Climate change poses the biggest long-term threat to the global economy, according to a new report by the Swiss Re Institute.
If no mitigating action is taken, global temperatures could rise by more than 3°C and the global economy could shrink by 18% in the next 30 years. However, the impact can be lessened if decisive action is taken to meet the targets set by the Paris Climate Agreement, according to Swiss Re Institute’s Climate Economics Index.
Hitting those targets will require more than what is currently pledged, and both the public and private sectors will play vital roles in accelerating the transition to net-zero, the Swiss Re Institute said.
The institute conducted a stress test to examine how 48 economies would be impacted by the effects of climate change under four different temperature-increase scenarios. As global warming increases the impact of weather-related natural disasters, it can lead to dramatic losses in income and productivity over time, the institute said. For example, rising sea levels result in loss of productive land, and heat stress can lead to crop failures. Emerging economies in equatorial regions would be most impacted by temperature rises.
Major economies would lose about 10% of GDP in 30 years. In a severe scenario of a 3.2°C temperature increase, China could lose 24% of its GDP by mid-century. The US, Canada and the UK would see a 10% GDP loss. Europe would see an 11% loss. Economies like Finland or Switzerland, which are less exposed to the impacts of climate change, would see around a 6% GDP loss, while more exposed economies like France or Greece would see a 13% loss.
“Climate risk affects every society, every company and every individual,” said Thierry Léger, group chief underwriting officer and chairman of the Swiss Re Institute. “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.”
Coordinated action by the world’s largest carbon emitters is crucial to meeting climate targets, the Swiss Re Institute said. The public and private sectors can facilitate the transition, particularly regarding investments in sustainable infrastructure vital to keeping temperature increases below 2°C. Institutional investors, like insurance companies and pension funds, are ideally positioned to play a key role, the institute said.
“Climate change is a systemic risk and can only be addressed globally,” said Jérôme Haegeli, Swiss Re group chief economist. “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.”