Insurance and Climate Change column

Is a Climate Change-Driven ‘Megadrought’ Looming over Parts of U.S.?

By | June 17, 2021

The Western U.S. could be in for a wild ride thanks to climate change.

That’s the brunt of the buzz in the news this week, as multiple media outlets gave heavy coverage to the severe drought and heatwave currently creeping over the region.

Climate Change Batters the West Before Summer Even Begins,” reads the headline in a stunning piece of long-form journalism in the New York Times published on Thursday. The article calls out 115-degree temperatures in Arizona and Nevada, and depleted water supplies in reservoirs like Lake Mead, now at an all-time low.

CNN had a few articles on this, including and one titled: “An eighth of the US population is sweltering under a record-breaking heat dome. Climate change is making it worse.” It notes that upwards of 300 record-high temperatures are in jeopardy of being broken this week, while 40 million-plus people are on alert across the Western U.S. for “a long-lasting, potentially lethal heat wave.”

NASA says Earth now trapping ‘unprecedented’ amount of heat — and it’s doubled in just 15 years.” The headline is from an article in The Hill, which cites a joint study between NASA and the National Oceanic Atmospheric Administration showing that more energy in the form of heat has entered and stayed in the Earth’s atmosphere than has left, “adding to the large body of scientific literature confirming temperatures on the planet are rising.”

Another ominous headline, “‘Megadrought’ in West directly linked to climate change, experts say,” on the ABC News website, leads to an article that states the “megadrought” that’s plaguing much of the region is a direct consequence of warming global temperatures, according to experts. The term “megadrought,” the article notes, “is used to describe a severe and intense drought that spans a couple of decades.”


BlackRock Inc. and Baringa Partners on Thursday announced their entry into a definitive agreement for BlackRock to acquire and integrate Baringa’s Climate Change Scenario Model into BlackRock’s Aladdin Climate technology.

“The new long-term partnership is a significant milestone for both firms, as they collaborate to set the standard for modelling the impacts of climate change and the transition to a low carbon economy on financial assets for investors, banks and other clients,” states an announcement of the deal.

The plan is for Baringa to use the core Aladdin Climate capabilities as part of its global consulting work in advising clients on climate risk and developing net zero strategies.

BlackRock began developing Aladdin Climate “to fill a void in climate risk analytics” through technology to help clients better understand and mitigate the financial impacts associated with climate change on their portfolios.

Aladdin Climate is offered through the Aladdin platform and is used by BlackRock’s Financial Markets Advisory group to deliver sustainability advisory services to clients. It measures the impacts of physical risks, like extreme weather events, and transition risks like policy changes, new technology, and energy supply.

AIG and Climate

Legal & General Investment Management plans to sell holdings in four companies including U.S insurer American International Group Inc. after deeming they’re making insufficient progress on addressing climate change risks.

The UK asset manager said this week it will also divest investments in Industrial & Commercial Bank of China Ltd., Pennsylvania-based utility PPL Corp. and China Mengniu Dairy Co., according to a Bloomberg article appearing in Insurance Journal on Tuesday.

The article states that the companies either provided “unsatisfactory responses” to LGIM’s climate questions or breached “‘red lines’ around coal involvement, carbon disclosures or deforestation.”

“Climate change is a pressing concern for money managers: the physical impacts of global warming, such as extreme heat and rising seas, as well as the possibility of a rapid and chaotic transition away from fossil fuels, pose significant risks to investors,” the article states. “That’s leading investment firms to apply greater pressure on the companies they own to cut emissions and prepare for a low carbon future.”

The latest action from Legal & General Group Plc’s investment arm comes after it said in October it would engage on climate issues with over 1,000 companies responsible for more than 60% of the greenhouse gas emissions produced by publicly traded companies.

LGIM is selling its stake in AIG because of the insurer’s lack of policies on excluding thermal coal insurance and because it has not disclosed figures on the amount of emissions it finances, according to the Bloomberg article.

IDF Summit

How can the global insurance industry and the public sector work together to understand and manage climate risk and its challenges, while building resilience for those most vulnerable to the impacts of climate change?

That complex question was front-and-center at the Insurance Development Forum this month, which brought together 1,000-plus delegates from across 90 countries for the IDF Summit 2021 Building Resilience in a Risker world: Actions towards a climate resilient future.

The summit took place virtually June 7 and 8.

Attendees included the managing director of the International Monetary Fund, the president of the World Bank, and the UN special envoy for climate action and finance, as well as other leaders from the UN, international institutions, governments, and leading i insurance brokers and carriers.

The discussions were timely ahead of the G7 meetings.

One answer to the aforementioned question was to improve understanding of risk and analytics.

Another consensus was that a systemic shift is “needed to move from ex-post to pre-arranged crisis financing, in order to drive anticipatory action to limit the impact of disasters, save lives and make more efficient use of limited resources.” That approach includes better leveraging of insurer balance sheets “to support a greater suite of ex-ante risk financing tools for governments.”

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Topics Climate Change

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