EQS Group-News: Swiss Re Ltd / Key word(s): Research Update
Zurich, 22 April 2021 - Climate change poses the biggest 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.
Major economies could lose roughly 10% of GDP in 30 years
Thierry Léger, Group Chief Underwriting Officer and Chairman of Swiss Re Institute, said: 'Climate risk affects every society, every company and every individual. 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.'
Climate Economics Index ranks countries' resilience to climate change
The ranking displays a similar view to the GDP impact analysis: Countries most negatively impacted are often the ones with fewest resources to adapt to and mitigate the effects of rising global temperatures. The most vulnerable countries in this context are Malaysia, Thailand, India, the Philippines and Indonesia. Advanced economies in the northern hemisphere are the least vulnerable, including the US, Canada, Switzerland and Germany.
Public and private sectors play a crucial role in accelerating climate action
Jérôme Haegeli, Swiss Re's Group Chief Economist, said: 'Climate change is a systemic risk and can only be addressed globally. 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.
Our analysis shows the benefit of investing in a net-zero economy. For example, adding just 10% to the USD 6.3 trillion of annual global infrastructure investments would limit the average temperature increase to below 2°C. This is just a fraction of the loss in global GDP that we face if we don't take appropriate action.'
Mitigating climate change requires a whole menu of measures. More carbon- pricing policies combined with incentives for nature-based and carbon-offsetting solutions are needed, as well as international convergence on taxonomy for green and sustainable investments. As part of financial reporting, institutions should regularly disclose how they plan to achieve the Paris Agreement and net-zero emission targets. Re/insurers also play a role in providing risk transfer capacity, risk knowledge and long-term investment, using their understanding of risk to help households, companies and societies mitigate and adapt to climate change.
Notes to editors
Methodology of the report
The Swiss Re Institute scenario analysis uses insights gained from an existing model by Moody's Analytics, quantifying the gradual impacts of climate change over time, and from research by the World Bank, identifying so-called "impact channels", such as the effect of rising temperatures on productivity. Swiss Re Institute's analysis incorporates the uncertainties related to the potential economic impacts of climate change under different scenarios of global temperature increase and at different levels of severity. These uncertainties include additional and typically omitted impact channels, such as potential disruptions to supply chains and trade due to climate change, as well as respective economic sensitivities. A detailed description of the methodology can be found in the report.
Download the electronic version of Swiss Re Institute's report
"The economics of climate change: no action not an option" (English version):
Link to interactive tool
Full details and in-depth analyses from Swiss Re's Climate Economics Index are available in an interactive tool on swissre.com
Background on Swiss Re Institute's Biodiversity and Ecosystems Services (BES) study:
Cautionary note on forward-looking statements
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