Extreme 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.
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.
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.