The Earth's destiny is too important to hype, so let's get straight to the meat of last Monday's report by the UN's Intergovernmental Panel on Climate Change (IPCC): The planet's temperature is rising, its effects are evident, and there's more certainty in the conclusions today than there was in the previous report seven years ago. It's time to take stock, but not panic.
As the climate changes, businesses will need to cope with whatever comes our way. This imperative to cope is what I'll call climate resilience, and everyone from the World Economic Forum to the AARP is talking about it. A lot of the burden for creating climate resilience is placed at the feet of the insurance industry, which is called upon to both steer business activity through measures to protect property and future construction, and to cover enormous losses.
Insurers, however, are only part of the solution. To help achieve widespread climate resilience, three things need to be sorted out:
- What climate-related hazards do we know are actually changing and how?
- When we talk about actions like mitigation, what's possible and what do we mean?
- Do we have the courage to improve climate resilience?
What hazards are actually changing along with the climate?
The IPCC report provides a significant refinement of the scientific community's understanding, but what is most important for climate resilience hasn't changed: It is well known that surface temperatures are rising, and so are sea levels in most places, making storm surge a rapidly increasing threat. The IPPC report says it's very likely to virtually certain that the current trend will continue throughout the 21st century.
There are also sound data and models that show wet areas of the planet are becoming wetter from extreme rainfall, increasing flood risk, and dry areas are becoming drier, increasing wildfire risk.
But the science is not perfect, and the change is rarely linear. Thus, over and over again, new science shows that data solely from past experience fails to predict future outcomes. A large collection of massively complex climate models and the multi-model averages used to evaluate trends continue to improve, but they still need development and refinement to be able to take the steps beyond estimating future temperature and its direct consequences, to more complex hazards such as wind, hail, or snow loads, with high confidence. The overriding issue continues to be model resolution—having the ability to resolve all the small-scale physical phenomena that contribute to the climate over the entire atmosphere and sea/land surface. Bigger computers and improved methods help, but approximations are still necessary.
We also need to remind ourselves that climate change is just one part of a larger phenomenon of humanity's existential and financial vulnerability. For example, it's hard to tie any one weather event to climate change. It's more accurate to think of the evolving climate exacerbating certain events—wildfire, flooding, etc.—than causing any event in its entirety.
Secondly, the continually increasing global property loss/business disruption tallies we see referenced in charts and articles result not only from rising temperatures and sea levels, but also from increased risk-taking. That includes increased coastal development, relaxing building codes to improve property affordability, and expanding and tightening supply chains across countries and continents. Loss numbers are also rising simply due to economic growth—a good thing, albeit one that creates more value to lose.
What are we talking about?
The terminology around climate resilience can get confusing, and the confusion only complicates the path to solutions. For example, mitigation can mean two different things. For insurers, financial firms, and company risk managers, mitigation has generally meant reducing the financial impact of a hazard. In this sense, mitigation of climate risk may mean designing a building differently, or elevating servers within an office tower, or setting up floodgates on your boundaries. It could also mean incenting certain policyholder loss-prevention activities with better rates, terms, and conditions.
For climate scientists, however, mitigation typically means reducing greenhouse gases with the goal of reducing the warming of the atmosphere. Mitigation measures include using wind or solar energy, switching to electric cars, reducing energy consumption, capturing and sequestering atmospheric CO2, or planting trees.
Mitigation activity of this sort often resembles what businesses and insurers refer to as sustainability work, often documented in ESG (environmental, social and governance) policies, practices and reports. Although a business's sustainability work can help improve financial or environmental climate resilience, sustainability and resilience are different things.
What insurers typically call mitigation, climate scientists refer to as adaptation - measures that need to be taken to adapt to changes in the climate. These changes should reduce (i.e., mitigate) losses.
Confusing? Yes, but it's important to make sure that the important objectives of financial resilience and reduction in environmental impact don't get lost in the language.
Do we have the courage to become more resilient?
On the scale of a single location or site, climate resilience is generally achievable. Architects and engineers have ways to make buildings stronger (and maintain affordability), landscapes more flood-friendly, and systems like vegetative roofs that are resistant to natural hazards. Detailed information on proven solutions like these are available for free from a number of governmental and nongovernmental organizations, and private sector research such as that used to develop the FM Global loss prevention data sheets.
Driving climate resilience on a larger scale is incredibly difficult. Consider that the regions most vulnerable to sea level rise (and the resulting storm surge) are often the same ones subjected to increasing heavy rainfall, which exacerbates flooding and introduces more loss potential to the region. Protecting these entire areas by large civil works (such as massive sea walls, huge hurricane barriers, and metro-scale pumping systems) incurs insurmountable costs. The strategy is untenable for most regions.
Another measure touted as a climate-resilience strategy is the thoughtful design of construction in flood-prone areas. But the reality is that most of these areas are thoroughly built out, so the conversation turns to the exorbitant costs of retrofitting. This, too, is difficult if not untenable at large scale. Unfortunately, the right decision sometimes is avoiding building or rebuilding anything in harm's way. That's where courage comes in.
Understanding what's actually happening with climate change, how the terminology muddles the issues, and how achieving climate resilience at scale is an immense challenge all prove that climate resilience is far more than the insurance industry alone can deliver via financial means.
The solution, rather, lies within a combination of companies, governments, and strong alliances dedicated to really achieving a higher degree of resilience. Clarity about what's happening, a resolve to understand it, and the courage to become resilient are important elements for meeting the challenge.
Prepare now with FM Global's NatHaz Toolkit
As originally published in Forbes, August 18, 2021.
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