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Climate Change Remains Single Biggest Global Economic Threat

Claudia Baldwin

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Climate change risks continue to dominate the global economic threat register even as the COVID-19 pandemic enters its third year, with fresh estimates suggesting the overall bill for last year’s natural disasters and weather-related catastrophes hit $280 billion worldwide.

In the latest annual risk assessment published by the World Economic Forum (WEF) this week, climate change and extreme weather feature heavily in the top threats to the global economy in the short, medium and long-term, while there are also growing concerns over the threat to livelihoods, mental health and social cohesion in the wake of the COVID-19 crisis.

However, despite the ongoing nature of the coronavirus pandemic and the continued threat from new variants, extreme weather is still listed as the greatest single threat facing the global economy over the next two years, with the failure of climate action sitting in third place. For the medium-term outlook over the the next five years, climate action failure climbs to top spot in the list of economic threats, just ahead of extreme weather.

In addition, climate and environmental threats loom large over WEF’s long-term risk outlook, with climate action failure, extreme weather, biodiversity loss, natural resource crises and human environmental damage making up the entire list of the top five risks facing the global economy over the next decade.

As companies recover from the pandemic, they are rightly sharpening their focus on organizational resilience and ESG credentials.

Commenting on WEF’s findings, Peter Giger, group chief risk officer at Zurich Insurance Group, emphasized that the climate crisis “remains the biggest long-term threat facing humanity,” and called for renewed action to decarbonize the global economy in line with the goals of the Paris Agreement.

“Failure to act on climate change could shrink global GDP by one-sixth and the commitments taken at COP26 are still not enough to achieve the 1.5 [degrees Celsius] goal,” he warned. “It is not too late for governments and businesses to act on the risks they face and to drive an innovative, determined and inclusive transition that protects economies and people.”

WEF’s latest assessment comes as the COVID-19 pandemic, which first emerged in China in late 2019, enters its third year, with the Omicron variant and public health concerns continuing to cause major disruption to the global economy. WEF’s annual Davos Summit this month has once again been forced online and governments around the world are wrestling with how to manage pressure on health systems, minimize the risk of dangerous new variants and imropve access to vaccines, while returning their economies to a degree of normality.

Meanwhile, the global gas crisis — which has initially sparked by the restart of economic activity following the first wave of the pandemic — continues to push up energy prices, with WEF warning that the global recovery from COVID-19 would likely prove highly volatile and uneven over the next three years.

As a result, the new global risk assessment also highlights significant social threats to economic stability in 2022 and beyond, pointing in particular to the risks of livelihood crises, the erosion of social cohesion, further infectious disease threats, debt crises and mental health deterioration.

Carolina Klint, risk management leader for continental Europe at insurance broker Marsh, said the combination of major, interlinked environmental and social risks underscored the importance of companies bolstering their environmental, social and governance (ESG) strategies so as to bolster their resilience and tap into new market opportunities. “As companies recover from the pandemic, they are rightly sharpening their focus on organizational resilience and ESG credentials,” she said.

The latest warnings come in WEF’s 17th annual assessment of the greatest threats facing the global economy, which has increasingly seen climate and environmental concerns dominate the concerns of leading economists and business leaders as the impacts from a warming planet have intensified.

The Global Risks Report 2022 was compiled by WEF in collaboration with its strategic partners Marsh McLennan, SK Group and Zurich Insurance Group, as well as advisers at the University of Oxford, the National University of Singapore and the University of Pennsylvania.

It follows a raft of major natural disasters and extreme weather events last year that killed almost 10,000 people in total, such as Hurricane Ida in the U.S., flash floods and extreme rainfall across central Europe, as well as wildfires that once again raged across Europe, North and South America, Asia and Australia. Scientists this week concluded 2021 was one of the hottest years on record, with the last seven years the hottest seven year period in recorded history.

As a result, insurance giant Munich Re said 2021 proved to be the second-costliest for the global insurance sector, with natural disasters driving overall losses of $280 billion worldwide, of which just $120 billion was insured, according to its latest annual disaster losses report.

Although 2017 remains the costliest year on record, natural disasters in 2021 caused substantially higher losses than the previous two years, with well under half of these losses still uninsured.

Hurricane Ida, which ravaged parts of the U.S. south last year, proved to be the world’s costliest natural disaster in 2021, driving overall losses of $65 billion alone, while flash floods in Europe drove losses of $54 billion, with Germany in particular among the hardest hit, according to Munich Re.

Many of last year’s weather catastrophes fit in with the expected consequences of climate change, the insurance giant said.

Flood victims in Taman Sri Muda in Malaysia. Image via Shutterstock/Izwan Is

Munich Re board member Torsten Jeworrek, CEO of its reinsurance arm, stressed that greater loss preparedness and climate protection should therefore be a matter of urgency for the global economy.

“The images of natural disasters in 2021 are disturbing,” he said. “Climate research increasingly confirms that extreme weather has become more likely. Societies need to urgently adapt to increasing weather risks and make climate protection a priority. Insurers meet their responsibilities by covering a portion of the risks and losses. By applying risk-adequate premiums, they put a price on natural hazards, thereby encouraging carefully considered behavior to limit the losses.”

But Ernst Rauch, chief climate and geo scientist at Munich Re, who also heads up the firm’s Climate Solutions Unit, warned that adapting to increasing climate risks would be “a challenge.”

“The 2021 disaster statistics are striking because some of the extreme weather events are of the kind that are likely to become more frequent or more severe as a result of climate change,” he added. “Even though events cannot automatically be attributed to climate change, analysis of the changes over decades provides plausible indications of a connection with the warming of the atmosphere and the oceans.”

Climate research increasingly confirms that extreme weather has become more likely. Societies need to urgently adapt to increasing weather risks and make climate protection a priority.

With the world’s biggest economy, the USA, suffering the highest losses from natural disasters and weather events last year, the latest data suggests the impacts of climate change can prove a threat to richer countries and poorer nations alike.

That much is underscored by fresh data this week from U.S. federal agency the National Oceanic and Atmospheric Administration (NOAA), which in its own assessment found that 688 people were killed in 20 major weather and climate disasters in the country last year.

In total, these events — which include droughts, floods, hurricanes, wildfires and winter storms — cost the U.S. a total of $145 billion, with each disaster on its own costing more than $1 billion, NOAA said.

From floods to wildfires, unexpected freezing temperatures, droughts and heatwaves and even hurricanes, the growing physical threats posed by natural disasters to lives, livelihoods and economies lay bare the eye watering costs posed by events that are likely to intensify in the coming years due to climate change.

The data and risk warnings issued this week by leading economists and insurers should, once again, send alarm bells ringing in government offices and boardrooms worldwide, particularly given the seven warmest years on record all occurred in the past seven years.

Only through deep decarbonization to halve global emissions by 2030 can the world stand a chance of stopping these threats worsening. Yet despite the glaring evidence, growing warnings, and renewed commitments from global governments and businesses made at the COP26 Climate Summit just two months ago, the world remains a long way from delivering on its climate pledges.

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Episode 327: Meet Carbontech Startup Air Company

Claudia Baldwin

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This week’s run time is 29:34.

WEEK IN REVIEW (3:45)
FEATURES
Turning carbon into value (18:55)

Gregory Constantine, co-founder and CEO of Air Company, talks growth plans for his startup — a leading carbon use company specializing in consumer goods such as vodka and fragrance made from air.

*Music in this episode: Lee Rosevere: “And So Then,” “4th Ave. Walkup,” “I’m Going for a Coffee” and “Let That Sink In.”

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To make sure you don’t miss the newest episode of GreenBiz 350, subscribe on iTunes or Spotify. Have a question or suggestion for a future segment? E-mail us at [email protected].

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The Sustainability Scorecard, Reviewed

Claudia Baldwin

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A version of this article originally appeared in our Circularity Weekly newsletter. Subscribe to the newsletter here.

I was invited to read a new book and interview one of the authors. As someone who has long enjoyed reading books about sustainability, it was very flattering to be sent a copy of a new book, “The Sustainability Scorecard,” by Paul Anastas and Urvashi Bhatnagar, and asked to provide my thoughts in a review.

Many of our Circularity Weekly readers are probably familiar with Paul Anastas. A hero of mine since graduate school, Anastas is a deep thinker, a brilliant chemist and an engaging speaker. I was far less familiar with Urvashi Bhatnagar. Fortunately for me, I had the opportunity to chat with Bhatnagar over the phone about her book and immediately became a fan. A healthcare executive and population health expert with a keen eye toward sustainability, Bhatnagar brings a different perspective to “The Sustainability Scorecard” that pairs quite well with Anastas.

“The Sustainability Scorecard” provides a simple and straightforward method for identifying where a company currently is on its sustainability journey and a method to track progress. The book proves that sustainability makes economic as well as ecological sense and guides leaders in creating and scaling their own green supply-chain initiative. I’ve read a lot of sustainability books, and this one provides the most practical steps for corporate improvement. According to Goodreads, “Through repeatable, reliable processes that address operating model design and new key performance indicators to scaling, this book is a practical guide that leaders can rely on to make their existing systems more sustainable and profitable.”

What I learned No. 1: Entrenched systems are not so entrenched

To some degree, this takeaway from the book follows quite well on my piece from a couple Fridays ago. We often get the false sense that the status quo is the status quo is the status quo is the status quo (Wait, did I just type that a bunch of times? Whoops, leaving it in because it helps make the point). “Entrenched systems and globe-spanning companies may appear impossible to dislodge,” Bhatnagar and Anastas write, “but consider that none of the top-10 most valuable companies today were on that list in 1990. Many didn’t even exist in 1990. Big changes can happen within only a few decades.” Because of this, we need to overcome the learned behavior that we can’t make a difference because the behemoths in the economy will never change.

What I learned No. 2: The scorecard framework

Bhatnagar and Anastas have provided a straightforward and scalable model for firms to move directionally towards sustainability. The framework focuses on four areas:

Waste prevention
Maximizing efficiency and performance
Renewable inputs
Safe degradation of materials

While these endpoints are largely rooted in environmental sustainability, they also cross over into social wellbeing for workers, fence-line communities and product users — all very important considerations for any sustainability practice.

When I looked at the scorecard, I was struck by how it is simultaneously simple and in-depth. The four high-level goals manage to get to the heart of how to make more sustainable products and processes without overcomplicating things. The authors have developed a data-driven methodology that can be approached whether you are starting your sustainability work (Initiate phase), are down the path but still learning (Develop phase) or are an industry leader that’s been focused on sustainability for quite some time (Maturity phase). The key to this framework, and I think one of the key insights I pulled from the book, is that directionality is important. In other words, set a direction for your sustainability work that aligns with the best science available and start moving. Sure, the pace we are moving is important, but the direction is far more so.

What I learned No. 3: Perfection is unattainable

When I spoke with Bhatnagar about the book, she mentioned this was one of the sticking points in writing and publishing it. There is always a desire within any framework to define the perfect state, to show users how to grab the brass ring. Bhatnager and Anastas argue that sustainability doesn’t have a perfect state. Even if firms can achieve the best score in all areas of the sustainability scorecard (zeros for all categories in this case), there will always be work to do. The work could be remediating the issues the firm has created in the past or pushing upstream and downstream partners to improve their sustainability. In other words, firms should be reaching for perfection, but it should always be getting farther away as the science evolves and shows us what it means to be sustainable as an individual, a company, a nation and a global community.

Overall

When I look at this book and the Sustainability Scorecard as a whole, I am excited for the structure it can bring to corporate sustainability in all sectors of the economy. Having spent a considerable amount of time in the private sector trying to build sustainability programs, I can confidently say that these broadly applicable frameworks are always welcome as inputs to a sustainability strategy.

I’d encourage folks to pick up this book, give it a read and think about how you can apply the Sustainability Scorecard to your own work. If you set directional goals, track data and measure progress, you can ensure you are moving in the right direction. And remember, if you reach for the brass ring and fall, at least you tried.

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Environment

Episode 326: the Heat Index; a Historic Climate Policy Opp

Claudia Baldwin

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This week’s run time is 44:51.

WEEK IN REVIEW (3:30)
FEATURES
A sweltering European summer (21:05)

James Murray, editor-in-chief of BusinessGreen, chats about record-breaking heat waves in the U.K. and Europe are challenging infrastructure and economies, and reshaping the dialogue about climate risk.

Cognizant CSO reflects on climate change and employee well-being (30:20)

Sophia Mendelsohn, chief sustainability officer and global head of ESG at tech services firm Cognizant, addresses the company’s broad ESG strategy and why employee well-being needs to be considered in the context of climate change.

*Music in this episode: Lee Rosevere: “Keeping Stuff Together,” “Not My Problem,” “Snakes,” “Southside.”

STAY CONNECTED

To make sure you don’t miss the newest episode of GreenBiz 350, subscribe on iTunes or Spotify. Have a question or suggestion for a future segment? E-mail us at [email protected].

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