Most leaders recognise environmental risks
The plucky Greta Thunberg may be appealing to their moral sense, but empirical data and pure economics are proving more effective in convincing business and political leaders that the biggest risks facing them are environmental ones. Money is, ultimately, the strongest persuader.
This swing is well illustrated in the WEF’s Global Risks Report 2020, released this week. More than 750 global experts and decision-makers were asked to rank their biggest concerns in terms of likelihood and impact. For the first time in the survey’s 10-year history, the top five identified global risks in terms of likelihood are all environmental.
The report sounds the alarm on:
- Extreme weather events with major damage to property, infrastructure and loss of human life.
- Failure of climate-change mitigation and adaptation by governments and businesses
- Human-made environmental damage and disasters, including environmental crime, such as oil spills and radioactive contamination.
- Major biodiversity loss and ecosystem collapse (terrestrial or marine) with irreversible consequences for the environment, resulting in severely depleted resources for humankind.
- Major natural disasters such as earthquakes, tsunamis, volcanic eruptions, and geomagnetic storms.
The five risks also rate highly in terms of severity, with No 2 (failure of climate change mitigation) being rated as more severe than weapons of mass destruction (low probability). The one non-environmental risk identified as high in terms of both likelihood and severity was cyberattacks.
The report, produced in partnership with Marsh & McLennan Insights and Zurich Insurance Group, indicates that political turmoil is expected to thwart efforts to mitigate environmental risks. Over three quarters of respondents (78%) said they expect “economic confrontations” and “domestic political polarisation” to rise in 2020. This would be disastrous for co-ordinated action on urgent challenges such as the climate crisis, biodiversity loss and record species decline.
“The political landscape is polarised, sea levels are rising and climate fires are burning. This is the year when world leaders must work with all sectors of society to repair and reinvigorate our systems of co-operation, not just for short-term benefit but for tackling our deep-rooted risks,” said Borge Brende, the president of the WEF.
John Drzik, the chairperson of Marsh & McLennan Insights, said: “There is mounting pressure on companies from investors, regulators, customers, and employees to demonstrate their resilience to rising climate volatility. Scientific advances mean that climate risks can now be modelled with greater accuracy and incorporated into risk management and business plans. High-profile events, like the recent wildfires in Australia and California, are adding pressure on companies to take action on climate risk at a time when they also face greater geopolitical and cyber-risk challenges.”
Peter Giger, the group chief risk officer of Zurich Insurance Group, warned of the urgent need to adapt faster to avoid the worst and irreversible impacts of climate change and to do more to protect the planet’s biodiversity.
“Biologically diverse ecosystems capture vast amounts of carbon and provide massive economic benefits that are estimated at $33trillion per year - equivalent to the GDP of the US and China combined. It’s critical that companies and policymakers move faster to transition to a low-carbon economy and more sustainable business models. We are already seeing companies destroyed by failing to align their strategies to shifts in policy and customer preferences.”
So what does all this mean for you?
It means you will generally be paying more for short-term insurance, for a start. Insurance companies around the world are interdependent, through reinsurance. So the Australian fires may push up your premiums, even if there is a low risk of fire where you live.
It also means that investments into companies vulnerable to environmental risks are likely to underperform, while those into companies that can withstand these risks or offer more sustainable solutions are likely to do well.
It may also have a bearing on property prices, with areas prone to flooding, drought or veld fires seeing lower prices in the future.