Study Shows Emerging Markets' Economic Output Vulnerable to Climate Change
Thirty-one per cent of global economic output will be based in countries facing ‘high’ or ‘extreme risks’ from the impacts of climate change by the year 2025, according to research by global risk analytics company Maplecroft. The figure represents a 50% increase on current levels and has more than doubled since the company began researching the issue in 2008.
According to the Climate Change Vulnerability Index (CCVI), which forms a central part of Maplecroft’s 6th annual
‘Climate Change and Environmental Risk Atlas’
, this includes 67 countries whose estimated combined output of US$44 trillion will come under increasing threat from the physical impacts of more frequent and extreme climate-related events, such as severe storms, flooding or drought.
The economic impacts of climate change will be most keenly felt by Bangladesh (1st and most at risk), Guinea-Bissau (2nd), Sierra Leone (3rd), Haiti (4th), South Sudan (5th), Nigeria (6th), DR Congo (7th), Cambodia (8th), Philippines (9th) and Ethiopia (10th), which make up the 10 most at risk countries out of the 193 rated by the CCVI. However, other important growth markets at risk include: India (20th), Pakistan (24th) and Viet Nam (26th) in the ‘extreme risk’ category, in addition to Indonesia (38th), Thailand (45th), Kenya (56th) and most significantly China (61st), classified at ‘high risk.’
The CCVI has been developed to identify climate-related risks to populations, business and governments over the next 30 years, down to a level of 22km² worldwide. It does so by evaluating three factors: exposure to extreme climate-related events, including sea level rise and future changes in temperature, precipitation and specific humidity; the sensitivity of populations, in terms of health, education, agricultural dependence and available infrastructure; and the adaptive capacity of countries to combat the impacts of climate change, which encompasses, research and development (R&D), economic factors, resource security and the effectiveness of government.
Business exposed on multiple levels
Future estimates of the overall cost of climate change on the global economy include a wide spectrum of opinions, says Maplecroft. What cannot be disputed is that the ‘high’ and ‘extreme risk’ countries in the CCVI include emerging and developing markets whose importance to the world economy is ever increasing. By 2025, China’s gross domestic product (GDP) is estimated to treble from current levels to US$28 trillion, while India’s is forecast to rise to US$5 trillion – totalling nearly 23% of global economic output between them.
India’s economic exposure to the impacts of extreme climate related events was recently highlighted by Cyclone Phailin. The storm caused an estimated US$4.15bn of damage to the agriculture and power sectors alone in the state of Odisha, which is also India’s most important mining region. Up to one million tons of rice were destroyed, while key infrastructure, including roads, ports, railway and telecommunications were severely damaged, causing major disruption to company operations and the supply chains of industrial users of minerals.
“With global brands investing heavily in vulnerable growth markets to take advantage of the spending power of rising middle class populations, we are seeing increasing business exposure to extreme climate related events on multiple levels, including their operations, supply chains and consumer base,” said James Allan, head of environment at Maplecroft. “Cyclone Phailin demonstrates the critical need for business to monitor the changing frequency and intensity of climate related events, especially where infrastructure and logistics are weak.”
According to Maplecroft, the ability of highly vulnerable countries to manage the direct impact of extreme events on infrastructure will be a significant factor in mitigating the economic impacts of climate change and may present opportunities for investment. Adaptive measures, such as building flood defences and greater infrastructure resiliency, will, however, require the sustained commitment of governments.
Most at risk cities
With commercial activity and the middle classes predominantly based in urban centres, Maplecroft has also calculated the risks to the world’s largest cities to pinpoint where the economic exposure will be highest over the next 30 years.
According to the CCVI’s sub-national calculations, of the 50 cities studied, five present an ‘extreme risk’ – Dhaka in Bangladesh; Mumbai and Kolkata in India; Manila in the Philippines and Thailand’s Bangkok – while only two were classified as ‘low risk,’ London in the UK and Paris, France. Shenzhen and the Pearl River Delta, which encompasses the cities of Guangzhou, Dongguan and Foshan and make up China’s manufacturing heartland, are, however, among the most exposed to physical risks from extreme climate-related events.
West Africa sees greatest increase in risk
Meanwhile, the regions facing the most increased levels of risk are West Africa and the Sahel. Maplecroft’s exposure index incorporates recently-released United Nations (UN) intergovernmental panel on climate change (IPCC) climate projections for the period up to 2040, and identifies regions that are projected to undergo a significant shift in key climate parameters in that timeframe. Over this period a projected warming of two degrees centigrade will combine with substantial changes in rainfall and humidity, which will have a significant impact on communities and businesses located in West Africa and the Sahel. This increase in risk is reflected by the inclusion of West Africa’s largest economy, Nigeria, as the world’s sixth most at risk country in the CCVI.