Extreme Weather Is the New Climate Reality

by Mindy S. Lubber, via The Huffington Post

There’s been a nasty change in the weather of late, and for businesses the forecast is simple: be prepared.

In 2011, extreme weather caused more than $148 billion in economic losses, and $55 billion in insured losses globally. A major chunk of those insured losses — more than $30 billion — were in the U.S. where 14 severe weather events caused losses of more than $1 billion each, far more than in any previous year. We’ve just lived through the warmest decade on record, seen unprecedented flash storms and flooding and watched as Texas suffered through the worst drought in its history.

Just a normal variation in the weather? “No,” is the overwhelming scientific consensus. Human activity is changing the climate, and the climate is changing the weather. Buckle up. It’s going to be a wild ride. And virtually every business in every sector of the economy is vulnerable.

That’s why Ceres, Oxfam America and Calvert Investments released a new guide last week, “Physical Risks from Climate Change,”designed to prepare businesses and investors for facing and disclosing climate-related risks.

What are they up against? For the agriculture and food and beverage sectors it means crop failures, loss of productive land and commodity price volatility. Drought will increase in some areas and severe flooding will rise in other places, while changing growing seasons and unpredictable pest and disease distribution will pose additional challenges.

For the insurance industry it means massive exposure to property damage and business losses from storms, wildfires, floods and droughts. For the electric power and oil and gas sectors it means supply disruptions and disabled infrastructure. The new report also details comparable risks in the apparel, mining and tourism sectors. In short, climate change is bringing with it a whole new world of risk for businesses, investors and the economy — risks that many companies are under obligation to disclose.

In both the U.S. and Canada, public companies have a legal obligation to disclose to investors any information a “reasonable investor” would find material. In 2010, after being petitioned by investors led by Ceres, which directs the 100-member Investor Network on Climate Risk (INCR), the U.S. Securities and Exchange Commission issued guidance to companies stating that climate-related risks meet this test. (INCR members manage about $10 trillion in assets.) Canadian securities regulators followed suit.

Beyond these general disclosure requirements, the report includes a series of sector-specific questions companies should be answering.

While the physical risks from climate change vary from sector to sector, as will the adaptation and risk management strategies, the report emphasizes that regardless of sector some general principles apply.

First, physical climate risks are business risks and should be managed as such. Second, because physical climate risks exist throughout supply chains and can have broad impacts beyond a company’s physical boundaries, effective management of climate risks requires robust stakeholder and community engagement. Third, managing climate risk must be a high-level board and executive commitment, and may require bringing in new expertise. And fourth, the inevitable uncertainty in predicting exact climate impacts is not an excuse for inaction. Climate change is not a distant theoretical concern, but a clear, present and immediate risk that companies need to address now.

Hope for the best; prepare for the worst. For businesses facing a changing climate, preparing for the worst means managing climate-related physical risks.

Mindy S. Lubber is the President of Ceres. This piece was originally published by The Huffington Post and was reprinted with their permission.

Related Climate Progress posts:

Insured losses due to thunderstorms and tornadoes in the U.S. in 2011 dollars. Data and image from Property Claims Service, Munich Re.


7 Responses to Extreme Weather Is the New Climate Reality

  1. LH says:

    Could someone please provide more info on the geophysical events *cough, Joe Romm column, cough*? Pretty much everything I’ve ever read said climate change won’t affect these types of things, until I came across this article, which is basically a teaser for a book:

    The author aruges that shifting weight on the Earth’s crust due to melting glaciers and ice sheets, and the corresponding weight changes of the oceans due to that water being redistributed, can in fact trigger earthquakes.

    Is this something that’s been widely looked at? Or is it still an unknown?


  2. Yvan Dutil says:

    This is the first time I see an article doing a normalization based on other geophysical risk. This removes the impact sociologic parameters.

  3. Paul Magnus says:

    “For the insurance industry it means massive exposure to property damage and business losses from storms, wildfires, floods and droughts. ”

    Infact insurance is impacted by every aspect of the effect of climate change. For instance agriculture failures and health vectors.

  4. Guy says:

    Can someone please properly weight the Y-axes on these various graphs showing economic damage over time?? Deflating the values is not sufficient. If GDP is bigger (which it is over time), there exists more economic value to lose in any given extreme weather event. So, please weight the losses by real GDP if we are to have any reasonable sense of whether percentage losses are increasing or decreasing.

    It is basically a functional relationship that the real dollar value of losses in 2000 due to extreme weather events will exceed those in 1960… the economy is massively larger in the later period.

    So, if our goal is to provide useful information, let’s do it right.

  5. George says:

    Guy, the first graph – “Natural catastrophes worldwide” – the y axis relates to the number of events, not the financial costs or impact.

    This removes any change in economic development and population growth that may confound these figures. That is probably why they used “number of events”.

  6. Jan Freed says:

    Perhaps the only way big oil and coal can be defanged is when other big players line up on the other side..big insurance, big agra, etc.

    I suggest the latter industries guarantee politicians support for voting for such positive steps as a “carbon fee and dividend” currently HR 3242. Otherwise, these politicians may remain “fossil tools”

  7. Girma says:

    IPCC’s accelerated warming =>

    Observed uniform warming =>