Climate Change: A Systemic Risk Petri Dish

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April 20, 2020

looking at coronavirus through magnifying glass

With the spread of COVID-19 there is a lot of discussion about how this virus pandemic relates to climate change. Are they causally linked? Even if not, doesn’t climate change contribute to the risk of future pandemics? Is our reaction to COVID-19 a model for how we should be reacting to climate change? Or perhaps we’re reacting to the risks of a pandemic in exactly the way we’ve reacted to climate change, but our luck ran out first with respect to COVID-19.

I’m not going to go into detail on these questions, but I will point you to a place where you can find a great deal of curated information organized to help you explore these and other questions. Just click on the image to go to our COVID-19 and Climate Change "Mini-Brain."  

The Climate Web image of COVID-19 mini brain

In this post, I want to step back from the specifics of potential links between COVID-19 and climate change to look at the topic of climate change systemic risk generally. The profile of climate change systemic risk has expanded rapidly in the last couple of years. Systemic climate risks have a much lower business profile today than do physical climate risks; I would argue that the latter will increasingly be seen as the larger risk to business as usual. That’s because there are MANY pathways through which climate change can trigger systemic risk events with implications for national and global economies, including:

  • A drought that triggers an expanding regional conflict over water supplies.
  • Simultaneous droughts that disrupt global food prices, supplies, and ultimately political stability.
  • An extreme event triggering large-scale environmental migration, exacerbating regional tensions and conflicts.
  • And yes, even a pandemic triggered by an ancient virus exposed by melting ice.

Climate change really is a petri dish (or perhaps a Pandora's Box?) for potential systemic risk events. It’s a petri dish that is virtually certain to spin off events like those described above as climate change progresses, but it’s not too early for events to manifest at any time. The multiple-drought scenario, for example, is what Lloyd’s of London utilized in its 2015 report: Food System Shock – the insurance impacts of acute disruption to global food supply.

Climate change is a petri dish (or perhaps a Pandora's Box?) for potential systemic risk events.

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An in-depth discussion of systemic climate risk is outside the scope of this post, but I will point you to a place where you can find a lot of curated information organized to give you a quick look at the growing topic and literature. Just click on the image.

Climate Web systemic risks

The problem with systemic risks from a business perspective is that individual companies have so little ability to hedge systemic risks. One reason there is such a substantial focus on resilience and adaptation to the anticipated physical risks of climate change is that those risks are much easier to get your risk management head around, and to respond to via conventional corporate risk management efforts.

The only way to mitigate systemic climate risks is to mitigate climate change, and the only way to mitigate climate change is through the implementation of the necessary public policies. Yet advocating for climate policy is NOT a conventional business risk management response. Companies have been FAR more focused on voluntary carbon footprint reductions, which cannot sufficiently scale, than on promoting the local, national, and global policies and measures needed to substantially mitigate climate change. At the end of the day, a company’s policy footprint is much more likely to be leveraged into an impact on climate change than its carbon footprint.

Again, the topics of business opposition to and advocacy of climate change policy are too large to explore in detail here, but I will point you to a place where you can find a lot of information organized to give you a quick look at the growing topic and literature. Just click on the image.

Climate Web will CEOs act on climate change

I would argue that a critical lesson of COVID-19 for business decision-making on climate change is that it’s high time for companies to focus less on their carbon footprints and more on their policy footprints.  

I’ve pointed you to several Mini-Brains where you can explore the complex questions raised above. These Mini-Brains only scratch the surface of the actionable knowledge for decision-making available to you in the larger Climate Web. See more climate-related Mini-Brains here on our website in our Mini-Brain gallery, or head over to our sister site, Your External Brains, for a whole series of Mini-Brains on other topics.

This piece was originally posted on LinkedIn.

About the author 

Mark Trexler

Mark has more than 30 years of regulatory and energy policy experience. He has advised clients around the world on climate change risk and risk management. He is widely published on business risk management topics surrounding climate change, including in the design and deployment of carbon markets. Mark has served as a lead author for the IPCC and holds advanced degrees from the University of California at Berkeley.

  • An excellent food for thought! Even if there are no direct links, the sudden Covid emergency has revealed how unprepared companies and governments are to face the future climate emergency. Failure to act promptly will have serious implications for global economies. Thanks for pointing this out.

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