Climate change has featured prominently in financial news in recent times with major reports by two institutions highlighting the risk of climate impacts to global economic growth and the insurance sector.
One new report, titled ‘Climate Change Is A Global Mega-Trend For Sovereign Risk’, has been released by financial ratings agency Standard and Poor’s. It warns that climate change, and particularly global warming, will hit the economic growth rates of nations, including external performance and public finances.
Standard & Poor’s argues that climate change will be a significant factor in sovereign credit ratings and is one of two ‘global mega-trends’, together with ageing populations, that dominate global economic risks.
The report, prepared by Moritz Kraemer, chief sovereign credit risk officer with Standard and Poor’s, warns that global warming ‘will put downward pressure on sovereign ratings during the remainder of this century’, with poorer nations being most affected.
The report identifies Vietnam, Bangladesh and Senegal as among the most vulnerable, due to their reliance on agricultural production and employment, which can be vulnerable to shifting climate patterns and extreme weather events. They also have limited capacity to absorb the financial cost.
Lloyds calls for insurance industry action
Meanwhile, Lloyd’s of London has published a report titled Catastrophe Modelling & Climate Change, which calls for the insurance industry to carefully consider climate change and the potential impact it will have on its bottom line.
Announcing the release of the report, Lloyd’s Chairman, John Nelson, said the debate over whether climate change is a man-made phenomenon is no longer as important as the debate over how to plan for it and mitigate the risks involved. “As part of this, insurers should ensure that the tools they use adequately measure and price risks, including the influence of climate change,” he said.
John Nelson said insurance firms need to work together to mitigate climate change impacts through adaptation measures, such as promoting the construction of houses on stilts to reduce the effect of floods.
“At Lloyd’s, virtually every class of business we write is affected by rising temperatures and the increase in catastrophic events,” he said. “I very much hope that the industry can use the tools it has at its disposal – from premium rates charges to policy wordings – to make the world more resilient to climate change.”
The Lloyds report is available at Catastrophe Modelling & Climate Change