Australia’s peak body for sustainable finance has issued a warning to the federal government and the banking sector, noting that while there is no shortage of capital to protect the nation from climate change, the money is currently stuck behind a wall of poor coordination and missing market structures.
The Australian Sustainable Finance Institute (ASFI) released its Priority Actions for Financing Adaptation & Resilience report, highlighting the economic incentive for investing in sustainability.
Evidence shows that for every AU$1 invested in climate resilience today, approximately AU$9.60 in future disaster-related losses is avoided.
Despite this, the channels for private investment remain clogged. Natural disasters already cost the Australian economy AU$38 billion annually, a figure projected to nearly double to AU$73 billion by 2060.
For everyday Australians, the stakes are equally high, with the home insurance protection gap expected to widen from one in seven homes today to one in four by 2050.
ASFI Chief Executive Officer Kristy Graham said the shift from viewing climate change as a future risk to a current financial challenge is now critical.
“Across the system, there is no shortage of capital,” Graham said.
“The challenge is ensuring the right structures are in place.
“For capital to be deployed at scale we need government leadership to set direction and establish an environment in which capital can flow.”
ASFI’s report identified four interconnected areas shaping the flow of capital into adaptation and resilience, spanning how outcomes are valued, the strength of market infrastructure, the ability of projects to attract investment and how capital is mobilised across the system.
A central recommendation is the expansion of the Australian Sustainable Finance Taxonomy.
By clearly defining what constitutes a resilience activity, the government can provide the certainty needed for banks and insurers to deploy capital at scale.
ASFI is now calling for a formal public-private partnership to kickstart this work. As the immediate priority, ASFI will focus on raising industry funding to kick start foundational work on the methodology for developing adaptation and resilience criteria in the Australian taxonomy but emphasised the importance of government taking the reins.
“There is private capital available for adaptation and resilience, but it will not flow at scale without the right enabling conditions,” Graham said.
“Government has a critical role to play in setting direction, establishing a supportive policy and regulatory environment, and providing early-stage support.”
“Private capital won’t just flow by itself into this area – If we want capital to flow, we have to build the channels for it.”