Business leaders know the importance of protecting themselves from rare occurrences. Many businesses buy insurance to pool their risks and hedge against rare, but catastrophic losses. A new report released last week shows that climate change poses a significant risk to our economy.
Former Treasury Secretary Hank Paulson compared the issue to the recent financial crisis:
"I know a lot about financial risks--in fact, I spent my whole career managing risks and dealing with financial crisis. Today I see another type of crisis looming: A climate crisis. And while not financial in nature, it threatens our economy just the same."
The "Risky Business" project, chaired by business leaders Michael Bloomberg, Hank Paulson, and Tom Steyer, combines scientific research with insurance-based modeling to quantify the economic threats of climate change, down to the regional and sector level. Businesses can then make informed decisions based on their own tolerance for risk.
On Thursday, Business Forward will host a call with members of the Risky Business project to further discuss the report's implications for the business community. Click here to reserve your spot.
We will cover the unique risk for each region in a separate post, but here are the main takeaways from the report (which you can read here):
A New, Precarious Normal
Climate change will make extreme weather more common, disrupting business operations and supply chains. As the chart below shows, the "new normal" includes more frequent cases of catastrophic weather. Not only will severe weather occur more often, extreme weather will become more destructive.
Weather disasters like Hurricane Katrina and Superstorm Sandy are rare, but have long-lasting impacts. Nearly 30 percent of businesses that were affected by Superstorm Sandy were estimated to have failed. It is through extreme weather events that climate change poses the greatest threat.
Winners and Losers
The effects of climate change will vary dramatically across the U.S. Each region will face unique risks based on geography, infrastructure and local industry. Some of the effects include:
- Higher sea levels and more severe storm surge, which could lead to increases in annual property losses of $2 to $3.5 billion along the East and Gulf coasts within 15 years. Between $66 billion and $106 billion worth of property will be indudated by 2050.
- By 2050, Americans will experience an average of 27 to 50 days of 95°F+ heat every year. Labor productivity for outdoor workers will decline and heat-related mortality will increase.
- Farmers will need to change what crops they grow, as certain crops may not hold up in a hotter climate. The energy sector will also need to adapt, as businesses use more air conditioning, and use less heating, requiring less natural gas.
These changes will create winners and losers. Climate change may benefit some businesses, like farmers in North Dakota who will gain a longer growing season. But increases in extreme heat will mean that, without adaptation, farmers in the Southeast or Midwest may see crop yields decline by 50 to 70 percent. As a whole, losses will far outweigh the gains. The same is true for businesses that see changes in heating and cooling costs; some may benefit, but on net, the changes will be costly.
We will further describe the impact that climate change will have on each of the seven regions later this week. Join our call on Thursday for an in-depth briefing from researchers that worked on the project.