11 April 2013 — Australian businesses face multi-million dollar exposure to the costs of climate impacts on interdependent infrastructure, new research has found.

The research, Infrastructure interdependencies and business-level impacts, was carried out by The Climate Institute, Manidis Roberts and KPMG.

The Climate Institute chief executive officer John Connor said extreme weather and its impact on infrastructure was a multi-million dollar risk issue for firms.

It needed a stronger focus on the vulnerability of interdependent infrastructure systems and new public-private partnerships.

“Climate change and extreme weather events have far-reaching consequences costing lives, livelihoods and economic growth.

“Businesses and other organisations are vulnerable not just to direct impacts, but also the indirect consequences they’ll experience via impacts on infrastructure, supply chains and inputs like labour.”

The report recommends initiatives to collaborate across public and private sectors to better manage the full spectrum of climate change impacts.

These include:

  • Common methods and tools for interdependency analysis
  • City taskforces bringing together private and public sectors to prepare for climate impacts
  • Disclosure of material climate risks, both indirect and indirect, to major infrastructure systems under likely and plausible climate scenarios such as 2 and 4 degrees of warming.
John Connor

The report found that extreme heat in Melbourne in 2009 caused of severe disruptions to electricity and transport systems, but also created numerous impacts across multiple infrastructure networks – as failures in one system caused failures in others.

Economic modelling on the impact of a projected heat event on a hypothetical large manufacturing and distribution business in Melbourne found the costs from disruption to labour supply alone ranged from $1 to 5 million, or 0.2-1.1 per cent of revenue.

“This is a considerable hit for a business to take from an event which could become a regular feature of summer within decades,” said Nicki Hutley, chief economist advisory at KPMG.

“And this doesn’t include the costs of supply chain disruption, which would be likely to occur simultaneously. Nor does it include likely longer term price increases in inputs and insurance premiums,” he said.

“The modelled impact of 0.2-1.1 per cent from a single input under a single climate change event is potentially significantly more costly than the impact of the carbon price, which industry stakeholders have found to be comparable to 0.3-1.0 per cent of revenue for some medium to large moderately emissions intensive businesses in Victoria.”

Mr Connor, who is appearing before the Senate Extreme Weather Inquiry today, 11 April, said businesses could bring down the costs of climate impacts by making themselves more ready and resilient.

“But they must recognise how much of that resilience depends on others. This needs to be a collaborative effort with a greater focus on the risks from business and governments.”

The full report is available here.