A lack of action in combatting climate change over the next 30 years could cause the global economy to shrink by some 18%.
This is as the global temperatures will possibly rise to over 3°C and the impact of weather-related natural disasters will be more severe, thereby leading to substantial income and productivity losses over time, a report by the Swiss Re Institute reveals.
To illustrate this, the researchers use the example of how heat stress- which occurs when temperatures are high – could lead to crop failures.
Similarly, rising sea levels could lead to the loss of land that could have otherwise been used productively to grow crops.
Asia would be among the world’s most vulnerable regions if temperatures rise, the report indicates.
A severe scenario of a 3.2°C rise in temperatures, could cost Asia’s GDP to shrink by 26.5% by mid-century, making this the region with the highest setback after the 27.6% loss forecast for the Middle East and Africa.
By contrast, the shrinkage in GDP expected for North America and Europe is 10%.
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Incidentally, four out of five of the lowest-ranking economies on Swiss Re’s Climate Economics Index are in Asean.
Even a less severe baseline scenario of a 2–2.6°C rise in temperature is projected to drag down the output of Asean countries by 29% by mid-century.
This implies that Indonesia, Malaysia, the Philippines, Singapore and Thailand would lose economic output totaling more than seven times their 2019 GDP by 2050.
Meanwhile, Singapore is said to be well-prepared to manage the adverse effects of climate change, despite being at a high risk of environmental issues such as rising sea levels.
Still, there is an urgent need to invest in greening the region’s economies, the report stresses.
Major economies too, will also not be spared.
For instance, China and India rank relatively weak on the Climate Economics Index due to their limited adaptive capacity and likelihood of heat-induced productivity losses.
Rising temperatures and increasing stress from tipping points could drive GDP down 27% in India and 18.1% in China in the baseline scenario.
A more severe increase could cause China – which is tipped to become the world’s largest economy by 2025 – to lose almost a quarter of its GDP by the mid-century.
Against this backdrop, there is an urgent need for the public and private sectors to collaborate and address this issue.
“Only if public and private sectors pull together will the transition to a low-carbon economy be possible. Global cooperation to facilitate financial flows to vulnerable economies is essential,” says Jérôme Haegeli, Swiss Re's Group Chief Economist..
He estimates that adding 10% to the current US$6.3 trillion ($8.35 trillion) invested in global infrastructure, would limit the average increase in temperature to below 2°C.
“This is just a fraction of the loss in global GDP that we face if we don't take appropriate action," mulls Haegali.
Other ways to mitigate the drag on the global economy include, the adoption of carbon-pricing policies combined with incentives for nature-based and carbon-offsetting solutions as well as an international convergence on taxonomy for green and sustainable investments.
As part of financial reporting, institutions should also be made to regularly disclose how they plan to achieve the Paris Agreement and net-zero emission targets, Swiss Re’s report highlights.
Through these we have “an opportunity to correct the course now and construct a world that will be greener, more sustainable and more resilient,” stresses Haegali.
