Climate adaptation and resilience come into focus
Escalating natural disasters are driving a new phase for sustainable finance in the real estate and healthcare sectors as investors look to adaptation and resilience.
Extreme weather events are leaving devastating marks across the country. While much of the impact may be unavoidable, adaptation will be critical to building resilience and protecting infrastructure and real assets, the wider economy and the Australian way of life.
Many Westpac customers are already investing in adaptation to reduce the physical climate risks impacting their operations and assets. The insurance landscape is also evolving as physical climate risks become better understood, driving higher premiums, reduced coverage and tighter underwriting practices.
At a recent Westpac customer event, industry experts explored the critical importance of building resilience for the real estate and health sectors. Mark Leplastrier, General Manager of risk management consultancy Risk Frontiers, discussed how climate change is impacting the insurance industry and the pricing of physical risk, while Westpac’s Head of Sustainable Finance, Charlotte Plaisant Millecamps, outlined the evolution of funding instruments and their growing role across climate adaptation.
Climate challenge for insurance
As the impacts of climate change become more pronounced, the business case for adaptation is becoming stronger. Record temperatures are putting pressure on energy systems and exposing the fragility of assets not built for future conditions.
Natural disasters already cost the Australian economy AUD 38 billion a year and the figure is forecast to rise to at least AUD 73 billion by 2060.
Beyond extreme events like the Black Summer bushfires in 2019-2020 and the catastrophic floods in NSW and south-east Queensland in February 2022, rainfall cycles are shifting, temperatures and sea levels are rising, and weather patterns are becoming harder to predict.
Insurers have shifted from coarse pricing methods to technical, address-level risk pricing, enabled by Geographic Information Systems (GIS) and improved computing power – this allows them to assess risk at a far more granular level, leading to higher premiums, tighter terms and, in some cases, reduced or withdrawn coverage for assets exposed to certain perils, Leplastrier notes.
“We’re seeing physical climate risk translate directly into insurance pricing and availability,” he says. “It is becoming increasingly data-driven, localised, and differentiated.”
While insurers are advocating for risk-reduction measures to lower future losses, a recent report from the Actuaries Institute, Mobilising Investment for Climate Adaptation, reinforces the scale of adaptation investment required and the importance of financial mechanisms to support climate readiness. Tens of billions of dollars will need to be mobilised over coming decades to fund measures such as resilient infrastructure, climate-resilient housing and disaster risk reduction, it states.
“Historically, adaptation has been viewed as a government responsibility, particularly around emergency response and large-scale infrastructure,” says Plaisant Millecamps. “But, for adaptation systems to be successful, we also need private capital investing in resilience.”
Adapting to change
Physical climate risk is now a core business consideration, not just a sustainability one, with resilience increasingly embedded in asset planning, projects and operations.
“At the asset level, adaptation might involve making buildings more resilient to cyclones through strengthening roof structures or other protective design features,” says Plaisant Millecamps. “In sectors like commercial, real estate and health, heat and flood resilience is a high priority. For assets providing healthcare and aged living facilities, continuity of critical health services is essential.”
Adaptation is also vital for large infrastructure like airports, ports and coastal assets. Plaisant Millecamps cites the recent example of resilience investment at the Port of Brisbane. Led by Aurecon and Queensland Investment Corporation and funded through private sector capital and public sector grant support, the project involved benchmarking vulnerabilities, assessing external risk factors and determining how they may be addressed with coordinated resilience planning.
Valuing adaptation
The Actuaries Institute report notes that well-designed adaptation projects deliver a strong return on investment. In addition to cost savings from avoided losses, these projects can deliver savings on ongoing operational and maintenance expenditure. They can also lower insurance premiums and finance costs as assets become more creditworthy.
Leplastrier points to the benefits of targeted retrofit programs. “Retrofitting and resilience upgrades offer major opportunities to reduce losses and improve insurability,” he says.
However, Jody Mitchelmore, Executive Director – Head of Real Estate NSW & ACT at Westpac, says the challenge of translating climate risk into future financial value for some customers has limited their investments in resilience and adaptation to date.
“It has been challenging to show how avoided loss can enhance the long-term cash flows of an asset,” he says. “For example, adding resilience features like flood protection to a building costs money, but the financial return is less obvious because the benefit comes from a loss that may not happen. Although, as the risks of climate change intensify, that loss is becoming more likely.”
The role of sustainable finance
Sustainable finance is no longer a niche instrument. Global issuance reached USD 1,578 billion in 2025. Australia recorded USD 53.8 billion in issuance in 2025, an 11 per cent increase on the previous year.
Plaisant Millecamps says the scale is driven by the rollout of renewables, energy storage and large green real estate deals, as well as the increasingly sustainable development of digital infrastructure.
While less than one in every 20 dollars of global climate finance is reported as adaptation, analysis by the Climate Policy Initiative suggests this likely understates actual investment. Private sector adaptation spending may be misclassified as general risk mitigation, weather proofing or asset maintenance, and therefore not captured in adaptation finance data.
Where adaptation finance is explicitly labelled and disclosed, it has largely come from the public sector.
Examples include the world’s first certified resilience bond, which was issued in October last year by the Tokyo Metropolitan Government. The bond will be used to support the city’s capacity to withstand climate-related risks, including flooding, storm surges and typhoon impacts.
The Queensland Treasury Corporation’s Sustainability Bond Framework also includes both mitigation, and adaptation and resilience projects.
Scaling up sustainable finance can help support economic resilience and avoid capital flight. However, Plaisant Millecamps emphasises that most of the sustainable finance instruments focused on adaptation so far have come from the public sector.
“The next steps for the private sector are to build a pipeline of investable adaptation projects and to develop a shared understanding of how to price risk,” she says.
With adaptation and resilience joining climate mitigation investment, there is also strong support from the finance industry to expand Australia’s Sustainable Finance Taxonomy to help mobilise private capital towards Australia’s transition.
“The feedback from industry and the broader community is that the next iteration of the taxonomy should be on adaptation and resilience, because it’s so important for the economic sustainability of the country,” says Plaisant Millecamps, adding that mandatory climate reporting is also shifting the focus toward climate risks and opportunities.
“It’s been a challenge to translate climate risk into future financial value,” she says. “But more companies are considering adaptation and resilience in their green and sustainability frameworks and broader climate strategies. We expect sustainable finance to play an important role.”
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