A recent report by S&P Global Ratings has highlighted the alarming economic implications of climate change.
Titled “Lost GDP: Potential Impacts Of Physical Climate Risks,” the study meticulously scrutinizes the potential economic losses across 137 countries due to various climate hazards like extreme heat, floods, and wildfires. The core finding reveals a stark warning: over 4% of the global GDP could be at risk annually by 2050 if global temperatures rise beyond 2°C.
Accoerding to ESG Today, the report underscores that natural disasters are intensifying, with a significant 5-7% yearly increase in insured losses from 1992 to 2022, as per Swiss Re statistics. In the scenario of a “slow transition” where the temperature rise hits 2.1°C by 2050, the world could see up to 4.4% of its GDP eroded every year without effective adaptation measures. This loss is primarily driven by water stress and extreme heat, leading to diminished water resources, increased energy demands, disruptions in agriculture, and heightened wildfire risks.
Developing nations, according to the study, are in a particularly precarious position. They are found to be 4.4 times more susceptible to climate risks than their wealthier counterparts and alarmingly less equipped to manage the economic fallout. In this regard, South Asia emerges as the most vulnerable region, with an estimated 12% of its GDP at risk annually by 2050, followed by Sub-Saharan Africa, and the Middle East and North Africa (MENA) regions, each facing an 8% GDP risk.
The report also incorporates a readiness assessment metric, evaluating countries’ capabilities to avert, tackle, and recover from physical climate risks. North America and Europe, while being the least exposed to climate risks, are also the most prepared. In stark contrast, Sub-Saharan Africa ranks as the least prepared region, with lower-income areas scoring significantly lower than their higher-income counterparts in terms of readiness.
The study also draws attention to the hurdles in financing climate adaptation. Most of the adaptation finance currently comes through debt instruments. However, in a landscape of tightening finance conditions and potentially higher interest rates, acquiring such funds could become increasingly challenging.
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