As the example of Blacktown Council and numerous others shows, even modest investments in community infrastructure can have outsized impacts on public safety and wellbeing during climate disasters. Establishing a community municipal bond market would not only empower local governments to finance these projects but also align investor interests with community resilience.
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The release of the National Climate Risk Assessment has drawn attention to the costs of climate-related events including extreme heat. The report projects that at +3.0°C of global warming, heat-related mortality is projected to increase by 444 per cent in Sydney and 259 per cent in Melbourne, with mortality and morbidity directly impacting labour productivity.[i]
Climate change is already leading to significant health impacts. Recent research found that following heatwaves in Europe in June 2025 it is estimated that about 2300 people may have died as a result of the extreme temperatures recorded across 12 European cities.[ii]
The challenge now is to move beyond understanding the impact of climate risks to open the flow of finance to support Australia’s future climate resilience. Local governments across Australia are increasingly on the frontlines of climate change, yet they face significant structural and financial barriers in building climate resilience.
With the recent federal government announcement committing to cut greenhouse gas emissions between 62-70 per cent on 2005 levels by 2035 and with just $50 million in grants for sports clubs to support climate resilience, much needs to be done to establish a clear plan to unlock investment for climate resilience projects at a local level.
Local government, with its footprint of community facilities including municipal swimming pools, football and cricket ovals, libraries and golf clubs offers the opportunity to not only support communities to manage the worst impacts of climate change but also support our precious nature.
An example is Footy for Climate’s Power Forward project that has installed solar panels and battery storage at Mansfield Football and Netball Club in Victoria with an annual saving of $8000 to $9000, with the opportunity to roll out similar investments across 4000 community facilities throughout Australia.[iii]
Blacktown City Council in Western Sydney in New South Wales (NSW) is investing to support climate resilience. Experiencing significantly higher temperatures than coastal Sydney due to urban heat island effects and local geography, Blacktown averages 10–20 days annually above 35°C, a figure projected to rise to 5-10 hot days by 2039[iv].
In response, the council developed an innovative Heat Response Plan, including a network of community cool centres, air-conditioned venues such as libraries, swimming pools, and community halls that provide refuge during extreme heat events.
These centres are activated during severe heatwave warnings and serve vulnerable populations including the elderly, people with disabilities, and those without access to home cooling.
The initiative was supported by a grant funding from Resilience NSW, but scaling such programs across thousands of local government areas (LGAs) would require significantly more funding.
There are brilliant examples of innovative local council solutions all across Australia, from Brimbank City Council’s all-electric Aquatic and Wellness Centre in Queensland, Shoalhaven City Council’s Recovery into Resilience project in New South Wales installing renewable energy and storage at 25 halls and facilities across the LGA, to name a few.[v]
As it stands however, local government is handcuffed in its ability to respond proactively to Australia’s emerging climate risks, which are likely to grow.
According to the Insurance Council of Australia, insured losses from natural catastrophes have surged in recent years, while local government revenues have grown at a much slower pace[vi].
This mismatch is critical because local governments are responsible for maintaining essential infrastructure such as roads, drainage systems, parks, libraries, and community facilities, all of which are directly impacted by climate events.
The Australia Institute reports that over 800,000 households and more than 2 million Australians lack full home building insurance. In the event of disaster, it is local governments that often bear the brunt of response and recovery.[vii]
Despite this growing burden, local governments are constrained by their limited fiscal autonomy. A 2025 parliamentary inquiry interim report[viii] confirms that the role of councils has changed and grown over time, which is putting pressure on local government budgets.
For almost one in four councils, Commonwealth Financial Assistance Grants make up at least 20 per cent of their annual operating revenue. However, over the last 30 years the value of these grants has halved from 1 per cent in 1996 to 0.5 per centtoday. [ix]
Local councils are also not recognised in the Australian Constitution, which means that their borrowings fall under state government ratings.
A referendum in 1974 by the Whitlam government that would have empowered the Australian government to borrow on behalf of local government failed. A plan for a referendum in 2013 by the Gillard government was abandoned.
The impact of the failure to recognise local government in the Constitution is significant.
While local governments can borrow, any borrowing ultimately comes under state government.
This dependency not only limits their ability to respond proactively but also subjects them to the financial pressures of state-level debt management.
The key challenge facing our federated governance structure is that state government have different credit ratings, which reflects a combination of the impact of mining revenues and GST and local expenditure.
Credit ratings essentially work on a scale. The lower the credit rating, the more it costs to borrow. While the Australian government and Western Australian government enjoy a AAA credit rating, other states face negative outlooks that imply the possibility of future downgrades.
On the credit rating ladder the ACT has recently joined Victoria on the bottom with an AA credit rating. Queensland, NSW and Tasmania all face negative outlooks.
A key challenge is that Queensland, New South Wales, Tasmania, which are all rated AA+ by Standard and Poor’s, but face negative outlooks. A state government whose credit ratings face a negative outlook, or that have already been downgraded, has little incentive to provide additional grants to local government to support climate resilience. Any borrowing by local government is considered as state government debt by ratings agencies and therefore only adds to the pressure a state government is already under.
Meanwhile the Australian government AAA credit rating looks likely to be stable for the next decade. Barring major expenditure blowouts, the Australian government can always reduce its debt by drawing down the $250 billion Future Fund.
Changing the Australian Constitution is not easy and in reality is not likely to happen anytime soon. How then can we unlock local government’s capacity to finance climate resilience?
The community housing aggregator model
An answer may lie with the Australian government’s housing bond aggregator that, through Housing Australia has issued $2.8 billion of loans to Community Housing Providers (CHPs).[x] This model demonstrates that the Australian government can support organisations to borrow through the Commonwealth, so long as the entity is not local government.
There is an opportunity for local government to innovate the way in which they manage community assets to open finance from the Commonwealth.
An example could be a municipal swimming pool which is established as a community trust, with local government as a core partner. The trust could then borrow from the Commonwealth to unlock future climate resilient investments, bypassing constitutional constraints while maintaining local government involvement.
There are many lessons Australia can learn from the United Kingdom’s experience of transferring local government assets to the community.[xi]
Innovating local government assets would in effect create a municipal bond market which would provide a mechanism to not only finance climate resilience but also support economic and social development.
The United States, with the largest municipal bond market in the world, is able to attract investment to secure the needs of communities.[xii]
The absence of a municipal bond market, which ultimately goes back to the rejection of the 1974 local government referendum, means that local government is reliant on grants to fund community infrastructure.
In a scenario where local governments could issue bonds directly, similar to the well-established system in the United States, they could unlock billions in capital to invest in climate-resilient infrastructure.
For instance, a municipal bond could fund the construction of community cyclone shelters in northern Australia or expand the network of cool centres in heat-prone LGAs like Blacktown and scale the resilience projects through various funding mechanisms.
These shelters not only provide immediate protection during disasters but also serve as multi-use community hubs, strengthening social cohesion and public health outcomes.
The absence of constitutional recognition and direct access to capital markets severely limits the capacity of local government to build resilient infrastructure.
Yet, as the example of Blacktown Council and numerous others shows, even modest investments in community infrastructure can have outsized impacts on public safety and wellbeing during climate disasters.
Establishing a community municipal bond market would not only empower local governments to finance these projects but also align investor interests with community resilience. It is a strategic, scalable solution that addresses both the fiscal and environmental challenges of climate adaptation.
With Australian superannuation funds now managing over $4 trillion in assets there is a logic that our super funds would invest in a community municipal bond in Australia.
If we do not innovate local government assets, we face the prospect that our superannuation assets will fund climate resilience in other countries, but not Australia[xiii]. This would be a wasted opportunity, that would impact the climate resilience of our communities.
[i] https://www.acs.gov.au/pages/national-climate-risk-assessment
[ii] https://www.lshtm.ac.uk/newsevents/news/2025/forecasts-fatalities-mapping-health-impacts-extreme-heat
[iii] https://footyforclimate.org.au/power-forward
[iv] Blacktown-City-Council-Responding-to-climate-change-strategy
[v] https://citiespowerpartnership.org.au/event/2023-climate-awards-2/
[vi] https://australiainstitute.org.au/wp-content/uploads/2025/09/P1895-Climate-costs-and-local-government-revenue-Web.pdf
[vii] https://australiainstitute.org.au/report/betting-the-house/
[viii] https://www.aph.gov.au/Parliamentary_Business/Committees/House/Regional_Development_Infrastructure_and_Transport/Localgovernmentsustaina/Interim_Report
[ix] https://alga.com.au/policy/local-government-financial-sustainability/
[x] https://www.housingaustralia.gov.au/investor-relations-social-and-sustainability-bonds#
[xi] https://historicengland.org.uk/advice/caring-for-heritage/take-ownership/
[xii] https://www.luxse.com/blog/Market-Insights/municipal-bonds
[xiii] https://www.nuveen.com/global/insights/municipal-bond-investing/water-works-muni-bonds-finance-a-sustainable-future?type=global