SINGAPORE - Risks from climate change to governments and businesses, as well as its impact on human health and well-being, need to be urgently reassessed as the threats to economies and livelihoods from extreme weather grow, a major study released on Thursday (Jan 16) says.
"Climate change is already having substantial physical impacts at a local level in regions across the world, and the affected regions are likely to grow in number and size," adds the report from the McKinsey Global Institute.
It says the social and economic risks of the changing climate suggest many assumptions about the risks and potential damage needs to be revisited.
The study finds that if greenhouse gas emissions keep rising unchecked and nothing is done to adapt to the growing hazards, which include rising temperatures, drought and higher sea levels, "climate change could put hundreds of millions of lives, trillions of dollars of economic activity, and the world's physical and natural capital at risk".
Natural capital refers to ecosystems such as rainforests, mangroves and coral reefs that provide essential benefits for human livelihoods.
The report's release comes as Australia faces an unprecedented bush fire crisis exacerbated by prolonged drought, record high temperatures and record low rainfall.
The fires have killed 28 people, destroyed thousands of homes, caused severe air pollution and led to major losses for the tourism sector.
The report focuses on the risks from climate change up to 2050, and uses climate model projections to assess threats and uncertainties.
Using a conservative climate model projection, called Representative Concentration Pathway (RCP) 8.5, McKinsey and its scientific partners plotted a scenario of high-growth greenhouse gas concentrations over the next 30 years with the assumption the world makes no effort to cut emissions or to adapt.
While this seems to be an overly gloomy baseline, the idea was to assess the risks from the physical effects of climate change, including the potential effects on people, communities, and economic activity, and the implications for companies, governments, financial institutions, and individuals.
Taking a risk-management approach gives decision-makers a better sense of the challenge, Dr Jonathan Woetzel, director of the McKinsey Global Institute, told The Straits Times in an e-mail.
The authors focused on nine case studies to test climate change impacts.
These included the change in livability and working conditions in India and the Mediterranean due to rising heat stress; disruption of food systems through looking at global breadbaskets; destruction of residential real estate in Florida from storms and rising sea levels; and disruption to supply chains.
They found that the social and economic impacts of climate change will likely become "non-linear", meaning unpredictable or more extreme than expected or designed for, with small changes tipping things over the edge.
For example, buildings designed to withstand floods of a certain depth, or crops grown in regions with a specific climate. While it is possible to adapt with new crop varieties, there is only so much that can be factored in given the pace of climate change.
"Societies and systems most at risk are ones already close to physical and biological thresholds," Dr Woetzel said.
India and Pakistan, under the RCP 8.5 emissions scenario, will become significantly hotter and humid, cutting the number of hours people can work outside and raising the risks of more frequent deadly heatwaves.
This would affect gross domestic product, which is used to measure the pace at which economies grow.
As of 2017, heat-exposed work, such as farming, produced about 50 per cent of GDP in India, drove about 30 per cent of GDP growth, and employed about 75 per cent of the labour force, says the report.
In the Mediterranean, an increasingly hotter and drier climate could affect sectors such as wine and tourism, with prolonged droughts also affecting crops and water supplies.
Coastal real estate in Florida, and elsewhere, is also at great risk.
Average annual losses for residential real estate due to storm surge from hurricanes amount to US$2 billion ($2.7 billion) today, rising to an estimated US$3 billion to US$4.5 billion by 2050.
But for an extreme 100-year hurricane event, storm surge damages could rise from US$35 billion today to US$75 billion by 2050.
By 2050, ocean warming is expected to reduce fish catches by about 8 per cent and associated revenue by about 10 per cent, affecting the livelihoods of 650 million to 800 million people globally who directly or indirectly rely on these revenues.
Supply chains are also at risk because they are often designed for efficiency over resiliency, said Dr Woetzel.
"Economic and financial systems have similarly been designed and optimised for a certain level of risk and increasing hazards may mean that such systems are vulnerable," the authors say in the report.
"Food production is also heavily concentrated; just five regional 'breadbasket' areas account for about 60 per cent of global grain production. Rising climate hazards might therefore cause such systems to fail."
The bottom line, say the authors, is that governments and businesses need to better integrate climate risks into planning, financing decisions, impacts on supply chains and boost resilience of human health, food production and ecosystems.
Stepping up adaptation is also an urgent priority.
"Adaptation is essential to help manage risks, even though this could prove costly for affected regions, and entail hard choices," said Dr Woetzel.
"Preparations for adaptation - whether seawalls, cooling shelters, or drought-resistant crops - will need collective attention, particularly about where to invest versus retreat."
Climate-change-related threats are likely to be a major focus at next week's World Economic Forum in Switzerland.
Extreme weather, large-scale biodiversity losses and a failure of political leaders to slow global warming are listed as top long-term risks facing the globe, business and other leaders said on Wednesday in an annual risk survey published ahead of the Forum.