Gulf Times of Qatar in this ViewPoint dated February 26, 2019, elaborates on Climate Change, a clear risk and danger for investments that are not only increasingly apparent to all but very obvious especially where it hurts the most.
Climate risks pose a clear and present danger for investors
Extreme weather
events are the most threatening global risks this year, the World Economic
Forum warned last month.
The financial sector has for long worried that a crisis could shape up from
growing climate risks. And insurers are increasingly concerned that rising
temperatures will lead to a slump in property values that could spark broader
financial turmoil.
In a report published last week, ClimateWise,
a group run out of the University of Cambridge including some of the world’s
biggest insurers, said increasing catastrophes linked to climate change could
triple losses on property investments over the next 30 years.
The warning adds to concerns raised by Munich Re last
month, which said a string of floods, fires and violent storms had doubled the
normal amount of insurable losses. Munich Re said global climate-related losses
may have topped a record $140bn last year, adding investors should look again
at whether they’ve properly accounted for rising damages from weather catastrophes.
The German insurer reported $160bn of losses from natural catastrophes last
year, some $20bn above inflation-adjusted averages in the previous three
decades.
Wildfires in California have just caused a corporate casualty of climate change
with utility PG&E Corp collapsing due to liability from two years of
fires.
When PG&E filed for Chapter 11 on January 29, it marked not just one of the
largest utility bankruptcies in history; it’s also one of the first tied to
climate change.
PG&E, owner of California’s largest electric utility, made the move after
estimating that it faced a $30bn liability from wildfires whose intensity has
been blamed by state officials on worsening droughts linked to global
warming.
There are growing signs that global warming is causing noticeable dents in some
of the world’s largest and most sophisticated economies.
A protracted drought in Germany that made crucial waterways impassable to ships
shaved around 2 percentage points off growth in Europe’s largest economy in the
fourth quarter of 2018.
The US Defence Department last month warned climate change could compromise US
security, with rising seas increasing flood risk to military bases and
drought-fuelled wildfires endangering those inland.
In December, the Bank of England said it would force banks to make better
preparations for climate change after finding only a few had done so.
Make no mistake, the overheating planet is bad for the economy.
Rising temperatures could curtail the pace of US economic growth by as much as
one-third by 2100, according to research from the Federal Reserve Bank of
Richmond in mid-2018.
The climate impact could be disproportionately damaging to developing
economies.
The world’s 100 poorest countries could be 5% worse off by the end of the
century with climate change – wiping trillions of dollars from the global
economy every year – according to research findings by the University of Sussex and La Sapienza
economists in early 2018.
For sure, a collective global effort to enact stricter carbon emissions
policies is a must to deal with global warming concerns. For the financial
sector, not only should investors price in climate risks; but they need to
incorporate scientists’ climate projections into their own catastrophe models.
