Climate change remains single biggest global economic threat

Climate change risks continue to dominate the global economic threat register, even as the COVID-19 pandemic enters its third year, with fresh estimates suggesting that the total bill for last year’s natural and weather-related disasters hit $ 280 billion worldwide.

In the latest annual risk assessment published by the World Economic Forum (WEF) this week, climate change and extreme weather are by far one of the biggest threats to the global economy in the short, medium and long term, while there is also growing concern over the threat to livelihoods, mental health and social cohesion in the wake of the COVID-19 crisis.

But despite the persistent nature of the coronavirus pandemic and the continuing threat of new varieties, extreme weather is still listed as the biggest single threat facing the global economy over the next two years, with the failure of climate action in third place . In terms of the medium-term outlook over the next five years, climate action failure rises to number one on the list of economic threats, just before extreme weather.

In addition, climate and environmental threats threaten the WEF’s long-term risk outlook, with climate action failures, extreme weather, biodiversity loss, natural resource crises and human environmental damage making up the entire list of the five biggest risks facing the global economy. the next decade.

As companies recover from the pandemic, they rightly sharpen their focus on organizational resilience and ESG credentials.

Commenting on the WEF’s findings, Peter Giger, Group Chief Risk Officer at Zurich Insurance Group, stressed that the climate crisis “remains the greatest long-term threat facing humanity”, and called for renewed action to decarbonise the global economy in line with the objectives of The Paris Agreement.

“Failing to respond to climate change could reduce global GDP by a sixth, and the commitments made at COP26 are still not enough to reach the 1.5 [degrees Celsius] goals, “he warned.” It is not too late for governments and businesses to act on the risks they face and to pursue an innovative, determined and inclusive transition that protects economies and people. “

WEF’s latest assessment comes as the COVID-19 pandemic, which first surfaced in China in late 2019, enters its third year in which the Omicron variant and public health problems continue to cause major disruption to the global economy. The WEF’s annual Davos summit this month has once again been forced online, and governments around the world are struggling to deal with pressure on health systems, minimize the risk of dangerous new variants and improve access to vaccines while keeping their economies returns to a degree of normality. .

Meanwhile, the global gas crisis – which was initially triggered by the resumption of economic activity after the first wave of the pandemic – continues to push up energy prices, with the WEF warning that the global recovery from COVID-19 is likely to prove very volatile and uneven over the next three years.

As a result, the new global risk assessment also highlights significant social threats to economic stability in 2022 and beyond, pointing in particular to the risks of livelihood crises, the erosion of social cohesion, further threats of communicable diseases, debt crises and deterioration of mental health.

Carolina Klint, risk management manager for the European continent at insurance broker Marsh, said the combination of major, interconnected environmental and social risks underscored the importance of companies strengthening their environmental, social and governance (ESG) strategies to strengthen and leverage their resilience. new market opportunities. “As companies recover from the pandemic, they are rightly sharpening their focus on organizational resilience and ESG credentials,” she said.

The latest warnings come in the WEF’s 17th annual assessment of the biggest threats facing the global economy, which has increasingly seen climate and environmental concerns dominate the concerns of leading economists and business leaders as the effects of a warming planet have faded. intensified.

Global Risks Report 2022 has been prepared by WEF in collaboration with its strategic partners Marsh McLennan, SK Group and Zurich Insurance Group as well as advisors at the University of Oxford, the National University of Singapore and the University of Pennsylvania.

It follows a series of major natural disasters and extreme weather events last year that killed nearly 10,000 people in total, such as Hurricane Ida in the United States, lightning floods and extreme rainfall throughout Central Europe, as well as forest fires that raged across Europe, North and South America, Asia and Australia. Researchers concluded this week that 2021 was one of the warmest years ever, with the last seven years the warmest seven-year period in history.

As a result, insurance giant Munich Re said that 2021 proved to be the second most expensive for the global insurance sector, with natural disasters causing total losses of $ 280 billion worldwide, of which only $ 120 billion was insured, according to the latest annual disaster loss report. .

Although 2017 remains the most expensive year ever, natural disasters in 2021 caused significantly greater losses than the previous two years, with well under half of those losses still uninsured.

Hurricane Ida, which devastated parts of the southern United States last year, proved to be the world’s most expensive natural disaster in 2021, leading to total losses of $ 65 billion alone, while lightning floods in Europe led to losses of $ 54 billion, with Germany in particular among the hardest. hit according to Munich Re.

Many of last year’s weather disasters fit into the expected consequences of climate change, the insurance giant said.

Two people are fleeing flooding in Malaysia

Munich Re-board member Torsten Jeworrek, CEO of its reinsurance department, stressed that greater loss preparedness and climate protection should therefore be an urgent issue for the global economy.

“The images of natural disasters in 2021 are disturbing,” he said. “Climate research is increasingly confirming that extreme weather has become more likely. Societies need to adapt to rising weather risks as soon as possible and prioritize climate protection. Insurance companies are fulfilling their responsibilities by covering part of the risks and losses. By using risk-appropriate premiums, they value natural hazards and thereby encourage carefully considered behaviors to limit losses. “

But Ernst Rauch, head of climate and geoscience at Munich Re, who also heads the company’s Climate Solutions Unit, warned that adapting to rising climate risks would be “a challenge.”

“The disaster statistics for 2021 are striking because some of the extreme weather events are of the kind that are likely to become more frequent or more severe as a result of climate change,” he added. “Although events cannot be automatically attributed to climate change, analysis of the changes over decades provides plausible indications of a connection with global warming and oceans.”

Climate research is increasingly confirming that extreme weather has become more likely. Communities must immediately adapt to increasing weather risks and make climate protection a priority.

With the world’s largest economy, the United States, suffering the greatest losses from natural disasters and weather events last year, recent data suggests that the effects of climate change may prove to be a threat to both richer countries and poorer nations.

So much is underlined by fresh data this week from the US Federal Agency National Oceanic and Atmospheric Administration (NOAA), which in its own assessment found that 688 people were killed in 20 major weather and climate disasters in the country last year.

In total, these events – which include droughts, floods, hurricanes, wildfires and winter storms – cost the United States a total of $ 145 billion, with each disaster alone costing more than $ 1 billion, NOAA said.

From floods to wildfires, unexpected frosts, droughts and heat waves and even hurricanes, the growing physical threats to life, livelihoods and economies that natural disasters pose to life, livelihoods and the economy reveal the cost of events likely to intensify in the coming years due to Climate change.

The data and risk warnings issued this week by leading economists and insurance companies should once again sound the alarm bells to ring in government offices and boardrooms worldwide, especially given the seven hottest years ever, all taking place within the last seven years.

Only through deep decarbonization to halve global emissions by 2030 can the world have a chance to stop these worsening threats. Yet despite the glaring evidence, growing warnings and renewed commitments made by global governments and companies at the COP26 climate summit just two months ago, the world is still far from fulfilling its climate promises.

William

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