Climate Risk Economics

Excellent column from the New York Times' David Gelles: Climate Change Could Become a Global Economic Disaster New warnings from financial firms and insurers point to a future defined by profound risks to the global economy from heat, storms and other disasters. Morgan Stanley tells clients their "base case" is 3C warming By 2049, costs from the effects of climate change could total more than $38 trillion annually - @PIK_Climate study in Nature In the US, climate change may wipe away $1.47 trillion in real-estate value by 2055 In a recent post, Günther Thallinger, member of the supervisory board of Swiss insurer Allianz SE, offered a stark warning about what these costs could mean for the financial system... https://lnkd.in/eYz6AsNz --- I would just add Neal et al 2025, which looks at the impact of local AND global weather (with the latter impacting supply chains and demand): Global warming of more than 3°C this century may wipe 40% off the world’s economy "the impact on the global economy is so large, all countries will be badly affected"... https://lnkd.in/eDtye_zv

Climate action is mostly described as a cost - x% of GDP or y billion or trillion dollars to be spent each year to bring on sufficient renewable energy and new decabonised technologies. Sometimes, this comes with a side bar that those investments will themselves provide a return over time. What we need to do better is to articulate the cost of doing nothing. We need to get into the habit of showing the other side of the ledger to make it easier for decision makers to decide to invest now. And we need to find a way to do this without massively underestimating that cost to our future due to uncertainties and discounting. This Boston Consulting Group (BCG), Cambridge Judge Business School, and the University of Cambridge’s climaTraces Lab report is the best I’ve seen so far at starting that conversation at a global level. The full report is highly recommended reading!

New study: Global warming of more than 3°C this century may wipe 40% off the world’s economy, new analysis reveals (Neal at al, 2025) - The damage climate change will inflict on the world’s economy is likely to have been massively underestimated - these models often contain a fundamental flaw – they assume a national economy is affected only by weather in that country - We found if the Earth warms by more than 3°C by the end of the century, the estimated harm to the global economy jumped from an average of 11% (under previous modelling assumptions) to 40% (under our modelling assumptions). This level of damage could devastate livelihoods in large parts of the world... https://lnkd.in/eX9fzATv See the full study: https://lnkd.in/e7yEZp6A

"If the UK wants to grow its resilience and create the right conditions to protect national security, it must move budget and policy towards safeguarding planetary solvency." To coincide with the Chancellor's Spring Statement, Prof Tim Lenton and Sandy Trust have published an op-ed in the Financial Times Sustainable Views on the importance of managing human activity to minimise the risk of societal disruption from climate and nature-driven impacts. ⤵️ Global Strategic Communications Council (GSCC) Institute and Faculty of Actuaries Global Systems Institute, University of Exeter https://lnkd.in/e8mxiPUv

Is climate now the UK's biggest security blindspot? Writing in the FT's Sustainable Views ahead of the Chancellor's Spring statement, Sandy Trust and Tim Lenton point out the risks of cutting overseas aid and Treasury reserves to fund £2.2bn in defence. "As we ramp up defence spending," the authors say, "UK policymakers would do well to heed the lessons from the past and address a national security blindspot: planetary solvency." "𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗰𝗵𝗮𝗻𝗴𝗲 𝗶𝘀 𝗿𝗮𝗽𝗶𝗱𝗹𝘆 𝗯𝗲𝗰𝗼𝗺𝗶𝗻𝗴 𝗮 𝗻𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝘀𝗲𝗰𝘂𝗿𝗶𝘁𝘆 𝗶𝘀𝘀𝘂𝗲, with food, water and heat stresses increasingly impacting populations’ health and wealth. If unchecked, mass mortality, involuntary migration and severe GDP contraction are likely. "These risks are yet to be reflected in the government figures that inform policy action, leaving decision-makers blind to their potential severity. That shows in planned spending cuts which exacerbate long-term risks. "Present-day policies and investments can decrease these risks by orders of magnitude: 𝘁𝗵𝗲 𝗿𝗶𝗴𝗵𝘁 𝗽𝗼𝗹𝗶𝗰𝘆 𝗮𝗰𝘁𝗶𝗼𝗻 𝘁𝗼𝗱𝗮𝘆 𝗰𝗮𝗻 𝗺𝗶𝘁𝗶𝗴𝗮𝘁𝗲 𝘂𝗽 𝘁𝗼 𝟵𝟬% 𝗼𝗳 𝘁𝗵𝗲 𝗰𝘂𝗿𝗿𝗲𝗻𝘁𝗹𝘆 𝗽𝗿𝗼𝗷𝗲𝗰𝘁𝗲𝗱 𝗚𝗗𝗣 𝗹𝗼𝘀𝘀 𝗮𝗻𝗱 𝗵𝘂𝗺𝗮𝗻 𝗱𝗲𝗮𝘁𝗵𝘀, according to our analysis, while also diminishing the likelihood of resource and migration-driven conflict and geopolitical destabilisation already surfacing today." "But redirecting billions away from the national programmes and international financial mechanisms designed to address these systemic risks, is a strategic failure that risks further undermining global security and leading us towards planetary insolvency—one in which state failure, economic collapse and large-scale mortality become likely within our lifetimes." Read their full piece here 💬 https://lnkd.in/e8mxiPUv   📰 Sandy Trust and Tim Lenton are authors of the 'Planetary Solvency' report, the latest in a series from the Institute and Faculty of Actuaries and University of Exeter. Read the full report here: https://lnkd.in/eUWWHF4v The report features contributions from Jesse Abrams (University of Exeter) and IFoA members Lucy Saye, Oliver Bettis, Georgina Bedenham, and Oliver Hampshire. #UKPolicy #SpringStatement

🔥 𝐊𝐞𝐲 𝐦𝐨𝐦𝐞𝐧𝐭 𝐟𝐨𝐫 𝐜𝐥𝐢𝐦𝐚𝐭𝐞 𝐚𝐜𝐜𝐨𝐮𝐧𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐭𝐡𝐢𝐬 𝐰𝐞𝐞𝐤! A German court will examine whether fossil fuel companies can be held liable for the global harms they knowingly caused through their contributions to climate change. 📍🐦 𝐋𝐢𝐯𝐞 𝐟𝐫𝐨𝐦 𝐇𝐚𝐦𝐦 —I’ll report in real-time from the courtroom on Bluesky and Twitter, as no webcast will be available. Follow the hearings live: #SaulvsRWE #ClimateLitigation #KlimaKlage. ⚖️ 𝐓𝐡𝐞 𝐜𝐚𝐬𝐞: On March 17 & 19, the Regional Court of Hamm will hold public hearings to hear arguments from both parties and review relevant science. This marks 10 years since Saúl Luciano Lliuya, a Peruvian farmer, sued Germany’s largest electricity producer, RWE. His community in Huaraz faces a catastrophic flood risk due to glacial melt exacerbated by climate change. Saúl demands that RWE contribute to the cost of protecting his hometown—in proportion to its role in causing the crisis. 📜 𝐓𝐡𝐞 𝐥𝐞𝐠𝐚𝐥 𝐚𝐧𝐠𝐥𝐞: While German law lacks specific climate liability provisions, the Civil Code’s “neighborhood section” offers a potential path to accountability: “𝐼𝑓 𝑡ℎ𝑒 𝑜𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝑖𝑠 𝑖𝑛𝑡𝑒𝑟𝑓𝑒𝑟𝑒𝑑 𝑤𝑖𝑡ℎ 𝑏𝑦 𝑚𝑒𝑎𝑛𝑠 𝑜𝑡ℎ𝑒𝑟 𝑡ℎ𝑎𝑛 𝑟𝑒𝑚𝑜𝑣𝑎𝑙 𝑜𝑟 𝑟𝑒𝑡𝑒𝑛𝑡𝑖𝑜𝑛 𝑜𝑓 𝑝𝑜𝑠𝑠𝑒𝑠𝑠𝑖𝑜𝑛, 𝑡ℎ𝑒 𝑜𝑤𝑛𝑒𝑟 𝑚𝑎𝑦 𝑟𝑒𝑞𝑢𝑖𝑟𝑒 𝑡ℎ𝑒 𝑑𝑖𝑠𝑡𝑢𝑟𝑏𝑒𝑟 𝑡𝑜 𝑟𝑒𝑚𝑜𝑣𝑒 𝑡ℎ𝑒 𝑖𝑛𝑡𝑒𝑟𝑓𝑒𝑟𝑒𝑛𝑐𝑒. 𝐼𝑓 𝑓𝑢𝑟𝑡ℎ𝑒𝑟 𝑖𝑛𝑡𝑒𝑟𝑓𝑒𝑟𝑒𝑛𝑐𝑒𝑠 𝑎𝑟𝑒 𝑡𝑜 𝑏𝑒 𝑓𝑒𝑎𝑟𝑒𝑑, 𝑡ℎ𝑒 𝑜𝑤𝑛𝑒𝑟 𝑚𝑎𝑦 𝑠𝑒𝑒𝑘 𝑎 𝑝𝑟𝑜ℎ𝑖𝑏𝑖𝑡𝑜𝑟𝑦 𝑖𝑛𝑗𝑢𝑛𝑐𝑡𝑖𝑜𝑛.” The Court has already acknowledged that, due to the global nature of climate harm, this law could tentatively apply to a German company’s impact as far as in the Andes. 🌍 𝐖𝐡𝐲 𝐭𝐡𝐢𝐬 𝐦𝐚𝐭𝐭𝐞𝐫𝐬: The Court must decide whether polluters can be held legally accountable for the climate damage they helped create. If the Court rules that polluters can, on principle, be held liable under tort law, this would set an influential precedent that could inform cases across the world. In fact, there are at the moment 43 pending cases demanding financial redress for climate harm. 🏛️ 𝐓𝐨𝐫𝐭 𝐥𝐚𝐰 has driven accountability before—from Big Tobacco to asbestos. It’s only a matter of time before fossil fuel companies face the same reckoning. Saul vs. RWE could be the case that accelerates this shift. 📢 🫵 𝐌𝐲 𝐫𝐞𝐪𝐮𝐞𝐬𝐭 𝐭𝐨 𝐘𝐎𝐔: Help spread the word! Below are links to key articles—share them widely. If investors start seeing climate liability as a real risk, they may divest from the very industry driving this crisis. Let’s make sure Saúl’s courage (and that of plaintiffs in similar cases) leads to real impact. 🗣️ 🙏 #SaulvsRWE #ClimateLitigation #KlimaKlage

I'm very pleased to share my latest peice published in the European Central Bank Economic Bulletin, looking at the economic impact of floods. https://lnkd.in/en-Nnu3H The piece draws on work with Sehrish Usman and Guzmán González-Torres studying the impact of extreme weather events on European regions (now out as an ECB working paper). There have been many recent examples of devastating floods in the EU in recent years, including in Belgium / Germany in 2021, Slovenia in 2023 and Valencia in 2024. With climate change likely inreasing the number of severe floods in the future, it's vital to understand what the long-run impacts of these events are on the affected regions 💡 We find mixed impacts, depending on the region. High-income regions manage, on average, to "build back better." We find evidence of successful reconstruction, with higher economic activity, higher capital and higher productivity. But that is far from universal. In less wealthy regions, the opposite occurs, with lower activity and lower productivity. On this classification, Valencia is a middle-income region. 💡 This is why it is vital to look at the structural factors that help boost resilience to events and help underpin the recovery. Such factors include ex ante adaptation (such as flood defences), early warning systems, insurance and ex post solidarity from national and European sources. 💡 Moreover, impacts from the floods can spill over to other regions via supply-chain linkages (see the cited work by Gert Bijnens and others on the Belgian experience). 💡 We need to stop calling these events "natural disasters". Placing economic activity in exposed areas is a human choice, not a natural one. Failing to put in adequate adaptation is a human choice. Adaptation helps reduce the social and economic impact (see the work we cite by Matteo Ficarra and Rebecca Mari). Destroying wetlands and flood plains, nature's flood protection, is a human choice. And continuing to emit carbon resulting in more floods in the future is a human choice, too.

CBC: Climate disasters lead to billions in insurance losses. Could they trigger a financial crisis? "The L.A. fires are a good illustration. Many of the burnt properties' mortgages will be under the water. Some people will walk away and stop repaying. But it doesn't end there. A lot of that debt is packaged and sold to investors. "That gets spread around. That doesn't just happen in the local California banks. They're part of national chains. Big banks make bundles of derivatives and they sell them to banks all over the world"... If this reminds you of 2008, well, it should - with one crucial difference: this time, the "climate-subprime" housing will NOT bounce back https://lnkd.in/eXZSUaE5

🌍 EcoMap is Live! 🌍 The pioneering nonprofit data platform that uncovers financial climate risks and environmental costs of corporate emissions is now available. Free climate data covering ~20,000 companies, 86 countries, and 381 industries, EcoMap transforms environmental impacts into financial insights—enabling assessments of environmental efficiency, performance benchmarking, and decoupling rates. EcoMap’s analysis reveals: 📉 ~34% of global corporate operating profit is equivalent to the environmental cost of Scope 1 & 2 emissions alone. When including Scope 3, this figure surpasses 1.7x total operating profit.   🔍 Developed in partnership with Norwegian School of Economics, MSCI Sustainability Institute, and IFVI, EcoMap provides transparent, academically rigorous data to drive impact-aware decision-making. MSCI Inc., Norges Handelshøyskole (NHH), International Foundation For Valuing Impacts (IFVI), Centre for Climate and Energy Transformation 🌍 Free from commercial influence, EcoMap makes environmental impact understandable for all stakeholders. 💡 Explore the findings and access the database here: www.ecomap.org Advisory Board: Tobias Fleischer • Jacqueline af Ugglas • Kennedy Mbeva • Christian Jebsen • Tomas Rosales • John Knights • Nicholas Balestrini • Shiyu Yan • Rumi Mahmood • Bjørn Malm • Richard Blundell • Andrew Merrie • Endre Kildal Iversen • Dennis West • Pontus Ferno, CFA • Mirre Stevens • Erik Bjørstad • Ståle Navrud Initiators: Gunnar Eskeland Kaja Dahl Johnsen Hanna Roll Koppang Dan Le Henrik Sommerseth Kaja Mazarino Håkonsen Yann Robiou du Pont Ellina Knudsen #Sustainability #ClimateAction #ESG #ImpactAccounting #EnvironmentalCosts #NetZero #ClimateRisk #Impact #ClimateFinance #EcoMap #GHG

Today’s data on spiralling atmospheric CO2 concentrations is another sign the world will soon definitively exceed 1.5C. This is a critical reason why we need better climate risk assessment. Like a ship in a storm, we need superb situational awareness. This is so we can better spot what is unmanageable and must be avoided, as well as what might be unavoidable and will need managing. Yet climate risk assessments used by governments, companies, and other institutions tasked with managing society routinely anticipate that even catastrophic levels of warming will only shave a small amount of annual GDP growth. That the storm is benign. Assessments miss key risks, ranging from Earth system tipping points to cascading risks (where one threat has a knock on effect that creates many more, like the pandemic graduating from a health crisis into economic, political, etc crises). These risks become a central concern as we head to and beyond 1.5C. Take this example, selected at random from a leading climate risk scenario explorer tool. It projects that, at a catastrophic 3C of global warming by 2100, some provinces in Yemen will see a median drop in labour productivity of 9.6% (range 4.5 to 20%). Devastating. But this does not include cascading risks, like conflict and food crises, nor many other risks. It would be far worse. As the new report from the Institute and Faculty of Actuaries and Global Systems Institute University of Exeter shows, these predictions are ‘precisely wrong’. The consequence of these poor risk assessments: our situational awareness is misled, leading to poor decisions as we try to navigate the literal and figurative storm of a 1.5C+ world. The report looks at this problem from the perspective of actuaries and risk assessment and management in the financial world. And it’s chock full of ideas on what to do about this situation. It was a pleasure to be on the expert advisory group. Read the report - Planetary Solvency: finding our balance with nature - here: https://lnkd.in/e5RxeBFg Big congrats to the great author team: Sandy Trust Lucy Saye Jesse F Abrams Oliver Bettis Georgina Bedenham Oliver Hampshire and Tim Lenton - and all else involved.