The Climate Cat That's Really a Tiger
The world’s infrastructure was built around a climate that no longer exists.
This disconnect between societies built-for-a-climate-long-past and the current, rapidly-changing climate is why there are so many multi-billion-dollar disasters, according to a recent study in Nature Climate Change.
Here’s another disconnect you might find hard to believe.
Some 2000 of the largest publicly-traded U.S. firms say they aren’t concerned about the physical risks posed by climate change, including extreme weather. (Based on required public disclosures about the risks they face.)
Need-to-Know: Most companies aren’t worried about impacts of climate change
The only thing they’re worried about is the costs of the transition to clean energy.
There is an astonishing reason for this which I will get into shortly.
Despite the high vulnerabilities of municipal infrastructure to climate-driven extreme events, it is the same we’re-not-worried story in municipal finance, including municipal bonds.
And yet many municipalities are reliant on property taxes to meet their budgets, pay for fire and police services, etc. Uninsured homes and properties severely damaged by floods, wildfires, and storms often end up being abandoned. Even with property insurance, the value of these properties craters.
Need-to-Know: Municipalities, Banks, Insurance companies face big climate-related losses
Banks also face increased mortgage defaults.
There’s more. Physical climate risks have been largely treated as immaterial by the major country and company credit rating agencies like Moody’s and Fitch.
So what the heck are these folks smoking, right?
Turns out: Really bad economic models. Dangerously bad.
For example:
One of the latest and most widely used climate impact models economists use says if global warming reaches 3 degrees C the impact on annual GDP growth would be as low as 3%. So, no biggie.
Scientists say 3C is potentially catastrophic since large areas of the Earth would be uninhabitable. These areas would too hot to survive in, never mind grow food, forcing some 2 to 4 billion people to move.
Need-to-Know: Widely-used economic models are dangerously wrong on climate
Another example:
Influential economic models developed by Nobel-Prize-winner William Nordhaus concludes that 6 degrees C of warming would result in GDP losses of 8% to 12.5%. Similar conclusions are common in peer-reviewed economic studies.
However, scientists describe 5 to 6 degrees C, as “beyond catastrophic”, and posing an “existential threat to humanity”.
Need-to-Know: Dangerously-wrong economic models mislead politicians, CEOs and others
The artificially-benign forecasts the models generate are dangerous because they mislead policymakers and business leaders about the severe risks we face, according to a report by the UK’s Institute and Faculty of Actuaries (IFA).
Sandy Trust, an Edinburgh-based actuary, and lead author of the report told the publication Climate Home that underestimating climate change is extremely dangerous:
What economists have done is say that climate change is a cat in the bush, not a tiger.
As we all should know by now climate is indeed a tiger with very big teeth and very sharp claws.
It’s not hiding in a bush anymore. It’s in plain sight and not going away anytime soon.
Until next time, be safe.
Stephen
P.S. For more on this topic, give this a read: Flawed economic thinking on climate has put your pension at risk