Failure to take appropriate action against the impacts of climate change poses a significant threat to the global economy, with GDP potentially shrinking by as much as 18% over the next three decades if no preventive measures are taken, according to stress-test analysis by Swiss Re Institute.
The global reinsurance giant has conducted a stress test to explore how 48 economies would be impacted by the effects of climate change under various temperature increase scenarios.
“As global warming makes the impact of weather-related natural disasters more severe, it can lead to substantial income and productivity losses over time. For example, rising sea levels result in loss of land that could have otherwise been used productively and heat stress can lead to crop failures. Emerging economies in equatorial regions would be most affected by rising temperatures,” says the reinsurer.
The findings show that, if no mitigating action is taken, global temperatures could rise by 3.2°C and the global economy could shrink by 18% by 2050.
In the severe scenario, China could lose roughly 24% of its GDP by 2050, while the U.S., Canada and the UK would all experience a loss of around 10%. Europe’s GDP would shrink by 11%, while economies such as Finland or Switzerland are seen as less exposed, at 6%, than France or Greece at 13%, for example.
Despite this stark warning, Swiss Re Institute’s new Climate Economics Index reveals that decisive action can limit the impacts of climate change, although more is required than what has been pledged today.
According to the findings, if some mitigating actions are taken, resulting in global temperatures rising by 2.6°C, the global economy could shrink by 14% over the same period. Further actions, resulting in a 2°C increase, would limit GDP contraction to 11% over the next 30 years.
However, if the targets of the Paris Climate Agreement are met, resulting in a below 2°C increase, Swiss Re says that global GDP would only shrink by 4% by 2050.
“Climate risk affects every society, every company and every individual. By 2050, the world population will grow to almost 10 billion people, especially in regions most impacted by climate change. So, we must act now to mitigate the risks and to reach net-zero targets. Equally, as our recent biodiversity index shows, nature and ecosystem services provide huge economic benefits but are under intense threat.
“That’s why climate change and biodiversity loss are twin challenges that we need to tackle as a global community to maintain a healthy economy and a sustainable future,” said Thierry Léger, Group Chief Underwriting Officer (CUO) and Chairman of Swiss Re Institute.
Swiss Re has also examined each country’s vulnerability to extreme dry and wet weather conditions, alongside the country’s capacity to navigate the effects of climate change.
The results reveal a similar story to the GDP impact analysis; with countries most negatively impacted often being the ones with the least resources to both adapt and mitigate the threats of rising global temperatures.
Swiss Re says that the “need for action is indisputable” and highlights the important role of the public and private sectors to both facilitate and accelerate the transition.
“Climate change is a systemic risk and can only be addressed globally. So far, too little is being done. Transparency and disclosure of embedded net-zero efforts by governments and the private sector alike are crucial. Only if public and private sectors pull together will the transition to a low-carbon economy be possible. Global cooperation to facilitate financial flows to vulnerable economies is essential. We have an opportunity to correct the course now and construct a world that will be greener, more sustainable and more resilient,” said Jérôme Haegeli, Swiss Re’s Group Chief Economist.
“Our analysis shows the benefit of investing in a net-zero economy. For example, adding just 10% to the USD 6.3 trillion of annual global infrastructure investments would limit the average temperature increase to below 2°C. This is just a fraction of the loss in global GDP that we face if we don’t take appropriate action,” he added.
In order to mitigate the impacts of climate change, Swiss Re calls for carbon-pricing policies combined with incentives for nature-based and carbon-offsetting solutions, and also international convergence on taxonomy for green and sustainable investments.
Additionally, the carrier feels that within financial reporting, institutions should regularly disclose how they plan to achieve the Paris Agreement and also net-zero emission targets.
“Re/insurers also play a role in providing risk transfer capacity, risk knowledge and long-term investment, using their understanding of risk to help households, companies and societies mitigate and adapt to climate change,” says Swiss Re.
Swiss Re is one of the re/insurers that has committed to transitioning their investment portfolios to net zero greenhouse gas emissions.
Back in January, the company’s CEO, Christian Mumenthaler, expressed confidence that companies in the World Economic Forum’s (WEF) Alliance of CEO Climate Leaders can reach their target of net zero carbon emissions by 2050.