Environmental issues

How might climate change affect infrastructure?

How might climate change affect infrastructure?
Transnet National Ports Authority protects critical dat.jpg
The short-term insurance industry – spearheaded by the South African Insurance Association (SAIA) and the Financial Intermediaries Association (FIA) – has determined that changing environmental, social and governance (ESG) issues will have a significant impact on the health and sustainability of the industry. It will take broad collaboration with other affected stakeholders in the financial services industry to address the risks and challenges that arise.
The industry is committed to identifying and addressing such risks through a Strategic Risk Forum. On 5 February 2013, members of SAIA and the FIA were joined by representatives of the Banking Association South Africa (BASA) and the Association for Savings and Investment SA (Asisa) to identify and formulate an industry-wide approach to risks to South Africa’s 'built environment'.
The primary objective of this strategic think tank was to pinpoint the systemic risks posed to the country’s built environment by overarching trends such as climate change, rapid urbanisation and the legacy of apartheid geography.
What is the built environment? Wikipedia.org describes it as manmade surroundings that provide the setting for human activity – ranging from buildings and parks to neighbourhoods and cities – and including supporting infrastructure such as water supply and energy networks.
“The concept extends to managing farmlands, natural wetlands, water catchments and coastal development to name a few,” said Barry Taylor, chairperson of the Short-Term Committee of the FIA. “The forum, with the commitment of the department of agriculture, forestry and fisheries and National Treasury is already engaged in research around food sustainability and farming”.
Sufficient and functioning infrastructure is important to citizens because it enables government to deliver the basic services enshrined in the Constitution. “The built environment is also critical in providing the long-term investment opportunities that the long-term insurance industry needs to meet its stakeholder obligation of matching assets and liabilities,” said Sanlam chief executive, Johan van Zyl.
South Africa’s infrastructure deficit is common knowledge and many local authorities are buckling under the strain of providing water, sanitation and electricity to rapidly growing populations. Government has set aside R4 trillion over the next 15 years to address national infrastructure shortcomings, but there are concerns that local authorities will be overlooked.
The Strategic Risk Forum concluded that the shortage of skills at local authorities – particularly in smaller districts – was a major challenge to infrastructure maintenance whether budget was allocated or not. Skilled town planners and committed political leadership were required if South Africa hoped to prepare its local authorities for future built environment risks.
The overarching risk identified by the think tank was climate change. Global warming could result in a 2°C to 4°C spike in average annual temperatures by 2030, with devastating consequences. Short-term insurers are particularly worried about the impact of higher global temperatures and erratic weather phenomena such as severe storms on their insured book.
Floods in Limpopo province and freak hail storms in Gauteng are two recent examples of natural catastrophes caused by changing weather patterns. The scale of storm risk is starkly illustrated by the fact that a 15-minute-long hail storm caused R1 billion worth of damage to households, household goods and motor vehicles on a Saturday afternoon.
Local authorities have to consider the impact of changing rainfall patterns on catchment areas, flood lines and coastal water lines. “Natural catastrophe poses massive unmitigated risk throughout Africa,” said Mutual & Federal CEO, Peter Todd. “Insurers must play an active role in both identifying these risks and assisting local authorities in preparing for them.”
How should the financial services industry proceed? The Strategic Risk Forum agreed that local government had a crucial role to play in addressing built environment risk. It was decided that financial services organisations – driven by their respective representative bodies – should focus on skills transfer and collaboration with local authorities.
To ensure success, it was proposed that the fragmented industry initiatives currently under way should be pooled together into a single structure. The private sector 'Adopt a Local Authority' programme that has been rolled out to a number of local authorities was singled out as a model for possible future collaboration.
It was widely agreed that skills in the local authority environment would be difficult to address with money alone. Support must therefore be underpinned by education initiatives to broaden and enhance the available skills pool.
Data was singled out as an area where more attention was needed. The Strategic Risk Forum agreed that wider collaboration and sharing of critical data would contribute to risk reduction in the built environment. As an example, participants suggested the creation and sharing of a national water map to enable all stakeholders to assess flood and water risks.
“Associations must challenge their members to change the way they conduct business,” said managing director of BASA, Cas Coovadia. “Executives at these member companies must identify the blockages that exist in the built environment and apply Financial Services Charter funding to break down these barriers”.
Peter Dempsey, deputy CEO of Asisa, agreed that change can be driven at an association level. “For this reason, Asisa endorses the Code for Responsible Investing in South Africa, which formally encourages institutional investors to integrate into their investment decisions sustainability issues such as environmental, social and governance.”
It was agreed that the CEOs of the four member associations in attendance would meet to discuss a sector forum that could be used to investigate and implement the ideas that emerged from the event. It is incumbent on each member CEO and the associations’ respective boards to be involved, subject to approval.
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