Human

The financial implications of climate change

 By Amanda Saint

In a world based on economics and the need for continual financial growth, the climate change issue won’t just affect the natural world and human habitats, it will hit hard in government, business and household budgets, and bank balances too…

Back in 2014, the Climate Change: Implications for Investors and Financial Institutions report outlined key points about how climate change is going to affect economies and this week a new report issued in the U.S. predicts that the effects of climate change will cost federal taxpayers a trillion dollars over the next two decades.

Widespread effects in businesses and communities

The 2014 report highlighted several key financial implications that come from a warming climate and the changes in world weather patterns. Climate change will affect all sectors of the economy, so it is relevant to investors and financial institutions. Major weather events have already had a direct impact on businesses and communities of all kinds. Recently Hurricane Irma decimated Caribbean islands and destroyed swathes of Florida. This has affected small, medium and large businesses that have either lost or experienced damage to their premises, and in worst cases lost the people who work in them.
Tourism in these regions, which is a major economic driver, has obviously been hard hit and people are working to make the Caribbean islands an attractive holiday destination again, as well as highlighting that tourists will be vital in helping these countries get back on their financial feet. Food supply is also interrupted with Florida’s citrus industry still reeling and growers saying it is going to take a long time for the groves to recover. This means less profits, which leads to job losses and fewer investments in business growth, so the impacts are long-term and widespread.

Hurricane Maria destruction along Roseau road, Dominica (Roosevelt Skerrit, Flickr)

A different mindset

One of the key changes the report identified as needing to be made, is a different investment mindset. It states that “there are both risks and opportunities associated with policy measures directed at reducing greenhouse gas emissions and that to meet the internationally agreed target of keeping the global average temperature rise since pre-industrial times below 2°C, patterns of investment will need to change considerably.”
Unfortunately, progress seems to be on a one-step forwards, two steps backwards trajectory in this area since the report was published. Political changes in the U.S. mean investments are rising again in fossil fuel energy sources. But in Europe, the European Investment Bank (EIB) is the world’s biggest investor in climate change mitigation projects. In 2016, it invested USD $19 billion in climate action activities globally, which is 26 percent of the total investments made worldwide.
The EIB has also announced major new investments in developing countries, including the $110 million financing agreement with the Caribbean Development Bank (CDB) to support investment projects in the region under CDB’s climate action policy. The EIB has also revealed that it will invest $100 billion in climate projects outside of Europe up to 2020.

Food, water and weather

The report also states that “the physical impacts of climate change will affect assets and investments, but that climate change and extreme weather events will affect agriculture and food supply, infrastructure, precipitation and the water supply in ways that are only partially understood.”
In Europe in 2017 heatwaves, hurricanes, wildfires and droughts have already had a major impact on economies that have struggled to recover from the 2008 global financial crisis. Portugal has been hit by increasing numbers of fires, which are wiping out huge swathes of land and slowly turning them to desert. The summer saw a heatwave in Southern Europe that started major fires in Spain, Italy, the Balkans, the south of France and Corsica. Many of these countries are major players in the continent’s food provision, where water supply is already at a premium in the summer with virtually no rainfall in these regions for months at a time and an influx of millions of tourists putting further pressure on supplies.

A large forest fire ignited in central Portugal on June 2017 (nasa.gov)

The effects of weather on the food supply chain are already being seen across Europe with the cost of food rising rapidly. This is a worldwide phenomena with data from the U.N. food agency, released in June 2017, showing that global food prices are up 7 percent from a year ago and ahead 17 percent from a low set in early 2016.

Future investments

The report concluded that “to keep the global temperature increase below 2°C, additional investment required in the energy supply sector alone is estimated to be between $190 and 900 billion per year through to 2050, accompanied by a significant shift away from fossil fuels towards low-carbon sources such as renewables and nuclear.”
With the EIB’s investment plan not even reaching the lower end of that scale for all climate action investments, it seems that the financial implications of climate change are going to be felt across the world in the coming years.

READ MORE: The changing climate is a business risk by Mike Scott
The Birkes, Wikimedia

about the author
Amanda Saint
Journalist and content writer, specialised in engineering and technology with a focus on environmental sustainability, urbanisation and biotechnology.