Climate change risk
Providing society with the tools to assess and manage climate-change risk
Bringing risk under control is one of the central ideas that distinguishes modern times from the distant past. Tools exist that quantify the impact of future risks to determine the value of actions taken today. They are the basis on which insurance premiums are determined to cover a risk that may occur in one month, one year, one decade, or several decades.
However, locked-in climate change and non-stationarity introduces new factors that undermine risk management. They define a world with climate impacts that we will not be able to quantify using existing tools. This challenge is now clearly acknowledged by the investment community. In certain geographical locations, the impact of a changing climate is observable in ecosystems. In the case of agriculture this leads to changes in crop yields, variation in planting times and the increased need for irrigation and adaptation. In the case of native flora it leads to unviable habitats and the migration of pests and diseases. The consequence of a drying signal on an area with an extensive forest ecosystem is, as we know all too well from Australia and California, the creation of excessive fuel loads (dry trees) and the emergence of extreme fire risk.