London Imports Climate-Related Risks Through Insurers, Supply Chains

By | July 23, 2015

London is importing climate-related risks through investments, insurers and supply chains, according to a new report that details dangers posed to the UK capital by global warming beyond the physical effects.

More than half of FTSE 100 companies and 60 percent of small and mid-sized companies have no plans in place to adapt to the effects of rising temperatures, the London Assembly’s Economy Committee said in the study Thursday.

While more intense rainfall and heat waves present their own dangers to London, the capital’s businesses need to take account of events all over the world that may affect operations and supply chains, the committee said.

“London faces a great unknown when it comes to how our supply chains and economy will be hit by extreme weather events,” Jenny Jones, author of the report and former chair of the committee, said in a statement. “Too little is being done to understand and prepare for the potential costs of climate change.”

The report cited the example of Thai floods in 2011 that hit computer-equipment factories, raising prices for components globally.

“London’s economic links with the rest of the world expose us to many less obvious risks,” Jones wrote. “With trillions of pounds of assets potentially at risk, these ripples on the surface of our economy could be early warnings of something much more disruptive to come.”

Financial Risk

The analysis showed London’s financial-services industry, which employs about 350,000 people, faces risks due to 10 trillion pounds ($15.6 trillion) of investments around the world, including in countries vulnerable to climate change. UK insurers earn 30 percent of their premiums from abroad, another potential source of losses, according to the study.

“An implication of the growing realization of the potential extent of climate-change losses may be thatinsurance cover becomes less available to businesses,” the report said. “Encouraging investment in the adaptation economy will reduce risks from climate change and so, in turn, support the insurance industry to continue to provide commercial insurance in the face of climate change.”

Energy and mining companies listed in London are at risk if global efforts to restrict carbon emissions mean their oil, coal and gas reserves become “unburnable,” the panel said.

In London itself, there’s a “high risk” posed by hotter summers and more intense heat waves that could increase energy demand and raise death rates among vulnerable people such as the elderly, according to the report. There’s also a high risk that changes in rainfall patterns could lead to more frequent restrictions on water use in times of shortage and increased flood damage due to more intense rainstorms.

The committee called on London Mayor Boris Johnson to integrate climate-change adaptation into his economic development strategy and urged Johnson and the London Pension Fund Authority to commit to begin divesting from coal assets.

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