World economy set to lose up to 18% GDP from climate change if no action taken - Swiss Re Institute
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.
Major economies could lose roughly 10% of GDP in 30 years
In a severe scenario of a 3.2°C temperature increase, China stands to lose almost one quarter of its GDP (24%) by mid-century. The US, Canada and the UK would all see around a 10% loss.
Europe would suffer slightly more (11%), while economies such as Finland or Switzerland are less exposed (6%) than, for example, France or Greece (13%).
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 resilience and vulnerability
The index also ranked each country on its vulnerability to extreme dry and wet weather conditions and looked at the country’s capacity to cope with the effects of climate change. Put together, these findings generate a ranking of countries’ resilience to the impacts of climate change.
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
Given the consequences highlighted in Swiss Re Institute’s analysis, the need for action is indisputable. Coordinated measures by the world’s largest carbon emitters are crucial to meet climate targets.
The public and private sectors can facilitate and accelerate the transition, particularly regarding sustainable infrastructure investments that are vital to remain below a 2°C temperature increase.
Given the long-term horizon of their liabilities and long-term capital to commit, institutional investors such as pension funds or insurance companies are also ideally positioned to play a strong role.
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 $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.“
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