As a summer of heatwaves showed, the physical effects are already here, writes Eric White.
The summer heatwaves started early this year. By April, the reports from Southeast Asia were already startling—melted roads, school closures, and hundreds of dead. All driven largely by climate change.
What’s going on here? At one level we are witnessing the persistence of an old mental model. It says that the impacts of climate change are still far in the future, which means that they are manageable via the normal strategy process. In the meanwhile, immediate risks mostly refer to weather events, which remain insurable even though their impacts may be getting more severe. Our annual Global Risks report survey hints at this view.
Quantifying compliance toward climate risk is difficult and expensive. It requires a climate scientist to downscale global models and a concerted effort to engage in exercises with local staff at specific sites. Done properly such studies run well into the millions of dollars, all to understand a risk on which a business is not obligated to report and which leaders probably perceive to be decades away anyway. It’s no surprise some companies are complacent.
This paradox highlights one reason why getting companies to pay more attention to climate risk is such an important issue—it could speed up decarbonization. The other is the fear, recently discussed in the Financial Times, of a “Minsky moment,” where the market suddenly realizes an under-priced risk and corrects all at once, creating huge financial losses.
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