Climate change is the most severe global economic risk of 2016, the World Economic Forum said yesterday.
The nonprofit economic analysis institution, set to convene next week in Davos, Switzerland, for its yearly meeting, has labeled climate change or related environmental phenomena—extreme weather, major natural catastrophes, mounting greenhouse gas levels, water scarcity, flooding, storms and cyclones—among the top five most likely and significant economic threats the world faced in each of its annual reports since 2011.
The 2016 report, the latest installment of a report the WEF has published since 2007, marks the first time an environmental risk tops the rankings.
“Climate change is exacerbating more risks than ever before in terms of water crises, food shortages, constrained economic growth, weaker societal cohesion and increased security risks,” Cecilia Reyes, the chief risk officer of Zurich Insurance Group Ltd., one of the organizations that worked on the report, said in a statement.
The WEF document does not paint a sanguine picture.
North America’s eastern seaboard, East Asia, Southeast Asia and the South Pacific are particularly exposed to extreme weather patterns and natural catastrophes, according to the report—a survey conducted in the fall of 750 experts, who answered questions about 29 types of global risk, like cyberattacks, government instability and weapons of mass destruction.
Global climate change threatens top producers of wheat, corn, rice and other agricultural commodities, the report notes. Recent years illustrated the “climate vulnerability of G-20 [Group of 20] countries such as India, Russia and the United States—the breadbasket of the world.”
Hot, dry and tense
Climate change is compounding and amplifying other social, economic and humanitarian stresses globally. It is linked to mass and often forced migration; violent conflict between nations and regions; water crises; and, as the world population rises and simultaneously gets hotter, food shortages, the report reads.
“Forced displacement is already at an unprecedented level,” the authors continue, referring to emigration.
About 70 percent of fresh water humans withdraw globally is for agricultural purposes, according to the WEF, and that figure rises to 90 percent in the world’s poorest countries. Meanwhile, climbing demand for meat, as emerging-market nations become wealthier, squeezes dry already-stressed water supplies across the planet.
Based on current trends and needs, the demand for water will be 40 percent more than what can be sustained in 2030, according to the Organisation for Economic Co-operation and Development.
In this hotter, water-scarce future, tensions will likely grow between nations.
“Unless current water management practices change significantly, many parts of the world will therefore face growing competition for water between agriculture, energy, industry and cities,” the authors write.
A report commissioned by the Group of 7 nations and published in June called climate change a “threat multiplier”—a term the Department of Defense often uses—and reached comparable conclusions to the WEF study unveiled yesterday.
That study forecast that nearly $48 trillion is needed by 2035 to meeting growing energy demand, noting the water of 80 percent of the world’s citizens is “seriously threatened” already.
A growing business awareness
The scope of climate impacts is broad and swift, the report says, highlighting massive rains and flooding in Pakistan in 2010 that killed about 2,000 and affected the lives of 20 million.
Following the worldwide financial meltdown of 2008, the people WEF surveyed listed the collapse of investment prices as the most likely and most grave hazards. Yet that trend shifted.
“Environmental worries have been at the forefront in recent years,” the authors wrote, “reflecting a sense that climate change-related risks have moved from hypothetical to certain because insufficient action has been undertaken to address them.”
Nigel Purvis, the CEO of Climate Advisors, a Washington, D.C.-based consultancy, said the private sector is acutely aware of the threats climate change wields.
“This is growing evidence that the global business community appreciates the increasing risk that climate change poses to the profitability of companies and the stability of their markets,” said Purvis, who crafted climate policies within the Clinton and George W. Bush administrations.
Paris ‘a starting point’
Economists, regulators and financial experts have become increasingly vocal about climate risks.
Governor of the Bank of England Mark Carney, in a September speech at Lloyd’s of London headquarters, said the warming climate could “bring potentially profound implications for insurers, financial stability and the economy.”
François Villeroy de Galhau, the French central banker, said in December that central banks should “remain vigilant about” and “possibly monitor the economic consequences of climate change,” and Atiur Rahman, the central banker for Bangladesh, is working to expand the green-bond market to finance climate mitigation projects.
The $4.5 trillion asset manager BlackRock Inc. said last year climate change is a serious financial concern, and other institutional investors like AXA SA, Aviva PLC and the California Public Employees’ Retirement System have established similar stances, as have European investment giants Munich Re Group and Swiss Re AG.
Alex Bernhardt, the U.S. head of responsible investment for Mercer LLC, the global consulting firm with about $9 trillion in assets under advisement, said the WEF report emphasized that climate change is a “catalytic issue” becoming more important within corporate boardrooms.
Bernhardt said focus on climate change issues, which grew apace with corporate pledges to cut emissions during the run-up to the Paris climate conference last month, hasn’t slowed in recent weeks.
“If anything, interest and focus is on the upswing still,” he said in an interview. “I would say there’s going to be more and more focus on this,” he added. “The agreement was a starting point, not an end point, let’s put it that way.”
From flooding that can swamp shoreline real estate, to less water for farmers and businesses domestic and international, to a changing power supply for electric utilities, Mercer views climate change and its knock-on effects as investment concerns (ClimateWire, June 8, 2015).
“It’s a risk that needs to be managed,” Bernhardt said. “The challenge, historically, is that it’s been treated as an uncertainty.”
Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500