Effective climate change adaptation calls for significant shifts in the way we plan, design and finance communities and related infrastructure. Catalyzing finance for this shift requires a change in how we assess risk and assign economic value to future-proofing efforts. In order to invest for resilience, all stakeholders in the financing effort need to determine how to link adaptation benefits to revenues, cost-savings, risk reduction, and other quantifiable cash flows.
A long-term return
While some resilience investments will be capital intensive, adaptation offers an attractive long-term return. The Global Commission on Adaptation (GCA) estimates that investing $US1.7 trillion globally in adaptation from now to 2030 would yield more than $US5 trillion in net benefits, adding that adaptation investments have benefit-cost ratios ranging from 2:1 to 10:1.2
Climate change should be a fundamental consideration for anyone in infrastructure or public planning roles, said Christopher Leslie, Executive Chairman of Macquarie Infrastructure and Real Assets (MIRA), Americas. Recalling past conversations with a US government architect, Leslie said, “One of the key questions to anybody building new infrastructure is, which climate scenario are you building to? One degree, two degrees, three degrees, four degrees warmer? If you haven’t asked yourself that question, then you haven’t woken up to the problem or properly set out the investment case for the asset.”
Paying a triple dividend
Adaptation’s benefits are not exclusively limited to surviving a destructive storm or weather event. Instead, adaptation action offers a “triple dividend” – the social, environmental and economic benefits of investing in resilience.
An example of this is the Thames River Barrier, which helps protect 1.3 million people and $US275 billion in property value in greater London.2 After population growth and climate uncertainty created a water-stressed area, Thames Water built a desalination plant to increase the volume and reliability of supply. It has also built a large storage facility to address combined sewer overflow issues after storms.
Though the case for adaptation is compelling, the GCA report contends that most major investment and planning decisions made today do not consider climate change. “There’s a lack of appreciation of how much money could be saved through early or upfront spending on adaptation, given that climate change is going to be a persistent and ongoing phenomenon,” MIRA’s Leslie said. “There is going to be significant capital expenditure on recovery from climate change-related issues, which will drain GDP growth. Fiscal prudence and fiduciary duty demand that we invest in adaptation now rather than recovery later.”
Studies show that upgrading infrastructure to be more climate-resilient adds about 3 per cent to upfront costs. The return is particularly attractive in developing countries. The World Bank found that $US1 trillion in incremental spending to make infrastructure more resilient in developing countries would generate $US4.2 trillion in benefits.3