Climate shocks: Floods, fires, and futures

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  Quantumrun Foresight
• December 19, 2024

Insight summary

Extreme weather events caused by climate change are becoming more frequent, affecting communities, economies, and ecosystems worldwide. These climate shocks, such as floods and droughts, are particularly harmful to developing nations, but global efforts to improve infrastructure and risk management are showing progress. As countries face long-term impacts, there is a growing need for climate resilience, sustainable practices, and international cooperation to mitigate future risks.

Climate shocks context

Climate shocks refer to sudden and extreme weather events worsened by climate change, causing devastating impacts on ecosystems, communities, and economies. These events include floods, droughts, cyclones, and heatwaves, which have become more frequent and severe over recent decades. For example, from 1970 to 2021, 90 percent of deaths and 60 percent of economic losses from climate-related disasters occurred in developing countries, according to the World Bank. In 2022, Pakistan experienced severe flooding that displaced 8 million people and affected a third of the country. Despite these alarming statistics, many nations, particularly low-income ones, lack adequate early warning systems.

Climate shocks disrupt lives and cause long-term economic losses, particularly in regions already struggling with poverty. In Somalia, recurring droughts have placed over 7.8 million people at risk of famine, highlighting the need for resilient infrastructure and risk management systems. Once one of the most disaster-prone countries, Bangladesh has become a global leader in mitigating climate risks through initiatives like early warning systems and weather-resistant infrastructure. By 2020, Bangladesh had successfully moved 2.4 million people to safety ahead of Cyclone Amphan, preventing thousands of deaths. 

Recent developments in climate adaptation show progress in addressing these challenges. The World Bank has pioneered financing models like Climate Resilient Debt Clauses, which allow countries to delay debt repayments during natural disasters. In the Philippines, the "PlanSmart Ready to Rebuild" program has equipped local governments with tools to recover faster from climate-related events. Additionally, the private sector is playing a growing role in this area, like the Energy Development Corporation in the Philippines, which embeds climate risk considerations into its operations. 

Disruptive impact

More frequent extreme weather events may push people to relocate. Additionally, increased food prices caused by disrupted agricultural production could strain household budgets globally. Changing rainfall patterns and droughts may lead to food shortages, particularly climate-related famines that could threaten millions. On the positive side, individuals may become more aware of their environmental impact, driving demand for sustainable practices and products that can help reduce their carbon footprint.

Companies in agriculture, insurance, and construction might face growing pressure to develop solutions that mitigate the risks posed by extreme weather. For example, the rise of climate-resilient crops and infrastructure could create new market opportunities, as seen with drought-tolerant seeds used in African agriculture. However, supply chains may become more vulnerable to disruptions caused by natural disasters, forcing companies to rethink their logistics strategies. Businesses may also need to allocate more resources to climate risk management, ensuring their operations are not severely affected by future events.

Meanwhile, governments could invest in more climate resilience and disaster preparedness initiatives. Developing countries, in particular, may need to prioritize building climate-proof infrastructure and expanding early warning systems. Additionally, international cooperation may be required, as countries increasingly face transboundary climate risks, like floods or wildfires that affect multiple regions. Governments may also need to create incentives for private sector investment in climate-resilient infrastructure, especially in high-risk areas. 

Implications of climate shocks

Wider implications of climate shocks may include: 

• Rising demand for climate-resilient housing, pushing construction companies to design buildings that withstand extreme weather.
• Governments increasing taxes on industries with high carbon emissions, reshaping global trade and competition.
• Greater focus on local food production, as disrupted supply chains force countries to prioritize food security.
• Technological innovations focusing on early warning systems, which lead to more accurate forecasting and improved disaster response.
• A shift in migration patterns as climate refugees move from regions vulnerable to extreme weather, altering demographics in urban areas.
• Expansion of remote work policies due to climate-related disruptions, leading to permanent changes in labor markets.
• New insurance models emerging to cover extreme weather events, reshaping how individuals and businesses manage risk.
• Governments forming international coalitions to tackle climate migration, creating new global political alliances and tensions.
• Social movements calling for stronger climate action, leading to increased civic participation and influence on public policy.
• Increased investment in green technologies by both private and public sectors, driving sustainable economic growth across various industries.

Questions to consider

• How could the increased frequency of climate shocks impact your daily life and long-term financial planning?
• What steps could your community take to better prepare for extreme weather events and reduce future risks?