Three out of the top five official risks to the global economy in 2018 stem from the changing climate.
After decades with environmental concerns largely stuck in the wings, 2018’s Global Risks Report finally foregrounds the gravity of the “strain we are placing on many of the global systems we rely on.” The World Economic Forum names extreme weather, natural disasters, and failure to adapt to and mitigate climate change in its top five ranking.
Some were quick to point out what this amounts to:
Top 5 Global Risks 2018
1 Extreme weather
2 Natural disasters
4 Data fraud/ theft
5 Failure of climate change mitigation / adaptation
Restated for clarity 😉 :
1 Climate change
2 Climate change
4 Data fraud/ theft
5 Climate change
— Assaad Razzouk (@AssaadRazzouk) January 24, 2018
It’s amazing it’s taken this long for climate change to climb the ranking. WEF’s 2017 report finally featured climate change in the risk list, but the 2018 iteration puts it front and centre. Extreme weather events have been increasingly prevalent in the media, all over the globe, made more frequent and more intense by our changing climate.
Last year saw intense and fatal flooding from South Asia to Athens. Hurricane Harvey, which hit Texas in August, tied with Hurricane Katrina as the most expensive tropical storm on record. Countries like the Philippines are being ravaged by super-typhoons of increasing destructive power and frequency. In the first four weeks of 2018 alone, we’ve already seen a ‘bomb cyclone’ on the US East Coast, and a town-flattening mudslide in California, which is being partially attributed to a combination of previous wildfires and torrential rain. Wildfires raged not just in the US but in South America and Portugal. Temperatures are only rising – each year brings hotter headlines about record-breaking weather.
Climate change increases incidences of extreme weather – that’s proven. Human activity is a huge contributor to climate change, because of our massive emissions of carbon dioxide. Now, many are trying to close the loop, saying corporations responsible for significant carbon emissions should be held legally responsible for damages from extreme weather events. Exxon is being taken to task in the US over its longstanding efforts to hide the risks its operations pose to the planet and New York City is suing several ‘carbon majors’ over present and future damage to the city due to climate change. Analysts are predicting this will be a major trend for 2018. Corporations’ era of impunity looks like it’s ending.
Meanwhile, financial loss as a result of physical damage caused by extreme weather events is a very real threat to companies day-to-day: insurer payouts after 2017’s hurricane onslaught hit record highs. Companies are being called on to reduce their carbon emissions, with investors threatening to pull their money if companies are not seen to be making comprehensive changes.
Momentum on this topic is considerable. Governor of the Bank of England Mark Carney and New York Mayor (and financial heavyweight) Michael Bloomberg have been driving an initiative to get companies globally to clock up the climate risks inherent in their business. The final recommendations of the Task Force on Climate-related Financial Disclosure (TCFD) was one of 2017’s biggest corporate breakthroughs on climate, giving companies a template for clearer climate reporting.
Meanwhile, around the time of Macron’s One Planet Summit in December – seen by many as Paris.2 – companies fell over themselves to get on one of the corporate pledge lists. RE100 and EV100, for example, commit business to a goal of 100% renewable energy or electric vehicle use. Financial institutions were anxious to make public promises too – the World Bank said it would end its financing of oil and gas, for example. Big-name investors also formed the Climate Action 100+ to influence big business. Its basic manifesto? Disclosures up, emissions down.
It’s increasingly recognised in business that future success means transformation now – and we’re seeing models changing. BP and Shell, though still over-reliant on fossil fuels, are very public about increasing investments in cleantech. British bank NatWest is teaming up with Utilitywise to help UK businesses cut energy use. Auto giant Nissan is looking to offer a home solar energy production and storage package to link with electric vehicle use. European energy company E.ON has performed a neat fission, separating its fossil fuel original from its new clean energy entity – and is now looking to sell it.
Meanwhile, the insurance industry is going through a parallel revelation. As huge investors, insurers generally have considerable holdings in fossil fuel companies. But investing in something that eventually increases insurance claims via increasing incidences of extreme weather is not sound business sense.
“In my case it’s pretty simple – I have a good return potentially from investing in coal; I have lots of claims (as a result of) all these consequences” – AXA CEO Thomas Buberl
Buberl also pointed out that a +4C world is just not insurable.
These revelations are starting to change conversations in insurance boardrooms and, in some cases, investment practice itself. A new report from Unfriend Coal tracks this trend for the first time. Lloyd’s Of London recently announced it would move away from coal. AXA, as well as halting coal investments, plans to stop underwriting it too. The insurer has already divested from tar sands and several oil pipelines.
But in spite of the gradual shift in understanding, change at scale is still not happening remotely fast enough. It has taken till 2018 for Davos to put the climate time-bomb on centre stage. Meanwhile, investment in cleantech is slowing, according to new reports. This just won’t do.
We need urgent action: we need to see companies integrate climate-related risks and opportunities into business strategy and capital expenditure decisions; we need sound, ambitious commitment from governments. There is only one way to go from here, and it’s in the direction of the clean energy transition.
The pressure is on – we can’t afford to up the stakes much more.