How far does risk reach?
XDI (Cross Dependency Initiative)
?? Turn climate physical risk into actionable metrics with XDI. ?? Sub-asset level analysis with unbeatable precision.
Welcome to?XDI’s Physical Risk Insights.?
?
Every fortnight, we provide you with a summary of the latest news and analysis in the rapidly-evolving world of?physical climate risk.?
The news has been full of extreme weather and grave predictions. The ability of prevailing norms in financial markets to foresee and prevent the worst effects of climate change is?under challenge.??
?
XDI Insight?
Everyone's business
Those?most at risk?don’t tend to be the ones most responsible.
But those?most responsible are also at risk.
Current extreme weather events are?bringing home the message?loud and clear that there is?no safe harbour?and the impacts of climate change?extend everywhere. Read our blog about how climate change is harming Europe and the United States.?
?
Global ??
The cascade
?
New York City had the worst air quality in the world,?thanks to?smoke from?hundreds?of?out-of-control forest fires in south-eastern Canada.
The SEC's disclosure rules on climate risk (supposed to be finalised in April),?are reportedly still ‘months away’ but when they come,
will they provide for assessment and disclosure of the?kind of risk that unfolded in New York??
As economist Marshall Burke?reflected to?Heatmap,?the?second-order and compounding risks?of three days of extreme air pollution from wildfire smoke?“doesn’t seem like something we can model very well.”?
?
As we highlight in the blog, these scenes are all too familiar to people in XDI’s eastern Australian headquarters, where?smoke from the catastrophic bushfires?of the 2019/20 summer?circled the globe,?depleted the ozone layer?by?3 per cent,?contributed to the early death of hundreds?of people, cost the health system?nearly two billion dollars, and?triggered the triple La Nina event?that subsequently generated?two years of devastating flooding?that has been?Australia’s costliest natural disaster so far.
?
In another setback, the Net Zero Insurance Alliance?disintegration continues, with more global insurance companies announcing their withdrawal.
UNEP FI issued a?public statement?reiterating:
?‘a fundamental and urgent need for collaboration, not just individual action’.?
Lloyds Chief Executive John Neal told Reuters if the Alliance didn't want more insurers to depart,?it should stop requiring them to act quickly on their net zero commitments.??
领英推荐
If you don't, we will
?
If climate action doesn’t happen voluntarily,?perhaps markets will force it.
The biggest sovereign wealth fund in the world has declared?that next year it will start dropping investment in companies that fail to manage climate risk.?
“It may come to a point where we feel the company is absolutely not listening to us, they are not reporting anything, we see no changes, we may then sell out,”?
said Carine Smith Ihenacho, Chief Governance and Compliance Officer at Norges Bank Investment Management.
Are we measuring it right?
?
In a University of NSW (UNSW) article on?the limits of climate scenario analysis and stress testing in the financial sector, the authors argue that physical climate risk is?more likely to manifest?outside?the finance sector, and that?
"an overt focus on financial loss outcomes?masks the wide ranging impacts of climate to the real economy and society at large.”
?
An article in?Nature Sustainability?has?quantified the human cost of climate change by estimating the number of people globally?who will be "left outside the 'human climate niche." The study considers its results through the lens of unequal responsibility for climate change,?and was covered in?The Guardian.
?
Scientists now say that there's no avoiding ice-free summers in the Arctic Ocean, even with stringent greenhouse emissions reductions.?An article in?Nature Communications?reports?that this is likely to occur by 2050 under all emissions scenarios.?
That sinking feeling
?
New analysis released in the UK?found that one in six properties are exposed to flooding risk and half of those are considered "high risk."?Data from the report shows that?residential properties at risk of flooding are sold at 8.14 per cent lower?on average?compared to non-affected properties, but the properties at the highest risk of flooding have a?price discount of up to 32.3 per cent.?
?
The UK Environment Agency is teaming up with?Flood Re?(a government and industry re-insurance pool that provides cover to high risk properties)?to promote flood resilience measures for at-risk homes.?
?
In Australia, Former RBA official and now chief economist at Challenger Group, Jonathan Kearns?urged banks and insurers to work together?to avoid the political and reputational risk of cutting climate-impacted householders and agricultural businesses loose from insurance and lending.?
?
In Asia, China Water Risk has released a report?detailing the energy security threat in 16 Asian countries that rely on ten climate-sensitive rivers for their electricity supply. The report is?covered in Reuters.
?
Inflation, too?
?
Is global warming impacting driving inflation??The European Central Bank (ECB) has published?a working paper exploring this issue.?