Australia / Press Releases
Risky Business: Industries to Feel the Heat of Climate Change
by Liam Harrison
Jan 22 2020

Climate change is expected to disrupt Australian industries by 2050, as extreme heat, weather events and greater variability in rainfall disrupt operating conditions across the economy. According to IBISWorld, the effects of climate change are likely to go well beyond the droughts and fires currently disrupting the agriculture sector. Risks are likely to escalate for rail networks, public hospitals, construction firms, telecommunication networks and many other industries.

As the effects of climate change become increasingly volatile and generate greater financial risk, banks will need to consider the consequences of climate change when evaluating their portfolios. This week, the global Bank for International Settlements has indicated that climate change may introduce financial instability through unexpected ‘green swan’ events, such as widespread devastation in vital economic areas or a flight of capital from the fossil fuel industry.  

 “The Australian business community is gradually becoming aware of the disruptive power of climate change, and the direct risk climate change poses for supply chains and business viability,” said Senior Industry Analyst, Liam Harrison.

Industries likely to feel the heat

Over the past decade, the Australian climate has on average recorded more days above 35°C than in preceding years. A continued upward trend of hot temperatures would pose a major risk for transport firms, particularly in the Rail Freight Transport industry and Rail Passenger Transport industry.

“Extreme heat reduces the top operable speed for trains and trams, causing congestion and slowing both public transport networks and freight networks. To deal with the higher temperatures, operators may need to expand their vehicle fleets to reduce operating time per vehicle in hotter conditions. Operators will likely need to pass on the cost of maintaining these larger fleets to consumers,” said Mr. Harrison.

Days over 35°C can be hazardous for people to remain outside for extended periods of time. More frequent heatwaves are likely to result in more heat-related illnesses, causing more people to present to emergency departments and placing further pressure on an already pressured Public General Hospitals industry.

“The public health system is already expected to come under increasing pressure over the next decade due to Australia’s ageing population. Adding an additional factor into the mix, such as increased heat related illnesses, could result in greater waiting times in emergency rooms,” said Mr. Harrison.

Extreme heat is also likely to disrupt the House Construction and Commercial and Industrial Building Construction industries.

“Industry health and safety standards generally require that workers place tools down and stop work in hot temperatures. As the frequency of hot days rises, the time available for construction is expected to diminish. This trend will lengthen the time required for builds across the construction sector,” said Mr. Harrison.

Extreme weather events

A changing climate is expected to result in more frequent extreme weather events, including cyclones, flash floods and bushfires. Although these events have been a part of the Australian landscape and climate for many years, the frequency and severity of these events is likely to intensify, increasing their threat to the Australian economy. In particular, the General Insurance industry could be at risk.

“Areas prone to extreme weather events are requiring higher premiums to offset the increasing risks associated with Australia’s changing climate. As these events potentially become more frequent and more devastating, this could result in an uncontrollable spiral, leaving individuals in affected areas with premiums far too high to reasonably afford,” said Mr. Harrison.

The Wireless Telecommunications Carriers industry may also be placed under greater strain during sustained extreme weather events. Network operators may have to build additional redundancies in order to provide mobile communications during emergency situations.

Rainfall patterns

A changing climate is expected to result in variations to rainfall patterns across Australia. Volatile rainfall patterns could have significant ramifications for industries across the economy, as periods of both drought and heavy rainfall can be detrimental to the health of the land and the industries that rely on it.

“A changing climate in Australia could result in significant rainfall variations, including periods of prolonged drought. The current drought could become a more frequent occurrence, which may result in farmers selling up and moving off the land for more stable business,” said Mr. Harrison.

Agriculture is not the only sector of the economy expected to suffer from volatile rainfall conditions. Manufacturing industries which rely heavily on water, such as the Pulp, Paper and Paperboard Manufacturing industry, are also at risk. Periods of drought can also be a serious concern for the Hydro-Electricity Generation industry.

Outlook

Australia’s changing climate exposes numerous industries to significant risks which, if not properly managed, could seriously affect the stability of the economy. Both short-term mitigation strategies and long-term climate policies will be required to assist affected regions and allow industries to continue to thrive.

“Without appropriate mitigation strategies in place, industries may find themselves facing serious uncertainty and some regions could potentially see industries shift away to less risky areas, draining the affected regions of employment opportunities,” said Mr. Harrison.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647

Email: jason.aravanis@ibisworld.com