The world is reportedly in danger of losing 10% or more of its total GDP by the end of the century. This is the top takeaway from a recent stress-test study by Swiss Re that looks at the consequences of failing to address climate and environmental risks.
To put that into perspective using the most recent economic and human tragedy, the COVID-19 pandemic trimmed a full 6% of global GDP in 2020, World Economic Forum said citing two analysts. This is widely seen as an economic catastrophe, Gulf-Times states.
So what are countries and companies doing to safeguard against an even more precipitous decline in wealth?
This question comes at a moment when environmental impacts are growing too severe and costly to ignore. With the Arctic Circle sweltering at 48C, species in decline globally and shareholders demanding new approaches, this is an opportune moment to launch the green recovery and pave the way towards sustainable development and lasting prosperity.
“Yet, even with profit in the green recovery, we are not on track to seize this transformative moment. For private-sector leaders, questions remain. Many know that action is needed, but beyond obvious action like energy efficiency and clean energy, potential solutions and their value are less obvious,” noted André Hoffmann, vice-chairman, Roche, Switzerland and Katell Le Goulven, executive director, Hoffmann Institute, INSEAD.
Potential solutions will be in focus at upcoming meetings of governments and development stakeholders. Protecting nature contributes to the stable environment that is a foundation for growth. For companies and countries looking to gain a competitive edge, investing in biodiversity preserves stability and provides a significant competitive advantage.
Biodiversity is emerging as an area of interest for firms looking for that first-mover advantage, WEF noted. Simply put, healthy ecosystems are needed for healthy growth. As much as we need a stable climate, we must protect oceans and forests and the life that fills these habitats.
This may sound more like a science project or protest march than a business strategy, but forward-thinking business leaders understand that nature and economics are inextricably linked. A recent report found that half of global GDP depends on healthy ecosystems rich with biodiversity.
Pollinators like bees and hummingbirds enable agricultural production. Drugmakers look to nature to innovate new medicines. Tourists flock to natural parks and beautiful beaches. Fishermen feed billions per day from the world’s oceans.
“Clearly, our business models rely on the natural world,” they noted.
The next business frontier lies at the intersection of climate change and biodiversity, and those accounting for nature as a whole will know how to manage risk, meet demand and scale up as the world transforms.
Visionary leaders have sound business reasons to protect, sustainably manage and restore ecosystems to deliver sustained and sustainable growth. In 2021, momentum is building in support of innovative business models and solutions in harmony with the natural world.
Clearly, industry leaders need to change the measures of growth, bring the true value of nature into market pricing and ensure demands on nature do not exceed the ability to supply.
New Climate Economics Index stress-tests how climate change will impact 48 countries, representing 90% of world economy, and ranks their overall climate resilience
Expected global GDP impact by 2050 under different scenarios compared to a world without climate change:
* 18% if no mitigating actions are taken (3.2°C increase);
* 14% if some mitigating actions are taken (2.6°C increase);
* 11% if further mitigating actions are taken (2°C increase);
* 4% if Paris Agreement targets are met (below 2°C increase).
Economies in Asia would be hardest hit, with China at risk of losing nearly 24% of its GDP in a severe scenario, while the world’s biggest economy, the US, stands to lose close to 10%, and Europe almost 11%
Climate change poses the most significant long-term threat to the global economy. If no mitigating action is taken, global temperatures could rise by more than 3° C and the world economy could shrink by 18% in the next 30 years. But the impact can be lessened if decisive action is taken to meet the targets set in the Paris Agreement, Swiss Re Institute’s new Climate Economics Index shows. This will require more than what is pledged today; public and private sectors will play a crucial role in accelerating the transition to net zero.
Swiss Re Institute has conducted a stress test to examine how 48 economies would be impacted by the ongoing effects of climate change under four different temperature increase scenarios. As global warming makes the impact of weather-related natural disasters more severe, it can lead to substantial income and productivity losses over time. For example, rising sea levels result in loss of land that could have otherwise been used productively, and heat stress can lead to crop failures. Emerging economies in equatorial regions would be most affected by rising temperatures.