastructure industry peak
body Infrastructure Partnerships Australia.

This synthesis report attempts to reflect the key
aspects of expert analysis and discussions. The
content does not necessarily reflect the opinions
of the convening partners or any individual
attendees.

Disclaimer:
While every effort has been made to ensure that this document and the sources of information
used here are free of error, the authors: Are not responsible, or liable for, the accuracy, currency and
reliability of any information provided in this publication; Make no express or implied representation of
warranty that any estimate of forecast will be achieved or that any statement as to the future matters
contained in this publication will prove correct; Expressly disclaim any and all liability arising from the
information contained in this report including, without limitation, errors in, or omissions contained in
the information; Except so far as liability under any statute cannot be excluded, accept no responsibility
arising in any way from errors in, or omissions contained in the information; Do not represent that they
apply any expertise on behalf of the reader or any other interested party; Accept no liability for any loss
or damage suffered by any person as a result of that person, or any other person, placing any reliance
on the contents of this publication; Assume no duty of disclosure or fiduciary duty to any party.
Climate Risk supports a constructive dialogue about the ideas and concepts contained herein.

© Copyright Climate Risk Pty Ltd, 2009
This document is protected by copyright. This document (in whole or part) cannot be redistributed or
reproduced without the prior consent of Climate Risk Pty Ltd.

Foreword

As this report is released at the 15th Conference of the Parties negotiations in
Copenhagen, heads of state from around the world will arrive to seek a means to limit
future global warming.

What few dispute, is that a significant level of warming has already occurred and more
is unavoidable. These effects are already impacting the bottom line of companies
around the world. This is clearly evident in the escalating weather related losses
reported by the insurance sector. Just this decade the fraction of weather related losses
in Australia has increased from 12% of policy payouts to over 30% according to the
Insurance Council of Australia.

Infrastructure is at the front line of adaptation. Resilient infrastructure will be the
corner stone of a resilient society. The criticality of infrastructure, from power to water,
rail to ports, roads to telecommunications, will only increase with climate change.

This summit brought together leading infrastructure experts in Australia to further
explore the emerging climate challenges. The Summit was characterised by robust
and frank discussions with competing perspectives of existing and nascent issues.
The Summit was also characterised by a strong meeting of minds on the real world
challenges of adapting infrastructure to climate change today and the need to make
swift progress on solutions and co-operation.

The major challenges identified have been detailed at the end of this report and I
strongly urge professionals who are involved in infrastructure development, lending,
insurance and assessments to study the Critical Issues chapter.

On behalf of the convening partners, I would like to sincerely thank all presenters and
participants, and hope that we have reproduced their contributions with fidelity.

On behalf of all participants, I would like to reflect the overwhelming consensus that
this Summit has been the starting point for a dialogue that must continue for the benefit
of a wider society seeking to cope with one of the great challenges of our age.

Karl Mallon
Director of Corporate Risk, Climate Risk Pty Ltd

Contents
1 Executive Summary 1
1.1 Summary of Key Issues 1
1.2 The Challenges Ahead 3

2 Introduction 5
2.1 Summit Aims 5
2.2 Attendees: By Industry for Industry 5

3 Themes, Speakers and Issues 7

4 An Overview of Some Climate Change Hazards to Australian
Infrastructure 9

5 360o Perspectives 11
5.1 Climate Scientists – Educating on the Science of Variability 11
5.2 Regulators – the Role of State Government 11
5.3 Infrastructure Owners & Developers – Water 12
5.4 Infrastructure Owners & Developers – Telecommunications 13
5.5 Infrastructure Owners & Developers: Transport 14
5.6 Law, Liability and Litigation 15
5.7 Legal Risks from Carbon 15
5.8 Infrastructure Investors and Financiers 16
5.9 Infrastructure Insurers 18
5.10 An Insurance Company Viewpoint 18
5.11 Market Mechanisms: Weather Watching for Energy and Agriculture 20

6 Critical Issues 21
6.1 Standards are not, and perhaps cannot, keep up with climate science 21
6.2 Lack of standards leaves developers in legal limbo 21
6.3 Fortress approach could be inefficient use of resources 21
6.4 Risk assessment techniques found wanting 22
6.5 Culture and behaviour change: Essential but not simple 22
6.6 Treating mitigation and adaptation in isolation does not work 22
6.7 Insurance and infrastructure have much to offer each other on climate 23
6.8 Government departments and policies are not consistent on climate 23
6.9 Increased importance of infrastructure in a climate changed world 24
6.10 The risk of risk transfer 24
6.11 Avoiding market and regulatory disincentives 25
6.12 Access to science and control of information 25
6.13 Maintaining dialogue momentum 26

Climate Risk

1 Executive Summary Climate change uncertainties still
exist, many of them stemming from
Australia is experiencing a major nation- unknowns about how the Earth’s
wide surge in infrastructure investment. physical and biochemical systems will
At the same time, significant Federal and interact with rising greenhouse gas
State Government climate change policy emissions and climate change. Because
is being formulated, announcements infrastructure decisions still need to be
are being made about the ramifications made, such uncertainties have to be
of future sea level rise, and extreme accepted and managed.
weather events including bushfires,
heatwaves, heavy rainfall and flooding Multiple Stressors
are highlighting the vulnerability of
Australia’s existing infrastructure to Clusters of extreme events, or a single
climate change. event acting in combination with other
stressors such as oil shocks, may
These fast-emerging climate change threaten the survival of businesses;
risks to infrastructure were the trigger industry and government need to be
for this Rapid-Response Summit “by ready for these multiple stressor events.
the private sector, for the private sector.” Current risk assessment methods do not
Specifically, the summit’s aim was to account for the “Climate Black Swans”.1
explore the implications of climate
change for the future of infrastructure Variability is Critical
risk management and transition in
Australia. Managing climate variability, already a
reality in Australia, will become more
These risks were considered from the difficult with increasing climate change.
perspectives of multiple stakeholders, Regardless of “mean” changes the
drawing on their wide-reaching variability will in future entail managing
expertise and lengthy experience. The for even more frequent and intense
format consisted of speaker sessions, extreme events and cycles.
panels, and discussions which aimed
to focus on key issues and identify the Not All Models Are The Same
challenges facing the sector.
There is also a need for better
understanding of regional vulnerability
1.1 Summary of Key Issues
to climate change; time and resource
The following key issues were identified investment are needed to identify
at the summit. the specific or ensembles of global
circulation models that work best for
1.1.1 The Information Dilemma a given region. Stakeholders need to
be educated about the risks of using
An important strand of discussion at the inappropriate data.
conference focussed on important gaps 1 A reference to the fact that Europeans were once certain
all swans were white -- until presented with evidence of
in information about climate change and black swan species; “black swans” are instances when new
evidence causes old models to become immediately obsolete.
its associated risks. The term “climate black swans” refers to the existence of
weather extremes that lie outside the bounds of the majority
of weather events experienced.

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Climate Risk

Auto-Adaptation Risks those that lack insurance or where cover
would be denied.
Significant uncertainty surrounds the
extent to which climate change will push Standards Are No Protection From
communities’ coping capacity beyond Litigation
the range of their historical experience
and planning. Moreover, tertiary Whilst climate change litigation will
impacts – namely how people and happen, it is not a sustainable long-
society auto-adapt to climate change term solution for dealing with climate
impacts and regulation – must also be change related losses. Unfortunately,
considered in infrastructure design and industry standards will most probably
planning. For example, extreme weather be insufficient to shield developers from
may result in population shifts that litigation action. They will have to show
render some infrastructure redundant. that they have adequately accounted for
climate change.
Climate Risk Quantification
1.1.3 Managing Climate Change
For private-sector investors of Risk
infrastructure, it is important to
ensure that climate change risks are Adapting Society Through
quantified within a business case of a Infrastructure
major infrastructure project, especially
where Public Private Partnerships are Moving forward, summit participants
concerned. However, in practice the also discussed the avenues open to
financial effects of climate change adapt to, and mitigate, climate change
impacts are proving difficult to quantify risk. They recognised the need to
in relation to company risk and growth. increase business and civil society
It can be done but methods and resilience to escalating extreme weather
examples are only just emerging. impacts, and agreed that infrastructure
will be part of that process.
1.1.2 Key Areas of Climate Change
Risk to the Infrastructure Sector Adaptation encompasses the need to
reassess our view of infrastructure
High Risk Regulations and Locations resilience, as well as for operational
responses that reduce the risk of
There was a recognition that the greatest adverse climate change impacts.
short-term legal risks for infrastructure Susceptibility as well as likelihood
developers may stem from the rapidly- of harm must be recognised when
changing regulatory landscape. From assessments are made of infrastructure
the perspective of investors and the and operations vulnerability.
financial community, the key issues Furthermore, the long-term view of
are also regulatory, especially if they economic sustainability in industry
have a direct nexus to earnings and must be encouraged as an avenue to
company viability. From the insurance build resilience against specific climate
perspective, areas most at risk are change impacts.

2
Climate Risk

Affordable, Available Insurance they demonstrate they have adequately
factored in climate change? And how
Insurance was recognised as an much is enough?
important means of addressing climate
change risk. There is a need to keep Given that the notion of “fit-for-
insurance available and affordable to purpose” changes rapidly in a
maintain asset values and attract private changing environment, can we
sector finance. design infrastructure capable of being
upgraded as the actuality of climate
Reduce Risk Instead of Transfer change impacts and risks evolve? Can
we redefine fit-for-purpose to avoid
Given that transfer of escalating risk to the inefficient use of resources to build
insurers cannot continue indefinitely, fortresses, yet build in the ability to
there is a need for insurers and fortify in the future?
infrastructure stakeholders to develop
a dialogue about adaptation to ensure Given greater awareness amongst
risks remain insurable. stakeholders of climate change
risks, how can the AS/NZS4360 risk
assessment methodology be enhanced
1.2 The Challenges Ahead
to specifically improve the quality of
The summit attendees also identified key climate change risk assessment (e.g. in
challenges faced in managing climate the area of multi-stressor confluence)?
change risks to infrastructure, as follows.
1.2.2 Government and Policy-
1.2.1 Standards & Methodology Related Challenges

A number of key challenges for the Another important strand of challenges
infrastructure sector stem from discussed at the summit relate
issues related to the relevance of to infrastructure’s interface with
industry standards in an era of climate government, including policy making.
change, and the need for appropriate
methodology to assess climate change Given concerns that climate change
risk. could impact vulnerable communities
and compound existing capacity issues
Standards are not keeping up with e.g. of the health care systems, how
fast-moving climate change science does the infrastructure sector ensure
and projections; given that keeping that its heightened importance and
up may be impossible, how can a criticality to communities’ climate
standards process be put in place change resilience is recognised and
which is sufficiently dynamic to cope resourced today?
with fast-moving impacts? And where
standards fail to reflect the level of How can the infrastructure sector
climate change risk, and the onus shifts achieve greater cooperation with all
to infrastructure developers to prove levels of government to ensure proper
they have addressed the risks, how can integration and mitigation of climate

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Climate Risk

change risks, and avert the mere transfer instances of publicly-funded research
of risks which fails to reduce them? to reach the public domain, how can
existing or commissioned information
Given the need for an integrated, on climate change be placed into the
“joined-up policy” approach to decision- public domain to ensure greater access
making on climate change, how does the by infrastructure developers, operators
infrastructure sector ensure consistent and their advisors?
treatment of climate change adaptation
across all departments and levels Given the risks of decision-making
of Government, but ensure the risk based on inadequate information, how
response is not “dumbed-down”? could the infrastructure industry more
effectively access the insights and
Get Price Signals Through expertise of insurers on climate change?

If consumers / markets are shielded Maintaining a Dialogue
from price signals required to trigger
behavioural change, this can tie the Considering the usefulness of
hands of infrastructure developers. How communication shared at this Rapid
can the private sector and government Response Summit, can dialogue on
work together to dismantle market and climate change impacts and adaptation
regulatory disincentives to climate continue across infrastructure and all its
change adaptation in the infrastructure stakeholders?
sector?
1.2.4 Other Key Challenges
1.2.3 Improved Communication and
Access to Information The summit attendees also recognised
that mitigation and adaptation action
A third strand of challenges centred on cannot be pursued in isolation; how can
the need to access and communicate the infrastructure sector ensure full and
information related to climate change consistent integration of climate change
risks and solutions. adaptation with emissions mitigation?

In the face of scepticism, debate and Finally, another key challenge relates to
politicisation of climate change, how the possibility that changes in insurance
does the infrastructure sector establish costs and availability may make some
a consistent, professional position locations and assets less valuable.
on climate change impacts and risks How can the infrastructure sector
which is accepted industry-wide by remain open to insights about climate
professionals, directors and officers? change risk and insurability if they risk
undermining current value (i.e. ensure
Given a limited willingness to share that the best option is not to turn a blind
information within and among eye)?
industries, and the failure in some

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Climate Risk

2 Introduction considering the perspectives of multiple
stakeholders, drawing deeply on their
On the 29 July 2009, the Climate Change wide-reaching expertise and lengthy
and Infrastructure Summit assembled experience.
leaders engaged in all major categories
of infrastructure. This included
2.2 Attendees: By Industry for
infrastructure stakeholders from the
Industry
areas of finance, law, local government
planning and insurance. The Summit was themed as an event
“by the private sector, for the private
sector”. This focus allowed issues to be
2.1 Summit Aims
deliberated primarily from a commercial
The Summit’s aim was to explore vantage point, while also considering
the implications of climate change the extent to which the private-sector
for the future of infrastructure risk can manage climate change risks
management and insurance in Australia. internally, and the part governments
may play in assisting or undermining
Australia is currently experiencing a such processes.
period of a major nation-wide surge in
infrastructure investment — a period The summit was a “rapid response”
which also coincides with Federal and conceived out of the need to explore
State Governments announcements fast-emerging climate change risks.
on the potential ramifications of future Although participants were given just
climate-change-induced sea level rise. four to six weeks notice of the event,
the uptake was robust and diverse, and
Vulnerability of existing infrastructure to the limit of 60 attendees was quickly
major weather-related events is already exceeded, necessitating restrictions on
being emphasized by severe bushfires attendees per organisation. This strong
and heat stress in Australia’s south, response emphasises the awareness of
contrasted with heavy rainfall and significant climate change issues across
flooding in the nation’s east and north. the sector, which are emerging during
The frequency and severity of extreme a rapid rollout of regulatory responses
events – which have already caused at a time when inherent uncertainties in
tens of millions of dollars in damage to climate change predictions remain.
National, State and Local infrastructure
– is expected to increase as climate Summit participants came from diverse
change proceeds. sectors including:

Infrastructure underpins the economy, • Private-sector infrastructure
thus it is imperative that Australia owners and operators
manage the impacts on infrastructure
from climate change. The summit • Public-sector infrastructure
addressed this imperative by owners and operators

5
Climate Risk

• Infrastructure developers

• Infrastructure engineers and
builders

• Major Australian consultants

• Specialist lawyers from the
private sector and academia

• National climate change
research bodies

• Climate scientists

• Federal and state departments
responsible for climate change

• Infrastructure investors and
lenders

• Policy analysts from civil society

Most major infrastructure types were
represented by participants active in
their industry sector, including:

• Roads

• Rail

• Water

• Telecommunications

• Ports and Maritime

• Energy Generation and
Distribution

• Urban Design

6
Climate Risk

3 Themes, Speakers and Issues forming a panel to respond to audience
questions, challenges and debates. In
The Summit was separated into four the final 1.5 hours of the day a “World
sessions, of three to four speakers Café” was held to focus on key issues
each, as listed below (Table 1). Each and identify problems and solutions.
session concluded with these speakers

Table 1: Summary of speakers and overview of issues covered.

Name Organisation Issues Covered
Mr. David Chief Executive Opening address – included examples
Smith from NZ and the role that insurance plays
Zurich Financial Services in community resilience.
Prof. Roger Professor in Climatology and Science of climate change – climate
Stone Water Resources change variability, ENSO phenomenon,
confluence of sea level rise, storm surge
Director, Australian Centre for and cyclone intensity.
Sustainable Catchments

University of Southern
Queensland
Mr. Mark State Coordinator, Impacts and Climate Change and Infrastructure
Conlon Adaptation implications for state government,
covering issues relating to climate change
DECCW risks for infrastructure, and the NSW
DECCW action plan in relation to climate
change mitigation and adaptation.
Mr. John Water Security, Natural The direct and indirect climate
Verhoeven Resources and Climate Change change impacts on infrastructure,
Risk and management implications for
infrastructure owners and managers.
Evans & Peck Areas explored include water, power, ICT,
built environment, mining and quarrying,
and transport.
Ms. Narelle Economist and Project Manager Presentation on the integrated climate
Daniels change risk assessment for the Port of
Queensland Main Roads Brisbane Motorway Upgrade Business
case. Included information on how climate
change impacts were quantified for tolling.
Dr. Greg Manager Science and Sydney Water response to climate change
Allen Technology – included an outline of the operating
context for Sydney Water and their
Sydney Water climate change strategy including risk
assessment, adaptation and response.

7
Climate Risk

Name Organisation Issues Covered
Dr. Turlough Group Manager Environment Presentation on the Carbon Disclosure
Guerin Telstra Corporation Limited Project and the climate risks facing Telstra
and the telecommunications industry –
identified risks from physical damage to
network due to extreme weather events,
to the lack of understanding of implicated
risks in international offices. Telstra’s
actions to manage and adapt to climate
change risks and its impacts were also
discussed and examples were given.
Dr. Ian Senior Research Analyst Climate change, infrastructure, insurance
Woods and investment; focus on regulatory
AMP Capital Investors risks and other aspects with a direct link
Sustainable Alpha Fund to earnings. Investor-based action for
understanding investment risks related to
climate change was also discussed.
Prof. Jan Griffith University Law School Exploring anticipated litigation for failure
McDonald to address climate change (including mal-
adaptation). Focussing on the future and
how land use planning can be utilised to
reduce the potential for litigation.
Mr. Vishal Partner Regulatory risks from climate change.
Ahuja Issues surrounding due diligence, lending
Mallesons Stephen Jaques and exposed industries under anticipated
nature of CPRS.
Mr. Karl General Manager Policy - Risk Overview of the insurance industry in
Sullivan and Disaster Directorate Australia, how insurance works, the types
of extreme weather risks, and how to
Insurance Council of Australia adapt to the pool of increased risks.
Adj. Prof. Cindual Pty Ltd and Australian Climate prediction, insurance and
Peter Best Centre for Sustainable adaptation in the energy and agricultural
Catchments, University of sectors. Including climate variability and
Southern Queensland change of equal importance for extreme
weather impacts on much infrastructure;
multi-scale nature of future energy and
agricultural systems – opportunities for
climate risk products; and seasonal climate
forecasting, insurance innovations &
adaptation incentives.
Ms. Alice Corporate Responsibility Issues of mutual dependence and mutual
Cahill Manager benefit. Interaction between insurer,
broker and business customer and
Zurich Financial Services importance of insurance being available
Australia and affordable despite increasing risks.

8
Climate Risk

4 An Overview of Some need to withstand a range of climate
Climate Change Hazards to change hazards, such as increased
Australian Infrastructure sewer spills to stormwater / waterways.

John Verhoeven, of international Electricity generation/transmission
infrastructure management consultants infrastructure top-flight hazards include
Evans & Peck, provided an overview of reduced water availability for coal-fired
the various hazards that climate change power station cooling, summer peak
poses across the different classes demand spikes outstripping supply, the
of infrastructure. This included both elevated costs stemming from the need
the direct and indirect risks faced by to increase plant water use efficiency,
infrastructure owners and managers, and bushfire damage to transmission
and management implications for asset lines and substations. Extractive
owners and managers. energy industries also face risks, such
as reduced water availability for coal
Beginning with water infrastructure, processing and dust suppression (many
Mr. Verhoeven highlighted critical coal extraction hazards overlap with
risks to potable water supply. These those faced by the mining and quarrying
include water shortages, which may industries generally). The risk of more
be further exacerbated by increased frequent or prolonged shut-down of
demand, and the wide threats posed by offshore oil and gas infrastructure
bushfires to water storage catchments. due to storm damage was also raised.
Irrigation water suppliers face similar Renewable generators face risks as
vulnerabilities. Stormwater drainage well, such as wind turbine damage from
and sewerage infrastructure would also extreme winds.

Figure 1: Sydney Water
risk ratings for a 2030
climate change scenario
(Source: G. Allen,
Sydney Water).

9
Climate Risk

Transport infrastructure faces a range to above-ground transmission lines or
of hazards. For roads and tunnels, towers, and deterioration and flooding
this includes costs associated with of transmission infrastructure and
degradation of foundations and bitumen, exchanges cables.
and flooding. Potential rail infrastructure
hazards include damage to overhead Mr. Verhoeven discussed how managing
wiring, damage and disruptions the risk and liability of these climate
from increased electrical storm change hazards requires a two-pronged
activity, and degradation and stress of approach: addressing climate change
tracks, bridges, railway foundations, impacts; and actions to reduce the
embankments. As society adapts to chance of impacts on assets. This
climate change, rail infrastructure may would require decision-making about
incur increased train use, and greater infrastructure from the planning through
demand for air-conditioning on trains. to management stages, and also
Sea ports also face hazards, with a raised fundamental questions about
significant risk being damage to assets where cities should expand and where
and disruption of operations. As for infrastructure assets should be built.
airports, flooding and damage could be
key hazards, especially in Sydney and
Brisbane where infrastructure lies close
to coastal waters.

In the built environment, bushfires pose
a threat to buildings and human health,
whilst floods present clear hazards to
buildings in low lying areas. Longer-
term and less acute hazards revolve
around deterioration and damage of
building materials and foundations.
Structures on coasts are also vulnerable
to climate change hazards. Essential
services such as health and education
may be in greater demand, whilst
coastal services may undergo damage.

With global warming, agricultural
producers face the risk that climate
change could reduce production,
increase losses, and reduce, or cause
salination of, groundwater supplies.

As for telecommunications
infrastructure, hazards include damage

10
Climate Risk

5 360o Perspectives As an illustrative example, Professor
Stone set out changes in the anticipated
An important aim of the Summit return rate of extreme cyclones.
was to provide participants with the Under present climate conditions, a
opportunity to see climate change cyclone with a pressure level of 953
issues from the perspective of others hPa (hectopascals) is expected to have
in Australia’s infrastructure industry. a 1-in-100-year return rate (between
This section summarises insights from the latitudes of 14° S and 20° S). That
various vantage points. is, such an event would be expected to
occur once a century. Under enhanced
greenhouse conditions, the frequency of
5.1 Climate Scientists – Educating
this type of event increases, becoming
on the Science of Variability
a 1-in-20-year event. This frequency
Professor Roger Stone of the University shift has considerable repercussions for
of Southern Queensland provided infrastructure design and planning.
an overview of the current science
and anticipated impacts of climate
5.2 Regulators – the Role of State
change. Setting a context for the day’s
Government
discussion, Professor Stone showed
that average global temperatures have Mark Conlon of the NSW Department
increased by approximately 0.9°C of Environment and Climate Change
over the 1890-1919 average, and gave presented a state government
evidence demonstrating the majority of perspective. As a large provider of
this increased warming is attributable to infrastructure, he noted that the New
anthropogenic activities. South Wales Government aimed to lead
on climate change science development
A specialist in climate variability, and work with partners (such as
Professor Stone also illustrated that emergency services and the Australian
climate variability was already an Local Government Association).
issue for Australia, and that climate
change is anticipated to alter not just Mr. Conlon presented results from
mean values but also variability around recently-commissioned, regionally-
the mean (e.g. the El Niño Southern specific climate change projections
Oscillation phenomenon) and lead undertaken by the University of NSW.
to more extreme weather, such as The regionally downscaled maps, he
intense rainfall, increased hail days stated, significantly contributed to
and heatwave events. Professor Stone improved understanding of regional
argued that the critical challenge posed climate change vulnerability. Essential
by this variability will bring forward to the creation of the new maps was
the challenge of climate change investing time and resources to identify
management. which global circulation models are best
suited to a given region.

11
Climate Risk

Figure 2: Projected
changes in rainfall for
the state of New South
Wales (Source: M.
Conlon, Department of
Environment, Climate
Change & Water).

A major theme of Mr. Conlon’s These encompass water security,
presentation was the importance of supply and demand balance, impacts
understanding the extent to which on Sydney Water infrastructure and
climate change pushes communities operational performance, employee
beyond the range of their historical health and safety and the need to meet
experience. He made a powerful customer and stakeholder expectations.
case that such a benchmark provided
a strong indicator of a community’s Dr. Allen also discussed the steps made
coping capacity or resilience, which along the path of adaptation, such as
encompasses the coping capacity of new infrastructure for recycling water,
a community’s infrastructure and its desalinisation plants and investment in
owners and managers. increased water efficiency to improve
the sustainability of fresh water supplies.

5.3 Infrastructure Owners &
Adaptation also extended to: (a) the
Developers – Water
need to increase the resilience of
Dr. Greg Allen from Sydney Water infrastructure; and (b) operational
presented his corporation’s response responses to reduce the risk of adverse
strategy for climate change, from impacts of climate change. This
identification and assessment of risks to included the need for vulnerability
their process for adaptive actions. identification through recognising
susceptibility to harm and not just
The operational scope for Sydney Water the likelihood of harm to stated
was outlined to emphasise the extent of infrastructure and operations.
risks posed by climate change impacts.

12
Climate Risk

Figure 3: Sydney Water
climate change strategy
(Source: G. Allen,
Sydney Water).

Looking forward, Dr. Allen made it flow-on effects on the industry, work
clear that Sydney Water acknowledged force and civil society.
adaptation action to be an ongoing
business process. In terms of mitigation, Dr. Guerin also raised tertiary impacts,
he stated that Sydney Water’s objectives i.e. those to do with how people and
were to become carbon-neutral by society auto-adapt to climate change
2020 and engage with business and the impacts and regulation. Dr. Guerin
community to reduce their own carbon raised as an example the prospect
footprints. of possible redundancy of some
infrastructure in the long-term due to
population shifts caused by repeated
extreme weather events.
Developers – Telecommunications
Dr. Turlough Guerin presented Telstra’s The business pressure to reduce
experiences with climate change emissions was also discussed. Major
mitigation and adaptation as described clients of Telstra factor greenhouse
in their most recent response to the gas emissions into their supply-
Carbon Disclosure Project. chain decisions. This puts the
telecommunications corporation in a
Being in the majority self insured, position to actively mitigate and adapt in
Telstra recognises the need to anticipate order to retain business with these large
and manage the impacts of climate clients.
change on their industry. Physical
impacts on infrastructure and network Dr. Guerin stated that part of Telstra’s
function were discussed as well as their mitigation and adaptation response

13
Climate Risk

is already in place through the use of implementation of major infrastructure
the Global Operation Centre (GOC). projects. This is in a major part due
This centre monitors and restores to the shift toward Public Private
telecommunications facilities, and this Partnerships (PPP) which requires
includes the monitoring and assessment private-sector investors to be satisfied
of weather conditions and patterns that climate change-related risks have
throughout Australia. The creation been addressed and will not undermine
of the Major Incident Control Centre future returns.
within the GOC is now used to facilitate
protection of telecommunications In particular, Ms. Daniels was interested
infrastructure by sharing information in how market changes, population
with other sectors and industries during shifts, extreme weather events, carbon
extreme events. prices, freight and transport changes
affect the viability (and the delivery
model) of a business case based on
tolling revenues.
Developers: Transport
Ms. Narelle Daniels, an economist Ms. Daniels outlined how a partnership
from the Queensland Department of between the department and Climate
Transport and Main Roads, used the Risk Pty Ltd identified new methods to
Port of Brisbane Motorway Upgrade incorporate climate change sensitivities
Business Case as an example of how her into freight movement and local traffic
agency considers climate change risks. models. These results were in turn fed
into the final economic analysis.
Ms. Daniels stated that it was now
becoming critical to consider climate Importantly, the project set out by
change in the business case, design and Ms. Daniels was able to prove to

Figure 4: An example of
the quantified impact of
multiple climate change
hazards on freight
movement density
in the Brisbane road
network (Source: K.
Mallon, Climate Risk)

14
Climate Risk

infrastructure developers such as be denied. This dearth of coverage will
theirs that climate change risks could further expose sectors such as lenders,
be successfully quantified within a leading to lender withdrawals, higher
business case, and that the climate interest rates and /or shorter lending
uncertainties were managed with terms. Under such circumstances, legal
reasonable ease within such a process. recourse may be the only option for
some stakeholders who seek to recover
losses.
5.6 Law, Liability and Litigation
This section of the summit explored the Professor McDonald considered
legal ramifications of climate change. how increased litigation may further
Professor Jan McDonald of Griffith complicate the situation, and given a
University suggested that although lack of historical experience to draw
litigation around climate change on, the issues would be dealt with on
impacts and adaptation was likely to a case-by-case basis. Her view was
emerge and grow initially, litigation was that this should be a major focus of all
a highly unsustainable solution to deal stakeholders, in order to explore ways to
with climate change related losses. avoid and reduce climate change related
litigation. Professor McDonald stressed
Areas of potential litigation raised that future development should aim to
by Professor McDonald were issues avoid risk and future damage, to prevent
of regulatory change – and lack potential legal challenges.
thereof – as well as mal-adaptation
(failure to avoid areas of high risk in
5.7 Legal Risks from Carbon
new development). On regulation,
Professor McDonald emphasised Mr. Vishal Ahuja of the law firm
that the continued use of industry Mallesons Stephen Jaques proposed
standards without also considering that, in the short term, the most pressing
climate change would not necessarily legal risks arise from the rapidly-
shield infrastructure developers from changing regulatory landscape (i.e. the
litigation. Such industry standards Carbon Pollution Reduction Scheme, or
have generally not been updated to CPRS). He noted that more than $380
reflect emerging climate change science billion dollars of infrastructure spending
and may therefore be inadequate or will be delivered in Australia over the
obsolete. This may result in significant next decade. According to Mr. Ahuja,
legal exposures through potential the potential for the introduction of the
mal-adaptation in infrastructure CPRS will create a range of exposed
development which is not climate industries; it has led to a standoff
resilient. between coal generators which need
re-financing and bankers apprehensive
Professor McDonald identified areas of this infrastructure’s exposure
likely to be hardest hit: areas where no to carbon pricing and mandatory
insurance exists or where cover would renewable energy targets.

15
Climate Risk

Figure 5: The context for
a discussion on funding,
due diligence and
climate change (Source:
V. Ahuja, Mallesons
Stephen Jacques).

Mr. Ahuja raised questions regarding 5.8 Infrastructure Investors and
the standardisation of risk assessment Financiers
for climate change. This triggered Dr. Ian Woods of AMP Capital Investors
discussion on reassessing response discussed the impacts of climate
programs to extreme events, given the change on infrastructure, insurance and
imperative to base them not on past investment.
experience but future predictions which
factor in climate change. Dr. Woods raised regulatory risks, in
particular those with a direct nexus
Mr. Ahuja noted the problem within to earnings that have the potential to
the infrastructure sector of gaps in risk reduce industry / business profitability
awareness in relation to climate change. and viability. The risks identified
This creates a delay in mitigation and revolved around the increased
adaptation response of industries. A probability for business interruption,
proposed solution for this gap in earnings volatility, and business costs
awareness was to take funds garnered including insurance. These in turn would
through a carbon emissions trading impact growth opportunities of a given
scheme and transfer these funds to company.
areas needing assistance with climate
change adaptation. There is a very real probability that these
impacts will increase. However, it is
difficult to quantify the financial effect

16
Climate Risk

Figure 6: Key sectors
and risks (Source: I.
Woods, AMP Capital
Investors).

of these hazards in terms of risk and opportunities for revenue growth in
growth of a company or sector. weather and regulatory-related impacts
of climate change.
Dr. Woods stated that, as an analyst, he
is compelled to work out contingencies Understanding of investor action that is
for climate change-related impacts to a focussed on climate change mitigation,
given business or sector. Therefore, if risks and adaptation is now very
a business is unable to provide its own tangible for many companies, thanks
such analysis, he would be required to to the Carbon Disclosure Project and
formulate his own estimates. Either way, the Institutional Investors Group on
some quantification of climate change Climate Change. Both these initiatives
effects is imperative to serve investor aim to help investors understand how
interests. assets are exposed and whether or
how risks relate to climate change are
Dr. Woods asserts that the main risks being managed. Such processes help
revolve around extreme weather companies (and their investors) better
impacts in all sectors (insurance, understand their risks, and use this
agriculture, energy and utilities, information to encourage long-term
property and construction, tourism, sustainability and help guide investment
metals and mining and retail and decisions.
consumer discretionary). However, in
all these sectors he also recognised

17
Climate Risk

5.9 Infrastructure Insurers that increased risk not only flows from
increasing extreme weather event
Mr. Karl Sullivan of the Insurance occurrence, but also from intensified
Council of Australia addressed the development in high-risk areas such as
issues of extreme weather impacts coastal high-rise developments. That
and exposures, and the Australian is, hazards are increasing but so is the
insurance industry’s adaptive response economic exposure.
to climate change challenges. Mr.
Sullivan summarised the role of Mr. Sullivan outlined the response of
insurance in Australian economy and the Australian insurance industry. The
society, and emphasised that a healthy main objective appears to be actions
insurance sector is essential to a healthy, to improve community resilience
prosperous economy. to extreme weather events. This is
achieved by seeking reform of policy
To demonstrate the scale of extreme and standards in infrastructure, building
weather exposures Mr. Sullivan showed code and land-use planning; another
that, looking at the sector as a whole, approach is augmenting awareness and
annual community and business natural understanding of climate change risks
disaster costs more than doubled in amongst businesses and communities.
the 07/08 financial year ($2.7 Billion)
compared to the average annual cost
5.10 An Insurance Company
over the previous four decades ($1.2
Viewpoint
Billion).
Mr. David Smith, CEO of Zurich Australia,
Insurance claims data revealed that opened the summit and also spoke
the majority of compensation costs about the ability of a company such
stem from flood, cyclone and severe as Zurich to identify new needs in
storm damage. Mr. Sullivan also noted their market and act on these needs

Figure 7: How insurance
works: The insurance
pool monetises risk and
buys peace of mind; risk
drives premiums which
drive the pool (Source:
K. Sullivan, Insurance
Council of Australia).

18
Climate Risk

Figure 8: Community
and business natural
disaster costs, 1967-
2004 versus 2007-08
(Source: K. Sullivan,
Insurance Council of
Australia).

to introduce new products. Mr. Smith a new business opportunity, but only
discussed how the introduction of so long as policies remained affordable
standard flood protection in Australia and available. There were known
challenged the received market wisdom, examples from overseas where this had
yet once initiated led to widespread not been the case.
adoption within his industry.
Ms. Cahill pointed out that insurance
Mr. Smith also indicated a significant companies did not possess bottomless
problem with insurance taxation in pockets, in that they could not sustain
many states, citing examples in which pay outs for increased losses without
taxes and levies more than doubled a corresponding increase in premiums
insurance costs to the end consumer. or a change in terms. Infrastructure
This provides a disincentive to insure owners and operators must understand
and a “free ride” for the uninsured. that the transfer of escalating risk to
insurers could not continue indefinitely
Ms. Alice Cahill, Head of Zurich without a consideration of ways to
Financial Services Corporate Social reduce losses.
Responsibility, gave the perspective of
a policy provider and emphasised the Mr. Cahill described her interest
need for companies such as hers to keep and experience in the use of risk
their eye on their core business with management techniques within the
effective yet competitive risk pricing. client business as a means to curb
losses in the face of escalating hazards.
With escalating risks from climate In the infrastructure context this
change, managing those risks provide implies the application of some level of

19
Climate Risk

adaptation. Ms. Cahill touched on the • A cluster of extreme weather
Zurich Climate Change Broker Training, events without time for
which aims to use insurance channels significant recovery can threaten
to promote awareness in the market of business survival; and
opportunities for adaptation.
• A single extreme weather event
combined with other stressors
5.11 Market Mechanisms:
or shocks (e.g. oil price surge,
Weather Watching for Energy and
reduced insurability) may affect
Agriculture
industry viability.
Adjunct Professor Peter Best, from
Cindual and the Australian Centre for
Sustainable Catchments, University of
Southern Queensland, identified some
uncertainties associated with climate
change. Professor Best has extensive
experience in the use of climatic
indicators within energy markets, and
more recently in the agricultural sector.

He stated that despite a growing
understanding of the climate change
impacts stemming from greenhouse
gas emissions, uncertainties still exist
about the nature and interactions of the
cryosphere (ice portions of the earth’s
surface) and the Earth’s biochemistry.
These areas are currently untested in
climate change models.

Professor Best showed that although
a portfolio of insurance-based options
(e.g. hedging, re-insurance and index
based insurance) exist for multiple
stressor events, industries and
government need to be prepared for
such events. Commenting on the risks
associated with these events, he stated
that:

• A single extreme weather event
can damage structures and
interrupt business;

20
Climate Risk

6 Critical Issues sufficiently dynamic to cope with fast-
moving climate science?
Attendance at the summit was on the
basis of invitation only, and attendees
6.2 Lack of standards leaves
were invited based on their expertise
developers in legal limbo
in both climate change and specific
aspects of infrastructure. The aim of The above-noted opinion that standards
this selection process was not merely to may fail to reflect climate risks implies
inform delegates through presentations, that infrastructure developers are
but also to stimulate discussion and in a legal grey area in terms of their
capture opinion. This was made responsibilities and liabilities. The
possible through audience questions onus appears to rest on asset owners
to panels members, and through the and developers and their consultants to
World Café session which saw specific prove that they have addressed these
challenges and questions put to small climate change risks to the best of their
groups. ability.

Discussions aimed to elucidate the Challenge: How can infrastructure
nature of climate change challenges developers demonstrate that they have
facing the infrastructure sector, and adequately factored in climate change?
although a major focus on solutions And how much is enough?
was discouraged, simple solutions did
emerge at times.
6.3 Fortress approach could be
inefficient use of resources
The following are the key challenges and
opinions raised by these discussions. Summit attendees were apprised of the
urgent need for new investments to be
made climate resilient. This need must
6.1 Standards are not, and
be balanced by an ongoing requirement
perhaps cannot, keep up with
for additional coping capacity and
climate science
re-engineering of existing assets to limit
Many participants stated that standards disruptions due to climate change.
are not being maintained in line with
fast-moving science and projections. However, participants noted that future
Indeed, it was pointed out that given the investment must balance the benefits
time required to change standards, this of enhanced climate change resilience
task may be impossible due to the yearly against increased building costs.
or even shorter timeframe with which Critically, a reshaping of the notion of
modelling and climate change evidence “fit-for-purpose” must be considered in a
are updated. rapidly-changing environment.

Challenge: How do we put in place Building infrastructure that will cope
a process for standards which is with a range of possible climate change

21
Climate Risk

impact outcomes, some dependent Challenge: Given greater awareness
on mitigation efforts, will increase amongst stakeholders of climate change
costs substantially and may result risks, how can the AS/NZS4360 risk
in “over-building” for hazard levels assessment methodology be enhanced
that do not eventuate. This diversion to specifically improve the quality of
of resources would result in less climate change risk assessment?
infrastructure being built overall. The
potential waste may be compounded if
6.5 Culture and behaviour change:
infrastructure designed to last for 100
Essential but not simple
years is actually replaced sooner due
to new development demands. The Summit participants widely recognised
discussion weighed the efficiency of an that cultural and behavioural change
“options” approach against the “fortress” – in industry and government as well
approach. as society – is one of the biggest
challenges. To smoothly incorporate
Challenge: Can we design infrastructure climate change risks, their recognition
capable of being upgraded as the must occur equally throughout the
actuality of climate change impacts and sector and throughout a business.
risks evolve? Can we re-define “fit-for- However, the current level of debate,
purpose” to avert the costs entailed politicisation and scepticism makes this
in building fortresses, yet build-in the process far from smooth.
ability to fortify?
Challenge: How does the infrastructure
sector establish a consistent,
6.4 Risk assessment techniques
professional position on climate change
found wanting
impacts and risks which is accepted
Some participants called for risk industry-wide by professionals,
assessment “best practice” or directors and officers?
standards which are tailored specifically
to climate change risk. There was a
6.6 Treating mitigation and
strong consensus that the current
adaptation in isolation does not
Department of Climate Change (DCC)
work
approach has not been appropriately
tested, yet is recognised as the “default” Given that climate change impacts are
method despite weaknesses when used expected to defy historical experience,
in practice. The challenges encountered new solutions will be needed, and this
in use of the DCC method generally includes innovation within the existing
revolve around the difficulty workshop sustainability paradigm. Summit
participants had in understanding the participants furthermore recognised
“likelihood” of a hazard event, and the that mitigation and adaptation action
inability of this method to consider cannot be pursued in isolation; at
multiple stressors. present these strategies are competing
for skills and resources.

22
Climate Risk

Challenge: How can the infrastructure Challenge: How could the infrastructure
sector ensure full and consistent industry more effectively access the
integration of climate change adaptation insights and expertise of insurers on
with emissions mitigation? climate change?

Challenge: Changes in insurance
6.7 Insurance and infrastructure
costs and availability may make some
have much to offer each other on
locations and assets less valuable.
climate
How can the infrastructure sector
The insurance industry’s role in climate remain open to insights about climate
change mitigation and adaptation change risk and insurability if they may
actions found an interested audience at undermine current value?
the summit. This begged the question
of whether both the insurance and
6.8 Government departments
infrastructure industries adequately
and policies are not consistent on
understand the significance of climate
climate
change risks.
The summit audience voiced concern
If both industries make critical risk that Australian governments,
management decisions based on particularly at the local level, lack the
inadequate information, there is a knowledge and skills necessary to
concern that negative flow-on effects provide integrated decision-making and
could arise and erode the resilience of risk assessment. There was a prevailing
businesses and society as a whole. It sense that whilst some planning
was acknowledged that the insurance approvals were being made with climate
industry could do more to provide change in mind, others were not. This
advice, guidance and tools to customers makes consistent operations difficult
to mitigate their exposures, and could for infrastructure providers given the
improve their ability to customize additional costs of including climate
products around customers’ needs in change adaptation.
relation to local climate changes.
The bearing of climate change on the
Some participants suggested the responsibilities of various government
insurance industry should adopt a levels and their geographical
more proactive approach to identify boundaries emphasizes the need for
high-risk areas, when other more a whole-of-government, “joined-up
appropriate development areas are policy” approach. Each government
available. At the same time insurance level – Federal, state and local – as
was recognised as a potential tool for well as industry has a critical role in an
determining the appropriateness of integrated decision-making process.
certain developments (vis-à-vis weather
and climate risks). Participants of the summit expressed
apprehension about the objectivity of

23
Climate Risk

individual local governments. It was may be expected to increase pressures
suggested that local governments on the health care system, and
lacked the resources and capacity to compound its existing capacity issues.
make evidence-based decisions on Summit attendees were concerned that
complex issues such as the speed and the focus on industry and government
scale of local climate change impacts. risk management often neglected the
community aspect of risk assessments
There was consensus amongst the and adaptation plans.
audience that at present there is too
much focus on the mitigation debate Should the vulnerable be made more
where global consensus is needed, marginal by climate change, disruptions
at the expense of equally-pressing to infrastructure for power, water,
local adaptation. Furthermore it was transport and communication may have
perceived that local responses to a disproportionate impact on this group.
extreme events need to be reassessed
to include other possible impacts in Challenge: How does the infrastructure
relation to climate chain in their local sector ensure that its heightened
areas. importance and criticality to
communities’ climate change resilience
Challenge: How does the infrastructure is recognised and resourced today?
sector ensure consistent treatment of
climate change adaptation across all
6.10 The risk of risk transfer
departments and levels of Government,
but ensure the risk response is not A major topic of discussion was the
“dumbed-down”? problem of unwitting transfer between
stakeholders of risk, rather than its
elimination or mitigation.
6.9 Increased importance of
infrastructure in a climate changed
Some summit participants called for
world
greater government and private-sector
Many among the audience raised cooperation to increase the integration
concerns about climate change impacts of infrastructure planning – shifting the
on the mental and physical health focus to outcomes rather than outputs.
and general well-being of vulnerable
communities, as well as government Operational contracts for infrastructure
community assistance agencies’ ability tended to be focussed on asset life,
to manage these risks. viability and revenue capacity, with
little formal regard given to broader
Examples were raised regarding the outcomes – including climate change,
criticality of all infrastructure before, environment, social and workforce
during and after major weather-related issues – particularly in revenue
events and disasters. agreements.

The increased likelihood of impacts on Challenge: How can the infrastructure
the vulnerable among Australian society sector achieve greater cooperation

24
Climate Risk

with all levels of government to ensure impacts to be beyond their investment
proper integration and elimination of time frame.
climate change risks, and avert the mere
transfer of risks which fails to reduce Challenge: How can the private sector
them? and government work together to
dismantle market and regulatory
disincentives to climate change
6.11 Avoiding market and
adaptation in the infrastructure sector?
regulatory disincentives
The summit presentations initiated
6.12 Access to science and control
discussion about impacts that could
of information
occur if industry and government
shield consumers / markets from price A major issue of debate among summit
signals that are required to trigger the participants was access to information.
behavioural changes that would address
climate change risks. Participants remarked on the urgent
need for sharing accurate and
The participants recognised the relevant climate change research and
importance of government assistance information.
that ensures society’s disadvantaged
do not disproportionately bear climate They felt there was limited willingness to
change impacts; at the same time they share information and knowledge about
recognised that consumer price signals risk disclosure and loss between and
were important to realise the benefits of within industries. While this reluctance
behavioural change. to disclose may maintain competitive
advantage, it could also erode society’s
Current anti-adaptation interventions resilience to climate change.
range from retail price caps on energy
and water to taxes and levies on This problem highlighted the importance
insurance. In addition to inhibiting of public-domain research. Concerns
changes in consumer behaviour, were raised that some taxpayer
the scope for innovative delivery funded information commissioned by
mechanisms is artificially limited if government from government agencies,
pricing not reflective of real costs universities or private-sector research
is enforced. This ties the hands companies was not reaching the public
of infrastructure developers in a domain.
commercial market.
Challenge: How can existing or
Another issue raised by attendees commissioned information on climate
concerned the character of short-term change be placed into the public
investors and analysts who fail to domain to ensure greater access
include climate change issues in their by infrastructure developers and
investment-related decision-making operators?
processes, since they consider these

25
Climate Risk

6.13 Maintaining dialogue
momentum

Participants considered the summit a
major step forward in creating good
communication pathways and sharing
perspectives across the sector. Many
participants suggested that further
meetings of this kind be arranged.

Challenge: Can dialogue on climate
change impacts and adaptation
continue across infrastructure and all its
stakeholders?

26
Climate Risk

Climate Risk Pty Limited (Australia)
Sydney: + 61 2 8243 5767
Brisbane: + 61 7 3040 1621

Climate Risk Europe Limited
London: + 44 752 506 8331

www.climaterisk.net Climate Risk

27
Climate Risk

2009 Climate Change Summit Synthesis Report

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