Climate Risk is Real
What’s Happening
By now, all of the world’s population had experienced the real effects of climate change. Last year, extreme weather conditions plagued all the regions of Planet Earth in frequent and adverse severity than ever before. The catastrophic floods that caught Germany and Belgium in July 2021 because of unusually heavy rains in 3 days turned small streams and rivers into turbulent flood waters destroying villages and shocked the world. Britain, Scotland, Canada and the US were hit by severe storms, hurricane and tornado. On the other side of the globe, cyclones wreaked havoc in India and the Philippines. Moreover, there were forest and bush fires raging for months in Australia and California. These devastating calamities are proof enough that climate risk is real.
We are past the awareness and attention phase of climate change. We feel it, we live it, we are in it. It is REAL, and so are the RISKS that come with it. It can happen anytime, anywhere when you least expect it, and you are caught in it, ready or not. It now calls for concerted actions, big and small, from all of us to help reduce these triggers.
Climate risk refers to the potential negative impact of climate change on an organization, place or region. It includes the potential for adverse effects which had inflicted damage, loss and ruin on lives, livelihoods, health status, economic, social, cultural, environmental assets, services and infrastructure brought about by drastic change in climate patterns.
In this century, it does not matter anymore in which part of the world we live. The climate has changed where we live whether near a coastline, a river, a mountain range or a forest. Serene and established communities which were once safe and conducive to life giving opportunities are now vulnerable and threatened. Climate risk is now part of our daily lives in one flick. Where once before it never occurred to threaten our routine, it now does. Climate change presents two types of risk: physical risks and transition risks,
Types of Climate Risk
Physical risks resulting from climate change can be acute or chronic in climate patterns. Acute physical risks refer to those sudden volatile climate events with unpredictable duration, increased severity of extreme weather output, such as cyclones, hurricanes, or floods, snowstorms, earthquakes, forest fires. Chronic physical risks refer to longer-term shifts in weather patterns that are persisting for a longer period of time, constantly recurring on an annual or seasonal basis like heat waves, rising sea levels, drought, soil erosion, denuded forests. Physical risks may have financial and economic implications as direct damage to personal resources and assets. It impacts businesses creating supply chain disruption and financial loss. Physical risks affect the sourcing, quality, availability and security of water and food resources. Extreme temperature changes affect work premises, work operations, transport facilities, and employee safety. In addition, health issues result from harsh climate changes and diseases become widespread.
Addressing and finding solutions to contain climate change had produced a second type of risk
which is more focused on the means of regulating, applying, measuring, lessening the worst
impact on losses and damages. Climate change is driving fundamental changes to the planet with adverse impacts on human livelihoods and well-being, putting trade, commerce and business growth at high risk for every person and community. In aiming to preserve our planet, finding ways to achieve net zero carbon emission puts at stake the order of living we have been accustomed to and the life routine we have established. Change is never easy even with a noble goal of saving our earth. There are climate change related transition risk.
Transition risks are more like the unseen side effects of trying to effectively manage and resolve the
difficult and challenging negative impact of living in the climate change era. In an excerpt from the paper on bank supervision on climate related risk drivers and their transmission channels published by the Bank for International Settlements (April 2021), the identified offshoots of transition risks are:
“Policy, Legal and Technology Risk. Policy actions attempt to constrain events that contribute to the adverse effects of climate change. These actions continue to evolve and include implementing carbon-pricing mechanisms to reduce GHG emissions, shifting energy use toward lower emission sources, adopting energy-efficiency solutions, encouraging greater water efficiency measures, and promoting more sustainable land-use practices. The legal risk refers to litigation claims to property owners, municipalities, states, insurers, shareholders, and public interest organizations. Failure to adapt and disclose the insufficiency of policy actions equate to financial risks. Technology risks are innovations that support the transition to a lower-carbon, energy-efficient economic system but result in displacement of in place industry processes. The development and use of new, emerging technologies like renewable energy, battery storage, energy efficient, carbon capture and storage will affect the production and distribution costs.”
There are also market risks. Major shift in supply and demand for eco-friendly, energy saving, net zero carbon, sustainable, recyclable commodities, products, and services takes time in effecting change in consumer behavior and adaptation. On the other hand, there is reputation risk factor as well. When a business fails to evolve and adapt to climate change variables and lose out in its industry, then the business or brand reputation could suffer due to negative customer perception.
Socioeconomic Impacts
We measure the impact of climate change by the extent to which it could disrupt or destroy human life, as well as physical and natural resources. The physical climate hazards affect our daily life as well as the factors of production on which our economic activity is based. As outlined in the Mckinsey Sustainability Report (January 16, 2020, www.mckinsey.com), it stated the following organizational systems taking a direct hit by the changing climate on the 5 socio economic impacts like:
“Livability and workability. Heat stress could affect the ability of human beings to work
outdoors or, in extreme cases put human lives at risk. Increased temperatures could
also shift disease vectors and thus affect human health.
Food systems. Food production could be disrupted as drought conditions, extreme ice/heat,
or floods affect land and crops, though a changing climate could improve food system
performance in some regions.
Physical assets. Physical assets like buildings could be damaged or destroyed by extreme
precipitation, tidal flooding, forest fires, and other hazards. Infrastructure services. Infrastructure
assets could be destroyed or disrupted in their functioning, leading to a decline in the services
they provide or a rise in the cost of these services.
Natural capital. Climate change is shifting ecosystems and destroying forms of natural capital
such as glaciers, forests, and ocean ecosystems, which provide important services to human
communities. This in turn imperils the human habitat and economic and environmental balance.”
Learning about climate risks exhort us all to look for solutions by doing our own individual efforts to help curb and lower carbon footprint that will benefit the planet and its inhabitants in the long run. Once again, here are easy and simple ways we can contribute to making our world a better place to live in:
Individually, we can start by making our diet climate friendly. Our food decisions generate ecological footprint. Thus, we can help our environment by eating meat-free meals, buying organic and local produce, and growing our own food.
Green our commute by using public transit, car-share, ride a bike or switch to hybrid car, thus reducing GHG emissions. Consume less, waste less, enjoy life’s simple pleasures. Use energy wisely in our homes, unplug all electricals when not in use, change to energy efficient light bulbs, use energy saving appliances. Plant trees and shrubs. Better yet, maintain a garden, even a mini one. All types of greenery act like a carbon sink that absorb carbon dioxide for photosynthesis. Recycle everything especially paper, metal and plastic.
A change in our individual lifestyle and behavior contributes however small to achieve the objectives of COP26 summit for a climate resilient and sustainable world to benefit all of us now and future generations.
Stella Antonio
Contributor