Authored by: Chris du Preez, IRMSA Associate
The World Economic Forum (WEF) recently released their 2020 Global Risk Report, the 15th report since its first issue in 2006.
There has been an evolving risk landscape from 2007 to 2020, with Environmental Risk first appearing in 2011 in forms such as: Storms & Cyclones, Flooding, Biodiversity Loss and Climate Change.
In 2012 the effect of Greenhouse Gas Emissions appeared and by 2013 the risk of Climate Action Failure was first mentioned, remaining one of the Top 5 Global Risks since then.
Since 2017 at least three forms of Environmental Risk appeared in the Top 5 Global Risks according to either Impact or Likelihood.
And for 2020…the Top 5 Global Risks Overall are ALL Environmental Risks:
1. Extreme Weather
2. Climate Action Failure
3. Natural Disasters
4. Biodiversity Loss
5. Human Made Environmental Disasters
Even more alarming, Environmental Risks exceed even the threat of Cyber Attacks, which has been expected to be at least in the top 5 risks.
The effect of climate change is striking much harder and more rapidly than many had expected. The last five years are on track to be the warmest on record with natural disasters becoming more frequent and more intense.
The Daily Maverick reported on 10 February 2020 that an Argentinian research thermometer took a reading of 18.3 °C for Antarctica – the hottest temperature on record, surpassing the previous hottest recorded temperature by 0.8°C.
Alarmingly, climate experts estimate that global temperatures are on track to increase by at least 3 °C by the end of the century, twice what was previously warned to be the limit to avoid the most severe economic, social and environmental consequences.
The BBC reported that as on 31 January 2020, the Australian Wildfires have destroyed more than 11 million hectares of bush, forest and parks across the Australian continent.
At the same time, Canberra has seen some of the worst smoke pollution, with air quality rated the third worst of all major global cities on 3 January 2020, according to Swiss-based group AirVisual.
One of the world’s largest fish, the Chinese Paddlefish, has officially been declared extinct National Geographic reported on 8 January 2020.
The increased demand for energy did not help the situation either, with coal power plants built in Asia in the last decade accounting for nearly one-third of the total increase in CO2 emissions in 2018.
Environmental Risk is very real and the established systemic risks even worse:
• Loss of life
• Increased stress on ecosystems
• Food and water crisis’s
• Increased migration
• Worsening geopolitical tensions
• Increased economic and capital market pressures
• Disruptions to trade, labour and supply chains
The increased awareness of Environmental Risk resulted in the establishment of the Paris Agreement that, with 195 signatories, became effective since 4 November 2016. However, in the transition to a cleaner and greener future, there are also transitionary risks to consider on the technological, societal and economic front.
Today’s youth increasingly demand jobs that are compatible with their concerns about climate change, and without strong environmental credentials, many companies may struggle to attract top talent in the future. Additionally, there are concerns that this specific multilateral process mandated to address climate change loses momentum and action on climate stalls.
The next 10 years will shape the outlook for climate risk for the rest of the century. To avoid the worst consequences, global emissions need to peak almost immediately and decline precipitously—by 7.6% each year between 2020 and 2030.
This implies an additional US$460 billion a year of clean energy investment over the next decade.
The silver lining, however is that the generation of clean energy is increasing and at the same time getting cheaper and creating new job opportunities.
The cost per unit of electricity from onshore wind and photovoltaic solar power plants has dropped by about 70% and 90% respectively over the last decade.
Our job as risk managers is to ensure that we use our influence in the various communities we operate in (Climate Change Bill etc.) to ensure that the correct decisions are made and the risk of a worsening environment mitigated to ensure a cleaner, greener and sustainable earth for our future generations.
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