Cutting carbon emissions and limiting the fallout from climate change is the biggest challenge we face as a society. But we haven’t been responding fast enough. New Swiss Re Institute research puts a cost on the impact that climate change could have on the global economy over time. While such long-term projections come with a great deal of uncertainty, it’s undeniable that unmitigated climate change is likely to exact a heavy toll on economies around the world.
Under the current trajectory, we estimate that rising temperatures could reduce global GDP by as much as 14% or USD 23 trillion by 2050 compared to a world without climate change. More frequent crop failures, severe weather disasters or heat stress are among the risks that could result in significant productivity and income losses. Some of the most dynamic emerging economies – those on which we’re pinning future growth – would be the hardest hit, and this would have severe repercussions for the global economy as a whole.
The case for climate-friendly investments couldn’t be clearer: the benefits of investing in net zero far outweigh the costs of inaction. This year – which culminates in the COP26 climate summit in Glasgow – will be a critical one. As we look to a sustainable post-pandemic recovery, now is the time to act.
Putting a price on climate change
A first of its kind, Swiss Re Institute’s Climate Economics Index stress-tests how climate change could impact 48 countries representing 90% of the world economy. Even if the Paris Agreement targets are met, the global economy will take a hit. And although it will be felt by us all, poorer countries will be affected most.
Advanced economies – which are often geographically protected from the worst of floods, droughts and other climate catastrophes – are also those most able to cope with the impacts. This is in large part due to their diversified economies which rely less on heavily affected sectors such as agriculture.
Avoiding the most damaging effects of climate change means shifting to a low-carbon economy. But this in itself comes with its own risks, with some countries better able to navigate the transition than others. For obvious reasons, economies reliant on oil will find this hard, and again Asia faces the brunt of the impact of these transition risks.
Navigating a world of extremes
There is also mounting evidence that climate change is driving more extreme weather events and more severe natural catastrophes.
It is vital that we pay these risks the attention they demand. There are promising signs of action: Sustainability is riding high on the corporate agenda, and individual ambitious carbon reduction targets and carbon-offsetting are becoming more commonplace.
But we are a long way off from reaching the Paris goals, so accelerating the pace of change and scaling up solutions must be a priority.
The Race to Zero initiative championed by COP26 calls for businesses to step up and drive this change. Decarburization requires clear targets that transcend individual industries and engage multiple stakeholders.
Accelerating net zero together
The newly established Net Zero Insurance Underwriting Alliance, of which Swiss Re is a founding member, is a good example. It brings together re/insurance companies to reach net-zero emissions in their underwriting portfolios. This is similar to what the Net Zero Asset Owner Alliance is doing on the investment side. And the World Economic Forum Alliance of CEO Climate Leaders, which I co-chair, is an important initiative that aims to drive change across industries.
Limiting the fallout from climate change requires a coordinated global response, with the public and private sectors working together.
Re/insurers have an additional role to play by putting a price tag on risk, influencing development and infrastructure and helping support a longer-term approach to investment as we green our economies. As risk takers, our industry also has a duty to support nascent technologies to remove carbon, which will be key to achieving our net zero ambitions.
We cannot afford to delay any longer. As the Swiss Re Institute’s Economics of Climate Change report so simply and aptly states: no action is not an option.
