Climate change will devastate the world economy by 2050 if we don't get serious now, people.
A Swiss insurance company has looked at our potential futures and some of them are pretty grim.
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The bloody-turkey-foot-in-the-mailbox out of last week’s climate summit came not from a climate denier or environmentalist or our always unreliable twice-impeached one-term former president but from an insurance company that makes billions from knowing before the rest of us which way the wind is going to blow.
A sobering new report from Swiss Re, the global insurance giant, predicts that if no mitigating action is taken, global temperatures could rise by more than 3°C and the world economy could shrink big-time over the next 30 years. How’s this for an attention-grabbing lede:
The world stands to lose close to 10% of total economic value by mid-century if climate change stays on the currently-anticipated trajectory, and the Paris Agreement and 2050 net-zero emissions targets are not met
Swiss Re’s research arm conducted a stress test to examine how 48 economies, representing 90% of the world’s economy, would be impacted by the ongoing effects of climate change under four different temperature increase scenarios. The results look like this:
Expected global GDP impact by 2050 under different scenarios compared to a world without climate change:
-18% if no mitigating actions are taken (3.2°C increase);
-14% if some mitigating actions are taken (2.6°C increase);
-11% if further mitigating actions are taken (2°C increase);
-4% if Paris Agreement targets are met (below 2°C increase)
In the severe scenario of a 3.2°C temperature increase, China stands to lose almost one-quarter of its GDP (24%) by mid-century. The US, Canada and the UK would all see around a 10% loss. Europe would suffer slightly more (11%), while economies such as Finland or Switzerland are less exposed (6%) than France or Greece (13%)
Thierry Léger, Group Chief Underwriting Officer and Chairman of Swiss Re Institute, said in a press statement:
“Climate risk affects every society, every company and every individual. By 2050, the world population will grow to almost 10 billion people, especially in regions most impacted by climate change. So, we must act now to mitigate the risks and to reach net-zero targets. Equally, as our recent biodiversity index shows, nature and ecosystem services provide huge economic benefits but are under intense threat. That’s why climate change and biodiversity loss are twin challenges that we need to tackle as a global community to maintain a healthy economy and a sustainable future.“
The report makes clear the urgency of global coordination and collaboration. Jérôme Haegeli, Swiss Re’s Group Chief Economist, said:
“Climate change is a systemic risk and can only be addressed globally. So far, too little is being done. Transparency and disclosure of embedded net-zero efforts by governments and the private sector alike are crucial. Only if public and private sectors pull together will the transition to a low-carbon economy be possible. Global cooperation to facilitate financial flows to vulnerable economies is essential. We have an opportunity to correct the course now and construct a world that will be greener, more sustainable and more resilient.
“Our analysis shows the benefit of investing in a net-zero economy. For example, adding just 10% to the USD 6.3 trillion of annual global infrastructure investments would limit the average temperature increase to below 2°C. This is just a fraction of the loss in global GDP that we face if we don’t take appropriate action.”
Appropriate action, in this case, means investing in a net-zero economy. The report says that adding just 10% to the USD 6.3 trillion of annual global infrastructure investments would limit the average temperature increase to below 2°C which is just a fraction of the loss in global GDP if we don’t act.
The Swiss Re Institute scenario analysis uses insights gained from an existing model by Moody's Analytics, quantifying the gradual impacts of climate change over time, and from research by the World Bank, identifying so-called "impact channels", such as the effect of rising temperatures on productivity.
Back in December, Swiss Re reported that 2020 insurance industry losses from natural catastrophes and man-made disasters globally amounted to USD 83 billion making it the fifth costliest year for the industry since 1970. Losses were driven by a record number of severe convective storms (thunderstorms with tornadoes, floods and hail) and wildfires in the US. In the US states of California, Oregon and Washington, more than 800 wildfires burned close to 6 million acres, destroying thousands of structures and triggering billions in insured claims. These and other secondary peril events around the world accounted for 70% of the USD 76 billion insured losses from natural catastrophes.
Like every other global business that deals with risk, Swiss Re is obviously positioning itself to profit from the current sense of urgency about the potential coming disastrous effects of climate change. (The best thing about capitalism is that you never have to have to guess about motives.) Fear of catastrophe is a great motivator for insurance sellers that gets even sweeter if you can persuade the potential victims to do their part to avoid the catastrophe in the first place. I found this passage from an interview with Swiss Re CEO Christian Mumenthaler, particularly illuminating in several ways, but most notably in its implications for the coal industry:
Shareholders are putting pressure on all companies to adopt more sustainable practices; regulators are asking for more disclosure; employees, especially the younger generation, also expect real progress towards a more sustainable future. Therefore, our dialogue with clients about sustainability topics is very active. For example, in 2020 alone, we held more than 400 conversations with our reinsurance clients as we developed an exit strategy for thermal coal in our treaty business. We are also moving away from providing insurance coverage to the most carbon-intensive oil and gas producers. At the same time, to encourage the transition towards renewable energy, we are providing risk cover to more than 5,600 wind and solar farms. To achieve our business and net-zero goals, we build and scale on successful partnerships with clients working on this transition.
From this and other interviews with oil and gas giants I’ve been reading there appears to be a consensus that coal is going to be the sacrificial lamb of the polluters mainly because capturing and storing it is too expensive to make it worth saving. It may be time for my homeboy Jim Justice to see if the Russians will take those coal mines back.
Dig Deeper
The Economics of Climate Change (Swiss Re)
World economy set to lose up to 18% GDP from climate change if no action taken (Swiss Re)
Christian Mumenthaler on Swiss Re’s sustainability journey (The Insurer)
Coal Miners for Clean Energy (EarthWatch)
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