Climate risk mitigation: Why early warning systems in energy, infrastructure sectors are vital?
Among the greatest threats facing infrastructure development today is climate change. To mitigate the associated risks for all sector stakeholders, there is a pressing need to make better use of modern technologies and to establish contractual frameworks that are appropriately structured from the outset.
KwaZulu-Natal's recent history is informative. Heavy rains and flooding in 2024 caused over 40 deaths and significant infrastructure damage. This followed extreme flooding in the province in 2022, which resulted in over 400 deaths in what has reportedly been described as among the worst floods ever recorded in the province's history. On both occasions, tens of thousands of people were displaced from their homes, with infrastructure damage caused by the 2022 floods alone estimated at over R15bn.
As the world adjusts to climate change, two notable trends are becoming increasingly apparent in the infrastructure and energy sectors: the greater use of early warning systems and more robust contractual provisions to address extreme climate events.
A contracting party has a positive duty to take steps to mitigate risks and any resulting damages. This duty is particularly important within the suite of agreements that support major infrastructure and energy projects. In this context, early warning systems, especially to address the devastating effects of climate change, such as flooding, may play a critical role.
These trends are part of wider developments within the regulatory framework, with banks and insurers adjusting to changes in climate-related risks and disclosure obligations to ensure fund stability, and workplaces adapting to promote safety and sustainability.
Early warning systems are a bulwark against climate change risk
A case study on the impact of early warning systems can be found in Somalia. Between 2023 and 2024, the Somali government partnered with the United Nations Office for Disaster Risk Reduction (UNDRR) and other stakeholders to establish a multi-hazard early warning system.
In 2023, flooding in Somalia reportedly affected 2.4 million people, displaced over 1.2 million, and caused more than $193m (approximately R3.5bn) in damages. In 2024, although flooding continued, the early warning systems enabled Somalia to significantly reduce the damage and displacement experienced in the previous year. According to the UNDRR, the 2024 floods affected only 160,000 people and displaced 37,000, with financial losses also significantly curtailed.
Closer to home, a study published in early 2025 focused on the Hennops River catchment area in Centurion, near Pretoria. Researchers applied flood hazard monitoring, modelling systems, machine learning, and geospatial tools to enhance climate change risk management in the area.
The study found that flood frequency has increased every two years, primarily due to climate change's impact on rainfall patterns, intensity, and frequency. It concluded that areas with 'low elevations ranging from less than 1305m to 1430m in the catchment area are at a higher risk of flooding because of their proximity to the Hennops River'.
Insurers may soon require institutional policyholders to implement early warning systems as a condition for coverage. This requirement is likely to extend to the broader infrastructure and energy sectors and should be considered during contract negotiations and risk assessment.
Funders and investors may also mandate such systems to safeguard asset value, reduce project delays, and limit reliance on indemnity claims, which can give rise to costly and protracted litigation. Viewed through a dispute resolution lens, these developments underscore the importance of incorporating appropriate risk mitigation and monitoring obligations in infrastructure and energy project contracts.
Infrastructure contracts are increasingly focused on risk mitigation
As stakeholders adapt to the growing risks posed by climate change, the contracting phase has become a critical point for effective risk management. Clients are increasingly focused on two key areas: more precise allocation of liability and clearly defined conditions for triggering force majeure clauses and obligations that follow. The renewed emphasis on force majeure stems from its heightened relevance during the Covid-19 pandemic, when it was widely invoked to defer contractual performance.
Given the high costs, lengthy approval processes, and extended construction periods typical of infrastructure and energy projects, these ventures are particularly vulnerable to unforeseen disruptions – even before accounting for the increasing impact of climate change.
This raises key questions that parties should consider from the outset, such as:
- What force majeure, indemnity, and damages provisions are appropriate?
- Should environmental risks be proactively monitored using technology to mitigate potential loss of life or project damage?
- If early warning systems detect a flooding risk, does a duty arise to limit ensuing damage?
- What are the consequences if such technology fails?
As climate risk becomes increasingly embedded in project planning, lead times may lengthen as parties devote more time to assessing both the risks of entering into a contract and the consequences of potential climate-related events. These risks are likely to become more prevalent, making their proactive consideration during the contracting process a critical priority for all stakeholders.
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