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Businesses vulnerable to climate change impact

Munich Re, the world’s largest reinsurance firm, estimates that in 2004 financial losses due to extreme weather events globally accounted for over $100 billion.

world Updated: Dec 17, 2007 00:44 IST
Saikat Neogi

The economic impact of global warming has increased significantly over the last few decades. Munich Re, the world’s largest reinsurance firm, estimates that in 2004 financial losses due to extreme weather events globally accounted for over $100 billion, a three-fold increase from 1970.

Though there is no similar data available on India, a recent study by Lehman Brothers, a consultancy firm, projects that every 2.5 degree Centigrade increase in temperature in India will cost the country five per cent of its GDP. Dr RK Pachauri, Director-General, TERI & Chairman, IPCC says that India is vulnerable to the impacts of climate change to a substantial degree and it will be one of the biggest business disruptions in the years to come.

The increases in global temperatures are expected to cause rising sea levels leading to extreme weather events like floods and storms. The July 2005 Mumbai floods, for example, showed that these extreme weather events could be quite expensive. The 24-hour incessant rains submerged large parts of the city, infrastructure facilities came to a grinding halt and the financial losses were estimated at Rs 10,000 crore.

Extreme weather events pose a great threat to infrastructure like industrial plants, utilities, roads, ports and housing. A study by Allianz, a global insurance company, found that climate change is increasing the potential for property damage at a rate of 2 to 4 per cent every year.

As refineries and chemical manufacturing plants are being built in coastal areas for bulk cargo transportation, a Platts study says about 45 per cent of such factories are at high risk of flooding because of rising sea levels. This should ring alarm bells at the many refineries situated along the Indian coast.

Climate change will inflict additional costs on new building infrastructure. Nicholas Stein, author of Economics of Climate Change, says the added costs of making new infrastructure and buildings more resilient to climate change in OECD countries could range from $15-150 billion each year.

Are corporates prepared to face any disruption in their business because of climate change? A KPMG global survey of 1000 companies found that around 20 per cent respondents think that climate change is “not a very important issue” for their business. And most surprisingly, 86 per cent respondents said that they do not have a strategy in place for responding to climate change.

The report underlines that those investors and businesses that adapt to climate change conditions will be able to anticipate the directions of asset prices and turn climate change policy to their advantage.