ESG Risks: Environmental
Climate change is a source of significant risk to global financial stability
According to the Organisation for Economic Co-operation and Development (OECD), with no further mitigation actions, global temperature rises of 1.5-4°C may lower global real GDP by 1.0-3.3% by 2060 and by 2-10% by 2100. Even at the lower end of estimates, this represents trillions of dollars.
Global temperatures are rising and are now at their highest since records began
The 21 warmest years on record have occurred in the last 23 years. Much of the increased global temperatures have been absorbed by the oceans where we see rising ocean-surface temperatures which have led to an increased frequency and intensity of extreme weather events.
Manifestations of these temperature increases include:
In 2020, wildfires, hurricanes and other natural disasters cost more than $250 Billion of losses globally, more than thirty percent higher than in 2019.
Six of the ten costliest events were in the USA and were largely attributable to unusually warm ocean surface temperatures.
The ice melt in Greenland and in the Antarctic has and will continue to cause sea levels to rise. Wildfires are more prevalent and wildfire seasons are months longer.
Why climate change is the new 9/11 for insurance companies - Over two years, natural catastrophes caused a record $225bn of insured losses
Government, Industry and Corporate Response
Given the magnitude and significance of recent impacts and the forecast future financial impacts, governments, industry bodies and the corporate world have been responding with accelerating and increasing support.
Adopting Science Based Targets (SBT) and developing and committing to Net Zero Targets helps governments and corporates be aligned with the Paris climate target’s.
This change in weather patterns has resulted in organizations being exposed to Transition risks and Physical risks.
Transition Risks
Transition risks are risks related to the transition to a lower-carbon economy such as the introduction of a carbon tax, increased regulations, heightened permitting requirements and increased exposure to lawsuits.
Physical Risks
Physical risks are those related to the physical impacts of climate change such as increased frequency and severity of extreme weather events (e.g.wildfires, cyclones, hurricanes, floods).
Climate change: can the insurance industry afford the rising flood risk? Floods were once considered too irregular to insure against. But global warming has changed the calculation.
