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Horizons: Family Office & Investor Magazine

Climate Change: From Greatest Challenge Facing Mankind to Opportunity of the Century

Tuesday, November 27, 2018

Climate change is one of the greatest challenges facing humankind and will potentially negatively impact long-term financial investments and jeopardizes the business models of leading companies. I got sensitized to the theme of climate change by a talk of Prof. Dr. Thomas Stocker of the University of Bern, at the 2018 Swiss Asset Management Day in Pfaffikon.

In particular, agriculture will suffer, far more likely than is already the case in the current droughts.

Scientists show in a recent study published in the journal Nature Climate Change how exactly the soil moisture that is important for crops will develop as climate change progresses. If the earth warms by three degrees Celsius compared to pre-industrial times, the area of European drought will double from 13 to 26 percent in the reference period from 1971 to 2000. And with the exception of parts of Scandinavia, the biggest drought events will take three to four times longer than before.

Spain, Italy and Greece could turn into a desert

In Europe, the region around the Mediterranean would be particularly hard hit. Even with a warming of 1.5 to two degrees, the dryness expected in the Mediterranean is greater than ever before in the past millennium. If the warming reaches three degrees, southern Spain and probably Italy and Greece would be “turned into a desert,” according to a study published in the journal Science titled “Climate change: The 2015 Paris Agreement thresholds and Mediterranean basin ecosystems”. In fact, an analysis by the Spanish government anticipates that 80% of the Iberian Peninsula could have turned into a desert by 2100.

For some regions of the Iberian Peninsula, the average duration of drought would increase significantly from just over two to more than seven months a year. This also has significant consequences for the Mediterranean vegetation, biodiversity and the entire ecosystem. The level of water reserves in Spain, Italy and Greece has been falling since spring – the majority of the Spanish reservoirs hardly reach 30-40% of their capacity. Rainfall continues below its normal level, and the first signs of water scarcity have already appeared: restrictions on irrigation were multiplied last summer in the main Mediterranean agricultural basins.

Why dryness and heat waves go hand in hand

Sonia Seneviratne from the Institute of Atmospheric and Climate Sciences at ETH Zurich explains that dryness and heat waves often go hand in hand. The warmer it is, the faster the soil dries up. And the drier it is, the less cooling evaporative heat is created. Dry soils are an important factor for extreme heat waves.

At the same time, Northern Europe is forecasted to become more humid; floods in winter could be more frequent. These risks of heat waves, floods or sea level rise are being acerbated in urban areas, where four out of five Europeans live.

Sonia Seneviratne said the risk of drought is currently still low compared to what can be expected with a warming of 1.5 degrees, two degrees or even three degrees. The aim of the Paris Climate Agreement is to limit global warming to below two, if possible even below 1.5 degrees. “However, the promises of the countries participating in the Paris Agreement would result in a warming of around three degrees, which would lead to a significantly greater drought risk than we have today.”

The carbon dioxide data (red curve), measured as the mole fraction in dry air at the Mauna Loa Observatory, Hawaii, constitute the longest record of direct measurements of CO2 in the atmosphere. The black curve represents the seasonally corrected data.

But, some may ask if the data measured since 1958 isn’t just a natural occurrence caused by greater cycles? Unfortunately not. By examining air particles captured in arctic ice, scientists could measure the CO2 concentration of the past 800,000 years which is now 35% higher than any previous high.

Temperature is already up over 1.5 degree Celsius since 1910 and will keep rising:

This in turn contributes to the rise of sea levels. At the moment, Greenland loses around 1 cubic kilometre ice per day (that’s 1000000000000 litres), while the amount of ice lost annually from Antarctica has tripled since 2012 to 241bn tons a year.

“Business as usual” means that further warming increases the likelihood of severe, pervasive and irreversible impacts.

Heat making large parts of earth uninhabitable

The number of “Dangerous Heat” days where the temperature is above the deadly threshold will go up, as will the landmass affected by super heat:

Even keeping the 2°C Paris limit will cause high stress in some regions, but this could be manageable compared to the prospect of unfettered CO2 emissions which could turn some of the most populated countries and continents uninhabitable. Remember that according to United Nations “medium scenario” demographic projections, more than 4 billion people could live in Africa in 2100.

$1 trillion of US property projected to be underwater by 2100

Almost any resident of the Miami area has a story to share about flooding, and many will have more than one. They will tell you that floods happen more often, and the data confirms this.

The Sea Level Rise Work Group puts the most frequently-used range of estimates between 15-25cm (6-10in) above 1992 levels by 2030, and 79-155cm (31-61in) by 2100. The Union of Concerned Scientists said: “Sea levels are rising. Tides are inching higher. High-tide floods are becoming more frequent and reaching farther inland. And hundreds of US coastal communities will soon face chronic, disruptive flooding that directly affects people’s homes, lives, and properties. Yet property values in most coastal real estate markets do not currently reflect this risk. And most homeowners, communities, and investors are not aware of the financial losses they may soon face.”

According to Rice University, FEMA flood maps missed 75% of claims. Property owners in low-lying states should therefore take notice. The Union of Concerned Scientists published an helpful interactive map showing how many homes are at risk by state, community, and ZIP Code. The maps also show the current property value, estimated population, and the property tax base at risk.

This scenario uses federal data from a high sea level rise scenario projected by the National Oceanic and Atmospheric Administration, and combined it with property data from the online real estate company Zillow to quantify the level of risk across the lower 48 states. With planet-warming emissions barely constrained and the seas rise by about 6.5ft globally (78in or 1.98m) by the end of the century, 311,000 homes along the US coastline would face flooding on average 26 times a year within the next 30 years. The losses would multiply by the end of the century putting as many as 2.4m homes, worth around a trillion dollars, at risk. Low-lying states would be particularly exposed, with a million homes in Florida, 250,000 homes in New Jersey and 143,000 homes in New York.

More than 500 American communities - or 10 percent or more of liveable land area with 13 million people - will be at risk of flooding annually by 2100 on account of rising sea levels, changes in land use and population growth.

Dr. Leonard Berry, Vice President and Co-founder of consultancy Coastal Risk, said that apart from the flood risk, “the economic impact of wildfires in the U.S. is accelerating rapidly, reaching nearly $5 billion in 2017 [and probably higher in 2018]. More severe and regular wildfires can be expected as climate change makes forests and ranch lands drier. In addition, “Tornado Alley” in the Midwest causes hundreds of deaths and millions of dollars in damage. Knowing a property’s exposure to extreme weather and climate effects has never been more important.”

The study by Hauer, M. E. et al. (2016) “Millions projected at risk from sea-level rise in the continental United States” says that without adequate sea defences, scores of people will be forced to relocate, on the scale of the Great Migration in the US during the 20th century where around six million black Americans left the southern states to escape persecution.

But rising coastal populations will make defending or relocating people more difficult and expensive: Not only could the costs of relocating a community be greatly underestimated if that population is growing, but the challenge of finding suitable areas for relocation could be problematic as well.

Why climate change is the opportunity of the century

According to Professor Stocker, combating man-made climate change may soon turn into the greatest business opportunity of this century. All countries have agreed that warming should be held well below 2°C and efforts should be made to keep it below 1.5°C with CO2 emissions falling to zero by 2050.

Increasing greenhouse gas concentrations in the atmosphere are responsible for the warming of our planet. Emissions of CO2 from burning of coal, oil and gas are the dominant cause of the warming of the past 100 years and consequent world-wide climate change. Therefore, limiting climate change requires substantial and sustained reductions in greenhouse gas emissions, as was stated by IPCC, the Intergovernmental Panel on Climate Change in 2013. To keep the warming limited and avoid climate change disaster and unmanageable damage, a rapid transformation from a fossil-fuel based economy to a circular economy based on renewable energy must take place.

“This is a global effort and constitutes no less than an Industrial Revolution”, says Professor Stocker.He explains that all previous industrial revolutions have changed the distribution of power, wealth, and lifestyles. But they were also unprecedented business opportunities for those who assumed early and determined leadership. The 4th Industrial Revolution, Decarbonization, will create smarter products, new jobs and markets, better life quality and new values and lifestyles. All stakeholders need to be part of

the Decarbonization. “Those leading it will reap the greatest benefit, those combating it or waiting it out, will be left behind”, notes Professor Stocker.

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