The recent bushfires are estimated to have cost Australia $100 billion – so far. The big hailstorm that struck NSW and the ACT in January cost around $1.36 billion. Recent flooding on the east coast has been declared a catastrophe by the Insurance Council of Australia, with $45 million in insurance claims received so far. Heatwaves cost us $7 billion in 2013 alone.

The costs from our changing climate are not just down to razed buildings and infrastructure reduced to rubble, either. The growing climate-induced drain on our economy includes everything from tourists cancelling holidays, to a growing health bill, to productivity downturns from lost days at work.

The good news is that we have some powerful levers we can pull to ensure we get the cities, homes and infrastructure we need to cope in a rapidly changing world. These levers can’t be found in any crane or excavator. In fact, they can’t be found on building sites at all. They are financial instruments.

For more than a decade, the Australian Sustainable Built Environment Council (ASBEC) has been thinking about how to change the way we finance and insure our buildings to accommodate climate change. We released a Cross Sector Built Environment Adaptation Framework that identified insurance and financial services as an area where Australia needs to change the way we do things.

You don’t have to think too hard to understand why the financial risks from climate change are hugely important for Australia’s $134 billion building sector. You can’t build a house without a mortgage. You can’t rebuild a house you’ve lost with no insurance. And governments generally can’t undertake big infrastructure projects without engaging with lending, procurement and contract systems.

Given that our building industry accounts for around 8 per cent of our GDP, anything that negatively affects it is going to come with a side serve of economic pain for the rest of us.

Risk is the first lever we have at our disposal. We know climate change increases the risks of extreme weather events like fires, but we need transparency around how insurers and lenders calculate risk. We also need to be able to understand risk ourselves – is that low lying beach house or mountainside bush retreat really the best way to spend our money?

We tend to think of insurance as a private sector concern, but there are big exceptions already. The Victorian Transport Accident Commission, for example, is an insurer of last resort for injuries received in car accidents, meaning that if you suffer physical harm in an accident you will be insured. It combines this role with road safety campaigning designed to reduce the number of accidents.

Similarly, governments have a role to play in building insurance. This includes working with industry to make certain that everyone can access insurance and certain areas aren’t simply excluded from cover for their buildings. Insurance has proved a big issue in the recent fires, with some households finding insurance so expensive that they let cover lapse – with dire results.

Private renters generally lose the most in a fire situation. The landlord might have the building insured, but the tenants often lose items like furniture and cars and have no insurance to replace them, leaving them destitute. Tenants are already more likely to be poor than homeowners and are set to suffer more from climate change generally, so governments need to act to help them access adequate insurance.

The next big lever we can pull is mortgages and other forms of lending for building. The recent bushfires have pushed many tourism and agriculture local economies to the brink of collapse, increasing the risk of default. The financial services sector must improve its investment and lending strategies and processes to value risk and adaptation activity appropriately.

It’s not just about access to lending, but about using the power of lending to make our overall built environment both more resilient to climate change and less likely to contribute to climate change. Green mortgages on energy efficient homes, for example, recognise that borrowers will have lower energy costs, reducing the risk of default.

Again, governments have a big role to play. In Germany, a special state backed bank offers cheaper mortgages and loans to homeowners undertaking green building or renovation projects. It also lends the state money for infrastructure. The lending practices of Kreditanstalt für Wiederaufbau (KfW) or “Reconstruction Credit Institute”, is why Germany leads the world in renewable energy projects.

The bank is tasked with strategic investment that values government priorities like renewables over generating short term profits for shareholders like a conventional bank. So when it decided to fund large scale solar power generation, for example, this drove down prices and made it commercially viable for private investors to follow suit. Result? Lower emissions and cleaner environment for everyone.

Government tender processes and contracts also need to reflect the reality of climate change. There’s no point asking for a contractor to build a bridge that is likely to be swept away next time there’s a flood. Lenders’ assessments of the risk of infrastructure projects are likely to reflect this, with increasing amounts of guidance for lenders for infrastructure and even big Wall Street investors publicly warning about the risks from climate change.

We do have the financial instruments to make sure we can pay to build buildings that can cope with climate change. But it’s essential that governments and the financial sector make sure we engage these levers. With climate change bearing down on us, business as usual is not going to cut it.

Suzanne Toumbourou is executive director of the Australian Sustainable Built Environment Council.

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Tags: bushfires, climate emergency, floods, green finance, gren economy