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Three steps to future-proofing infrastructure assets from climate change

For asset owners, it pays to plan ahead for the risks of extreme weather events
Michael Della Rocca

Leads McKinsey’s global work on infrastructure major projects, supporting clients in all asset classes throughout the entire value chain—from financing, planning, design, and program management to construction and operations—and leads our service to the engineering and construction industry

Christopher

Helps clients deliver major projects and capital programs in sectors ranging from transportation to energy to real estate. Brings more than 30 years of experience in designing and managing major infrastructure projects and programs worldwide.

From ski resorts that can no longer depend on seasonal snow, to floods, hurricanes, and wildfires that destroy communities in vulnerable areas, the financial risks of climate change, while unpredictable, are real and growing. Around the world, climate change and storm events have cost nearly $2 trillion over the past decade and affected four billion people. Infrastructure owners, both public and private, must begin to gauge the risks of climate change and ensure their infrastructure assets can withstand weather-impact scenarios from climate change. In a recent article, we propose three actions that can help advance infrastructure resiliency.

  1. Invest in resilience early

    In the long run it’s almost always easier and cheaper to build resiliency considerations into asset development from the start. Every dollar invested proactively in building resilient infrastructure saves $6 in future repair costs, according to the Institute for Building Sciences. Asset owners should answer fundamental questions about localized risks and be prepared to modify existing codes to meet their specific needs. For example, given the increased frequency of floods, asset owners in low-elevation coastal areas may be better served by more cautious floodplain standards, or by adding freeboard—a buffer that assumes higher flood levels—to their planning. Owners should consider both the direct and indirect costs of asset damage, including loss of use and lower property values. Finally, owners should prioritize the most critical components of their assets when creating mitigation strategies. Ideally, wastewater treatment facilities at sea level would be entirely protected with a perimeter wall—but a more economic alternative is simply elevating the switch gear and controls, mitigating risk for the facility’s most critical parts.

  2. Layer your adaptation approaches

    Considering resiliency early in the game will let owners be more flexible in building a layered adaptation strategy. They can start with a low-cost “no-regrets” design, such as an elevated backup generator or storm-resistant window as a first line of fundamental protection. Asset owners should also explore strategies that protect them from the disruption caused by loss of critical utilities services. This includes ensuring a backup power supply, alternative water sources, and supporting road networks.

  3. Work towards an ‘AAA’ rating for resiliency

    At McKinsey’s 2018 Global Infrastructure Initiative Summit, participants agreed on the importance of an established body that defines universal resiliency metrics, such as the “AAA” investor rating or the LEED certification system for green buildings. Such a body could help prioritize climate-smart infrastructure measures and set a standard for best practices. While there’s already been some industry-wide progress in acknowledging climate impacts on infrastructure, there are currently no generally accepted assessments to evaluate an asset’s resilience in the face of climate-based risks.

Owners and investors would benefit from an objective rating system built around the efforts of other transparency-motivated organizations. In a best-case scenario, this rating system would include industry-accepted standards akin to the Envision sustainability scorecard adopted by the American Society of Civil Engineers (ASCE).

The role of governments

Governments at all levels can support owners in assessing climate risks because they can take an integrated view on the community-specific effects of climate change. In Jeddah, Saudi Arabia, for example, recent climate change-related storms off the Red Sea have led to deadly municipal flooding. The issue was eventually resolved through a costly $10 billion drainage program that, with better accounting for surface runoff during the initial planning phase, could have been avoided with upfront investment. Governments can promote climate-resilience by shaping thoughtful land-use policies, mandating climate-smart building codes, and incentivizing owners with funding and resources for improvements.

The human and economic impacts of climatic events continue to grow each year, in part due to a lack of attention to resilient infrastructure in the planning stage. Owners should adopt a bias for action and make a concerted investment in developing more climate-resilient assets.

This blog post is adapted from the article Climate resilience: Asset owners need to get involved now, which appeared in Voices from McKinsey’s Global Infrastructure Initiative.

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