Daily Update: November 21, 2024

The challenge of understanding the economic impact of climate change is time. This is not a matter of Mark Carney’s “tragedy of the horizon.” Floods, heatwaves and wildfires affect people and businesses globally, meaning the physical effects of climate change are no longer over the horizon. These physical effects continue to worsen, yet the steady degradation is imperceptible. Shifting Baseline Syndrome describes how people’s expectations for the natural environment change over time. We are an adaptable species. The frequency of floods or heatwaves or a decline in agricultural productivity quickly morphs into a “new normal.” The baseline expectation for our climate shifts. This means that substantial economic harm can be obscured in the slow drift of climatic time.

Effectively measuring the economic impacts of climate change requires a multidisciplinary approach that taps into physical science, economics and ecology. Working across disciplines allows researchers to understand how geophysical, economic and natural systems interact. Using multiple perspectives, economic and scientific, draws attention to predictable outcomes — the ecological outcomes of economic activity and economic outcomes of ecological changes. S&P Global’s Climate Center of Excellence is engaged in creating a unified understanding of climate impact.

Calculating how compound climate and weather events lead to economic impacts is particularly challenging. Extreme temperature and humidity can happen simultaneously, and freezing rain and strong winds can occur alongside high waves. The effects of these extreme events can be felt across a massive geographic spread. As this hurricane season in the Gulf Coast has revealed, the spatial scale, duration, and time between extreme weather and climate events can amplify economic impacts.

Looking across the past five decades, the World Meteorological Organization (WMO) calculates that climate change-related events have resulted in $4.3 trillion in reported economic losses. But a 50-year timescale can obscure these tangible impacts on real assets; these costs will continue to increase with time. Under a medium-high climate change scenario, the projected cumulative exposure to climate physical risks could reach $559 billion. Given the warming already built into the climate — the new baseline — physical risks will increase over time, impacting economic outcomes for customers, tenants, building operators, owners and investors.

Because the Earth’s climate is a closed system, there is a natural balance to the increasingly extreme events. Fire and water are the two polarities of this balance. Water is important for physical asset risk, both in its presence and absence. Research by S&P Global Sustainable1 demonstrates that droughts will become more frequent and severe in many regions in the coming decades. Countries such as Italy, Egypt, Australia and Mexico will begin to see escalating impacts from severe droughts. Wildfire risk is one possible outcome of severe droughts and rising temperatures.

An updated Climanomics model from S&P Global Sustainable1 highlights the coming global risk of drought and wildfire with greater specificity and granularity. However, excess water is also an effect of climate change. Pluvial, or rain-caused, flooding has become a regular feature of climate news reports. The Climanomics model demonstrates the impact of intense rainfall on urban areas where asphalt, concrete, and other impervious surfaces can lead to flash floods. It creates greater visibility of impacts by projecting the climate seven decades into the future.

Today is Thursday, November 21, 2024, and here is today’s essential intelligence.