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Transition Towards A Lower Carbon Economy Creates Risks Too!

To see the effects of climate change, one need not look far ahead. Climate change is already here. Sustainability and climate risk (SCR) are triggering transitions in the global economy. In response, corporations, financial services firms, and governments are taking action to reduce the effects of climate change. In 2019, the Global Association of Risk Professionals (GARP) conducted a study on SCR. The study results show organizations generally agree that more action is needed, though nearly half are uncertain about what steps to take. Most respondents, however, see managing climate risk — and acquiring SCR knowledge — as important.


An increase in frequency and severity of natural disasters imposes tragic consequences on the planet in terms of both lives and money.1 Such events are especially hard on banks that issue commercial

and personal loans, insurance and reinsurance companies, and manufacturers and distributors in supply chains. For example, three types of events wreak havoc on businesses and communities every year:


Windstorms. Hurricanes, tornadoes, and severe thunderstorms annually kill thousands and cause billions of dollars in business interruption and property damage. The hurricane trio of Harvey, Irma, and Maria made 2017 the worst year on record for insured catastrophe losses.


Wildfires, drought, and heat waves. Next to storms, no other set of related natural disasters causes more insured losses annually than wildfires, drought, and heat waves. Deadly wildfires in the western United States and Australia in 2019 drew global attention.


Floods. Globally, floods are the most frequently occurring, and deadliest, natural catastrophe. Annually, they cause more than $40 billion in damage.

THE TRANSITION TO A

LOWER-CARBON ECONOMY CREATES RISKS TOO

And then there is the environmental impact of climate change. How grim is the forecast? It includes:

  • Species extinctions

  • Loss of life in natural disasters

  • Migration of populations

  • Diminished crop yields

  • Scarcity of fresh water

    Other risks of climate change include geopolitical tensions and slower economic growth.

    Public attitudes around the world favor sustainability and attending
    to climate risk. This growing consensus is prompting mandated disclosure of climate change policies. In addition, more organizations are committing to meet certain goals, such as carbon-neutral footprints and reduction of CO
    emissions. Some are going further, divesting activities with negative environmental impacts. If SCR is not influencing decisions today, it soon will be.

    The transition to a lower-carbon economy creates risks too. SCR issues are already causing changes in regulations, supplier contracts, and expectations from customers and investors. Knowledge is key to navigating the transition. With SCR knowledge, individuals, business leaders, and government officials can make better informed decisions on how to respond to climate change.

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