In January 2020, when the World Economic Forum released its assessment of the top risks for the year, a global pandemic barely registered. Instead, the risk registry was dominated by environmental risks. And while the pandemic may have taken the spotlight in recent months, governments and asset owners have increasingly focused on the resilience of their infrastructure to climate and weather-related risks.

Interestingly, we are also seeing increasing pressure from activist investors. In November 2020, for example, REST (a large Australian Superannuation fund) settled a claim that alleged the asset manager wasn't doing enough to protect their assets from climate risks. The case suggests investors may have a fiduciary duty to take steps to mitigate climate risks and enhance resilience.

Our view suggests that investors and governments will soon be requiring the mandatory reporting of assets' climate risk exposure. And they will be expecting to see robust and thoughtful resilience plans and activities that respond to a range of risks.

More recently, however, the definition of resilience has broadened. The pandemic demonstrated that some infrastructure (health services and fiber connectivity, for example) can come under significant strain during unexpected demand fluctuations. Many infrastructure players have started to ask whether their assets could react quickly to other sudden shocks.

The problem is that - for the most part - resilience risk is still not adequately priced into infrastructure contracts. And while organizations such as the World Economic Forum's Coalition for Climate Resilient Investment (CCRI) are making great headway in helping raise awareness of the need for better pricing of climate risk, the reality is that the funding of resilient investments will continue to be a challenge as governments and regulators seek to minimize consumer costs.

That being said, we believe the pandemic has created a seismic shift in the way governments and asset owners look at resilience planning. No longer are decisions being made solely on the basis of probability and expected cost, but rather on ensuring that a country or jurisdiction’s essential services continue to operate under all scenarios.

Over the coming year, expect infrastructure owners, planners and regulators to start asking difficult questions about the resilience of their assets in the broadest sense. Those without an existing resilience plan should expect a grilling.