analyze climate change as a global risk
Climate changes are significant long-term changes in the global climate. Climate change causes weather patterns to change and be less predictable. The impact of climate change goes beyond the increase in temperatures and affects communities and ecosystems in general, globally. Global change also affects transportation, energy, wildlife, human health, and water directly. However, it affects the global economy indirectly and hurts the world business. This paper, therefore, seeks to analyze climate change as a global risk.
Extreme weather
Recently, the world has been experiencing severe weather conditions are a result of climate change. Events such as flooding, hurricanes, droughts, wildfires, and heatwaves have been on the rise recently. Such impacts have significant adverse effects on businesses, especially on the supply chain and other critical infrastructure. The current supply chain is globalized that reduces manufacturing costs, increasing the vulnerability to climate change considering adverse and extreme weather conditions can happen in any part of the world. Such events are bound to cause delivery delays, product damages, and increasing emergency response time. Consequently, the cost of production s increased and higher uncertainties for manufactures and business that relies on them. Also, extreme weather conditions can damage a significant infrastructure of a business, such as power or road impacting negatively on business operations. To address this, companies tend to relocate to geographical areas with fewer occurrences of extreme weather conditions caused by global climate change.
Food Insecurity
Climate change affects crop yield, animal farming, fisheries, and food trade globally. Extreme weather condition such as higher temperatures causes scarcity of essential resources like food and water. According to a recent united nations report, global climate change affects the elements of food security, which include availability, utilization, access, and stability, Consequently the general health of the population of severely affected regions deteriorates. However, other areas experience the right weather conditions, which results in supplies of food. However, these surpluses and deficits caused by climate change alter food patterns increasing insecurity risks. As a result, all the business that primarily deals with the manufacture or sale of foods products are affected negatively, and the cost of the same increases.
Human Migration
Climate change is of the factors that cause human migration. Globally, people move from one region to the other as a result of extreme weather conditions such as floods, heatwaves, storms, and droughts. Historically, natural disasters caused by global climates change greatly influence human settlement patterns. As a result of large-scale migration, various economies, governments, and natural resources management are affected. Unpredicted and significant climate-based migration affects economic productivity. It also overstretches border control and international security mechanisms. The like hood of violence and crimes is increased as people scramble for limited resources such as water and food. Climate based migration risks can be mitigated by ensuring that countries globally improve regular migration channels and ensure they are flexible.
Regulatory Risk
Business organizations continue to face increasing regulations as the world seeks to reduce negative environmental impacts. For instance, the Paris Climate Agreement stipulates all signatories to devise measures that significantly reduce global greenhouse gas emissions. Additionally, signatories should put in place a framework for accountability and transparency to achieve more ambitious targets. The global financial board comes up with a Climate-Related Financial Disclosure task force that advocates for companies to develop a framework that facilitates consistent and effective disclosures to shareholders to enable them to asses climate-based risks. Those players that remain on the pace with changes in regulatory requirements have the advantage of avoiding unnecessary costs such as legal and compliance costs. While those players that are reluctant faces extensive reputational, financial and legal costs
Insurance
As climate change continues to change drastically, many regions globally face the risk of natural disasters. When such events occur, there are significant losses to properties and infrastructure. This presents substantial losses to insurance companies as they compensate the insured. For instance, insurance companies incurred 225 billion in losses as a result of natural disasters from 2017 to 2018. As a result, insurance companies continue to increase insurance premiums for climate-based covers or refuse to cover in area prone natural disasters occurrences. For instance, after the 2019 California wildfires, many insurance companies revised their risk models, consequently stopping issuing insurance in certain areas while others reduced their coverage.
Reputational Risk
As the awareness of the consequences of global climates grows, companies’ reputational risk also increases for those that continue to affect the environment negatively or take inadequate measures. Customers are recognizant of the company’s social responsibilities and legal requirements that govern the environment. When a particular company acts in violation of customer expectation, its reputation is negatively affected, and customers may boycott its product as punitive measure or force authorities to take appropriate measures. Studies have revealed that the environmental reputation of a company influences about 30 percent of customers buying behavior. Further, potential investors now require disclosure of a company climate risk and its possible impact before making Investment decisions. Conversely, companies that have green initiates may be rewarded by the market as investors look for environmentally conscious companies.
In conclusion, Global climate possesses a significant risk both to the global economy and the well-being of the general population. Importantly, human activities are the leading causes the global climate change that results in natural disasters such as floods and droughts. Consequently, it is, therefore, the rationale for companies to engage in measures that reduce climate risk as its consequences are drastic.