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AI Summary:
Source: "For many, the perceived gap between socially responsible investing and good business has narrowed almost to the point of convergence. And maybe that shouldn’t be a surprise. A Citi report from last year put the costs of climate change, without mitigation, at $44 trillion by 2060. Many analysts have pointed out that a yearslong drought preceded the conflict in Syria — an example of how shifting climate can encourage political instability that ripples around the world. And this year, a report from the World Economic Forum said that the No. 1 global risk in the next 10 years was water crises. Nos. 2 and 3 were climate adaptation failure and extreme weather. The economy can be only as healthy as the planet that houses it. Pushing for transparency on sustainability issues, and asking money managers to consider climate change, is really the purest form of self-interest."
Source: “The economic damage wrought by climate change is six times worse than previously thought, with global heating set to shrink wealth at a rate consistent with the level of financial losses of a continuing permanent war, research has found. A 1C increase in global temperature leads to a 12% decline in world gross domestic product (GDP), the researchers found, a far higher estimate than that of previous analyses. The world has already warmed by more than 1C (1.8F) since pre-industrial times and many climate scientists predict a 3C (5.4F) rise will occur by the end of this century… A 3C temperature increase will cause ‘precipitous declines in output, capital and consumption that exceed 50% by 2100’ the paper states. This economic loss is so severe that it is ‘comparable to the economic damage caused by fighting a war domestically and permanently’… Rising temperatures, heavier rainfall and more frequent and intense extreme weather are projected to cause $38tn of destruction each year by mid-century, according to the research… the cost of transitioning away from fossil fuels and curbing the impacts of climate change, while not trivial, pale in comparison to the cost of climate change itself.” Original publication.
Image source: “Global projections of macroeconomic climate-change damages typically consider impacts from average annual and national temperatures over long time horizons. Here we use recent empirical findings from more than 1,600 regions worldwide over the past 40 years to project sub-national damages from temperature and precipitation, including daily variability and extremes. Using an empirical approach that provides a robust lower bound on the persistence of impacts on economic growth, we find that the world economy is committed to an income reduction of 19% within the next 26 years independent of future emission choices (relative to a baseline without climate impacts, likely range of 11–29% accounting for physical climate and empirical uncertainty). These damages already outweigh the mitigation costs required to limit global warming to 2 °C by sixfold over this near-term time frame and thereafter diverge strongly dependent on emission choices. Committed damages arise predominantly through changes in average temperature, but accounting for further climatic components raises estimates by approximately 50% and leads to stronger regional heterogeneity. Committed losses are projected for all regions except those at very high latitudes, at which reductions in temperature variability bring benefits. The largest losses are committed at lower latitudes in regions with lower cumulative historical emissions and lower present-day income.”
Source: Measuring Physical Climate Risk in Equity Portfolios
Source: “Launched in 2011, our Finance for Change Initiative helps investors, credit rating agencies, and country risk analysts identify, quantify, and integrate environmental risks into their analysis and decision-making.”
Source: ‘Climate value at risk’ of global financial assets
Source: Climate Change Could Blow Up the Economy. Banks Aren’t Ready.
Source: Investors could lose $4.2tn due to impact of climate change, report warns
Source: "Private investors stand to lose $4.2tn (£2.7tn) on the value of their holdings from the impact of climate change by 2100 even if global warming is held at plus 2C, a report from the Economist Intelligence Unit (EIU) has warned... According to estimates by the Asset Owners Disclosure Project, only 7% of asset owners calculate the carbon footprint of their investment portfolios and only 1.4% have an explicit target to reduce it... The EIU concludes that there are widespread opportunities for investors to reduce their exposure to environmental risk – one way is to invest in projects that finance a transition to a lower carbon economy.” Here's the original EIU Report
Source: "Climate change could cut the value of the world’s financial assets by $2.5tn (£1.7tn), according to the first estimate from economic modelling. In the worst case scenarios, often used by regulators to check the financial health of companies and economies, the losses could soar to $24tn, or 17% of the world’s assets, and wreck the global economy... The Bank of England and World Bank have warned of the risks to the global economy of climate change and the G20 has asked the international Financial Stability Board to investigate the issue. In January, the World Economic Forum said a catastrophe caused by climate change was the biggest potential threat to the global economy in 2016.”
Source: “Natural disasters fueled by climate change are already threatening insurers’ ability to serve U.S. households and businesses. In 2023 alone, damages from billion-dollar extreme weather events reached $92.9 billion, and estimated insured property losses totaled $78.8 billion. Many insurers have responded to climate-related financial risks by withdrawing their services from highly exposed markets, raising premiums, and gutting coverage. The growing unavailability and unaffordability of insurance stands to disproportionately harm low-income communities and communities of color, who are most likely to live in climate-vulnerable geographies… This insurance protection gap, as noted by Treasury Secretary Janet Yellen, ‘can have significant consequences for homeowners and the values of their assets. In turn, these developments can have cascading effects on the financial system.’ In areas where insurance coverage is out of reach or insufficient, consumers are forced to foot the bill. But if consumers cannot sustain the costs of natural disasters and are unable to continue payments on mortgages or other loans, that risk flows to lenders. This can create systemic risk, threatening financial stability and the health of the U.S. economy more broadly… Despite the critical economic function that insurers provide and their highly interconnected role in the financial system, state insurance regulators across the United States have not implemented a consistent or robust approach to assessing and addressing climate-related financial risk.”
Source: “…as the fate of AIG made painfully apparent in 2008, insurance firms are key nodes in the global financial system. The money accumulated by the insurers is reinvested in money markets, banks, and other funds. Nine major insurers are listed as globally systemically important by the Financial Stability Board. They are too big to fail. Driven by the desire for self-preservation, insurers and actuaries have begun to develop highly sophisticated models for handling catastrophic risk. But that is precisely the kind of reassurance doled out all too often in the years before the 2008 financial crisis. A recent modeling exercise by the rating agency S&P suggested that the insurance industry may still be underestimating possible losses from extreme weather by as much as 50 percent. Given the complexity of physical and financial interactions, the margins for error are terrifyingly small… Given the increase of catastrophic risk, the basic question for the insurance industry is who will pay. Will it be the industry and its shareholders, or will it be those forced to purchase coverage at exorbitant rates? One likely outcome is the worst of all: that nobody in the market could afford to pay. As the former CEO of AXA insurance group warned, referring to potential changes in average annual temperatures, whereas ‘a [2 degrees Celsius] world might be insurable, a [4 degrees Celsius] world certainly would not be.’ Without the ability to insure against catastrophic loss, the global credit system as we know it would simply cease to function. At some point, market solutions won’t be sufficient for the financial problems posed by climate change. Disaster will be so frequent that there will be no alternative either to abandoning insurance protection or to nationalizing risks and transferring them to taxpayers at large. In some places, that is already happening… For large countries with solid tax bases and relatively favorable climates, the socialization of climate risk may be manageable. For smaller, highly exposed island nations, it will be overwhelming… Furthermore, legacy energy assets have to be taken out of commission. Assuming no spectacular breakthrough in carbon capture, if we are to stabilize temperatures below catastrophic levels, the vast majority of the world’s known fossil fuel reserves will have to stay in the ground. Leaving that energy untapped will mean as much as $28 trillion in lost revenue for oil, gas, and coal companies over the next 20 years. And that matters for the financial system because investors already own bonds and shares connected to those assets. All told, one-third of equity and fixed income assets issued in global financial markets can be classified as belonging to the natural resource and extraction sectors, as well as carbon-intensive power utilities, chemicals, construction, and industrial goods firms. Decarbonization would essentially strand those assets, resulting in losses in asset values for the energy sector of $1 trillion to $4 trillion. In the broader industrial sector, the stranded asset risks could rise to $20 trillion. If financial markets have time to adjust, even such huge losses could be absorbed. But if the changes strike lenders and investors suddenly and unexpectedly, they risk triggering what Carney referred to as a ‘climate Minsky moment’… Oil… remains too cheap and too convenient to forgo. Ending its consumption will require deliberate government action. And that is precisely what fossil fuel interests have been lobbying hard to prevent. This resistance may make sense from the industry’s narrow point of view, but by blocking proactive decarbonization and clinging to a vision of a fossil-fueled future, it also maximizes the risk of a large-scale buildup of stranded assets. It is the old dilemma of conservative politics: By resisting progressive adjustment, they are courting a revolution. For the financial system, that is very bad news… All the signs suggest that we are headed for a scenario of continued growth in carbon dioxide emissions, disastrous global warming in the 3 to 4 degree Celsius range, and a multitrillion-dollar problem of stranded assets.”
Source: "'China is one of the countries most vulnerable to the adverse impact of climate change... In 2011 alone, natural disasters affected 430 million people and caused direct economic losses of 309.6 billion yuan.' In 2011, China’s Second National Assessment Report on Climate Change Report reported that temperatures in China were actually rising faster than the global average.”
Source: "Episodes of severe weather in the United States, such as the present abundance of rainfall in California, are brandished as tangible evidence of the future costs of current climate trends. Hsiang et al. collected national data documenting the responses in six economic sectors to short-term weather fluctuations. These data were integrated with probabilistic distributions from a set of global climate models and used to estimate future costs during the remainder of this century across a range of scenarios (see the Perspective by Pizer). In terms of overall effects on gross domestic product, the authors predict negative impacts in the southern United States and positive impacts in some parts of the Pacific Northwest and New England." PBS feature on this article.