Brighter Why private sector investment is key to adapting to climate change

Why private sector investment is key to adapting to climate change

Why private sector investment is key to adapting to climate change

The tide is turning and big business is no longer being perceived solely as the big bad wolf when it comes to working on solutions for environmental issues. Could projects that are good for both the environment and business be the way to finance climate change adaptation?

Heatwaves, bushfires and floods are bringing home the reality of climate change and its devastating consequences. The urgency to prepare communities for more frequent and intense extreme weather events has increased. Climate change adaptation projects need to be rolled out to build the resilience of communities but these projects are expensive, which means we need to find money — and lots of it.

Climate change mitigation, such as measures to reduce greenhouse gas, is often in the limelight. However even if all global carbon emissions were to stop, a level of climate change is already in motion. To ensure communities are able to withstand effects such as rising sea levels and changing weather patterns, climate change adaptation must come to the fore.

JCU’s Dr Zsuzsa Banhalmi-Zakar is focused on the practical aspects of climate change adaptation, particularly how it can be financed. On the ground, adaptation projects could include anything from building flood defences to improving water retention in agricultural areas and developing drought-tolerant crops. Zsuzsa is interested in how to get influential organisations, such as banks and financial institutions, to finance adaptation. She has experience as an environmental consultant in Europe. Her exposure to a finance facility geared towards providing incentives for projects with environmental benefits piqued her interest in the finance sector.

“It got me interested in why aren’t all banks doing this,” Zsuzsa says. “Why doesn’t our world reward projects with good environmental benefits?”

Early in her career, Zsuzsa was met with scepticism when she told people she wanted to focus on finance and the environment or climate change. People would laugh or question why banks would ever care about environmental issues.

“Climate change was not really talked about in Australia prior to 2007, particularly in the finance sector,” she says. “I persisted with this issue mainly because I felt banks and the finance sector are so influential and huge.”

Tapping into such powerful organisations is needed to combat effects that will be felt on national and local levels, according to Zsuzsa. For example, climate change will increase the frequency of natural disasters, and is expected to increase the current level of Federal Government spending of about $11 billion annually on post-disaster relief and recovery to over $33 billion per year by 2050. Zsuzsa says leveraging private sector investment is absolutely essential to make up the shortfall in funding that is hindering adaptation projects from going ahead. Climate change will also impact a broad range of industries, from agriculture to construction and waste management, with the effects varying by region.

“The impacts in Far North Queensland will be different from Central Queensland,” Zsuzsa says. “Australians are well known for their preference for coastal lifestyles and the value of assets on the coast is increasing. But with an increasing chance of disasters and climate-related impacts, relying on Federal Government Disaster Relief funding to cover such damages is too hard and unsustainable in the long term.”

Climate change is affecting the Peron-Naturaliste coastline in Western Australia. Image: Travers, A, Rissik, D & Reis, N 2013,  Climate Change Adaptation Good Practice – Case Study: Developing Flexible Adaptation Pathways for the Peron Naturaliste Coastal Region of Western Australia 2011 - 2012, National Climate Change Adaptation Research Facility, Gold Coast

While the Federal Government is required to fund some adaptation, it is local governments who are likely to bear the brunt of the financial costs. Adaptation requires local responses that reflect local values, meaning that adaptation is typically seen as a local government responsibility. The cost of adaptation will be high and add an extra burden to the strained budgets of local governments. Zsuzsa says this is where investment from the private sector is needed.

“We are witnessing a fundamental change in the current attitude and understanding of climate change among financial institutions,” she says. “In the private sector, climate change was traditionally looked at as a risk and now it is increasingly also seen as an opportunity. We have to put in incentives in Australia and overseas for investors who are keen to tap into opportunities.”

One of the bigger barriers to private sector investment in adaptation is finding projects with a suitable revenue stream. The private sector will not invest in projects simply for the good of the community. Building a sea wall might increase a community’s resilience to rising sea levels, but it does not provide obvious ways for a financial institution to generate revenue. Zsuzsa says projects need to be structured in a way to provide a commercial level of return to be an attractive investment.

“Return on investment is a key issue,” she says. “Projects have to be looked at in terms of whether they can generate any revenue. Having some commercial level of return is a challenge. There are a whole heap of projects that are attractive and it’s about figuring out which ones can generate private sector financing. In return, this can reduce pressure on Federal and State pre-disaster or resilience funding.”

Zsuzsa and the Investor Group on Climate Change (IGCC) have been investigating solutions for increasing investment in adaptation. She says the private sector has the capital available to finance adaptation, it is a matter of ensuring projects are attractive and framing them in the right way for banks and investors.

“Climate change is a material issue for business in terms of risks and opportunities,” she says. “The private sector is becoming more open to talking about the issue. It is in everyone’s interest to make the private sector keen to be involved in good projects.”

Zsuzsa says a combination of government policies that encourage investment as well as building the abilities of local government to collaborate with the private sector would boost investment into adaptation.

“I really don’t see any other way of doing it,” Zsuzsa says of financing climate change adaptation. “It’s a matter of how quickly and who will succeed in working out how to finance adaptation. More and more cities and local governments are trying to do this. We need policy tweaking and willingness from all parties and capacity building in local government so they know how to sit down and negotiate with the private sector.”

Despite the hurdles still to overcome in making climate change adaptation a reality for communities, Zsuzsa is hopeful for the future.

“I am an optimistic environmental scientist,” she says. “There’s no reason why I shouldn’t be. We just have to be smarter about how we do things.”

If you have a passion for building a brighter future for the Tropics, visit State of the Tropics. The 2017 State of the Tropics report will focus on sustainable infrastructure. If you are dedicated to making a difference, check out JCU’s major in Corporate Environmental Management, which is offered in both the Bachelor of Environmental Practice and in the Bachelor of Business.

Published 10 May 2019

Featured JCU researcher

Dr Zsuzsa Banhalmi-Zakar
Dr Zsuzsa Banhalmi-Zakar
Dr Zsuzsa Banhalmi-Zakar holds the position of Lecturer, Corporate Environmental Management within the College of Science & Engineering at James Cook University (JCU) on the Townsville campus.