Insurance and Climate Change column

Nukes, Cyber, Climate Change: World Now at 100 Seconds to Midnight

By | January 23, 2020

It’s 100 seconds to midnight.

Nuclear war, cyber threats and climate change are putting the world in more danger than it has been in over at least the last 70-plus years.

The hands of the Doomsday Clock are now closer to midnight than at any point since its creation in 1947.

The Bulletin of the Atomic Scientists during an international news conference today announced the minute hand of the iconic Doomsday Clock has been adjusted, and to underscore the dire situation, the time on the clock is now being expressed in seconds rather than minutes.

The decision to put the clock so close to the doomsday midnight hour was made by the Bulletin of the Atomic Scientists‘ Science and Security Board in consultation with the Bulletin’s Board of Sponsors, which includes 13 Nobel Laureates.

The clock did not move in 2019. The minute hand was set forward in 2018 by 30 seconds to two minutes till midnight. That was the closest it has been to “apocalypse” since 1953, the early years of the Cold War. The clock was moved from three minutes to midnight to two-and-a-half minutes to midnight in 2017.

“Humanity continues to face two simultaneous existential dangers—nuclear war and climate change—that are compounded by a threat multiplier, cyber-enabled information warfare, that undercuts society’s ability to respond,” a statement issued today by the Bulletin of the Atomic Scientists explains. “The international security situation is dire, not just because these threats exist, but because world leaders have allowed the international political infrastructure for managing them to erode.”

Speakers on hand for the clock announcement included former UN Secretary-General Ban Ki-moon, former California Gov. Jerry Brown, who is now executive chair of the Bulletin of the Atomic Scientists, and former President of Ireland Mary Robinson.

The moving of the Doomsday Clock hand highlights three worsening factors as called out by the group:

Nuclear weapons. “In the nuclear realm, national leaders have ended or undermined several major arms control treaties and negotiations during the last year, creating an environment conducive to a renewed nuclear arms race, to the proliferation of nuclear weapons, and to lowered barriers to nuclear war. Political conflicts regarding nuclear programs in Iran and North Korea remain unresolved and are, if anything, worsening. US-Russia cooperation on arms control and disarmament is all but nonexistent.”

Climate change. “Public awareness of the climate crisis grew over the course of 2019, largely because of mass protests by young people around the world. Just the same, governmental action on climate change still falls far short of meeting the challenge at hand. At UN climate meetings last year, national delegates made fine speeches but put forward few concrete plans to further limit the carbon dioxide emissions that are disrupting Earth’s climate. This limited political response came during a year when the effects of manmade climate change were manifested by one of the warmest years on record, extensive wildfires, and quicker-than-expected melting of glacial ice.”

Cyber-based disinformation. “Continued corruption of the information ecosphere on which democracy and public decision making depend has heightened the nuclear and climate threats. In the last year, many governments used cyber-enabled disinformation campaigns to sow distrust in institutions and among nations, undermining domestic and international efforts to foster peace and protect the planet.”

McKinsey on Climate

A new report suggests that many assumptions about the nature of the risk and the potential damage a changing climate could cause should be revisited.

McKinsey Global Institute in partnership with McKinsey’s Sustainability and Risk practices released a report titled, Climate risk and response: Physical hazards and socioeconomic impacts, which finds that “physical climate risk is present and growing.”

The research uses climate science and socioeconomic analysis to examine case studies across regions, sectors, and asset types to understand the mechanisms through which physical climate change leads to increased socioeconomic risk.

It shows that “physical climate change could put millions of lives, trillions of dollars of economic activity, physical capital and the world’s stock of natural capital at risk.”

Key findings from the report include:

  • A greater understanding of climate risk could change risk recognition, including making long-duration borrowing unavailable, reduce insurance cost and availability, and reduce terminal values.
  • In Florida, for example, losses from severe flooding could not only damage housing but devalue exposed homes by 15% to 30%, or $30 to 80 billion, in 2050.
  • In Ethiopia, where crop production is projected to be at risk, crop insurance may be an option to manage these climate-related risks.

The report shows that climate change is already having “substantial physical impacts” at a local level in regions across the world, and that the affected regions will continue to grow in number and size.

“As the climate continues to change for the next decade and probably beyond, the number and size of regions affected by substantial physical impacts will continue to grow,” the report states.

The report outlines direct effects on socioeconomic systems in five areas: livability and workability; food systems; physical assets; infrastructure services; and natural capital.

The report finds that all of the 105 countries examined could experience an increase in at least one type of risk to their stock of human, physical and natural capital by 2030.

The number of people at risk of experiencing lethal heatwaves, for example, could rise to between 250 million and 360 million by 2030, with a 9% annual probability of occurring, and to between 700 million to 1.2 billion by 2050 with a 14% annual probability of occurring.

Impacts from climate hazards could affect employment, incomes and connected sectors, according to the report.

“Financial markets could bring forward risk recognition in affected regions, with consequences for capital allocation and insurance,” the report states.

The Climate According to GARP

The Global Association of Risk Professionals is launching a new certificate in sustainability and climate risk, or SCR, designed to help professionals understand and manage the potential economic and operational impacts of a changing climate on their organizations.

The group said the decision to launch the so-called GARP SCRTM certificate was supported by a worldwide study of risk professionals that GARP recently conducted: Of the study’s 943 respondents, 85% indicated they would need greater SCR knowledge in the future; 82% of respondents expected their own organization’s focus on SCR would increase in the long term.

GARP is a non-partisan, not-for-profit membership organization. The group calls the new SCR certificate “the first truly global climate risk management program.”

The SCR certificate will include modules on: Policy and regulation; green and sustainable finance; the science, effects and measurement of climate-related risks; scenario analysis; and emerging issues such as health effects and geopolitical impacts.

“As businesses start to recognize climate change as a financial risk, managers will increasingly need to add climate risk management to their skill sets – not only those working in finance but also in disciplines such as supply chain management, operations and technology,” Jo Paisley, co-president of the GARP Risk Institute, said in a statement.

It’s estimated that candidates will need to spend 100 to 130 hours reading material and preparing for the final three-hour exam, which will be offered at selected times throughout the year.

Candidates can take the multiple-choice test at designated Computer-Based Testing centers worldwide or they can be remotely proctored.

Registration begins June 1. The SCR certificate will cost $650, and is expected to be available online globally. Those interested can sign up or get more information on the program on GARP’s website.

Davos

The leaders of Zurich Insurance Group AG and Citigroup Inc. want their clients to do more work too to battle climate change.

“I say to our clients, ‘I don’t want to be the sharp end of the spear,'” enforcing industry standards, Michael Corbat, chief executive officer of the New York-based bank, said this week in a panel discussion at the World Economic Forum in Davos, Switzerland. “You should set those, you get proper buy-in and we will be here to support you.”

Mario Greco, the CEO of Zurich Insurance, agreed with Corbat that carbon was mispriced, and said insurance firms are having a tough time deciding what to underwrite as a result.

Insurers are underwriting “based on ethical standards,” and “compliance with the Paris agreement, but it’s not fast enough and it’s a tough job,” Greco said. “We don’t know exactly” how an industry should restructure itself, “and we are not supposed to do that, so the only thing we can do is stop funding. Stopping funding is a brutal reaction to market displacement.”

This year’s meeting of the global business elite in Davos has focused on sustainability, with teenage activist Greta Thunberg criticizing a lack of action on climate during her appearance, according to a Bloomberg story appearing this week on Insurance Journal.

Financial companies are under pressure to retreat from funding industries including coal-fired power.

Numerous insurers have restricted insurance services to coal projects in the past two years.

Roughly a dozen insurers have adopted policies to stop all direct insurance coverage to new coal projects – among them are Allianz, AXA, Generali, QBE, Zurich, SCOR and Swiss Re. And seven have restricted their insurance services to existing coal projects, according to the climate change activist group Sunrise Project.

Lawrence Fink, who runs BlackRock Inc., last week pledged to incorporate environmental concerns into the asset manager’s investment process for both active and passive products.

Corbat created the new role of chief sustainability officer at his bank in September, but said that governments should create incentives for companies to adopt sustainable practices, rather than relying on punishments like carbon tariffs, according to the Bloomberg story.

Greco was pessimistic that there will be more effective global agreements on matters like carbon pricing, calling the prospect “almost unthinkable.”

Global companies “will go wherever there is the best financial opportunity short-term for them, and they will follow what prices tell them to do. This is what makes me scared, or pessimistic, that we will achieve the right speed,” Bloomberg reported.

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