Geopolitical and economic strains discussed in previous chapters could compromise efforts across many realms, including and especially one in which we simply cannot afford failure: climate change. Indeed, “failure of climate-change mitigation and adaption” is this year’s number one long-term risk by impact and number two by likelihood, according to survey respondents. This chapter takes stock of the planetary risks of a warming climate and assesses the capacities of government, business and societies to face the urgent and existential challenge of both mitigating and adapting to climate change in the coming decade.

Governments, markets and, in an increasing number of societies, voters are awakening to the urgent realities of climate change—it is striking harder and more rapidly than many expected.¹ The last five years are on track to be the warmest on record.² Climate-related natural disasters such as hurricanes, droughts and wildfires are becoming more intense and more frequent, reportedly now averaging a disaster a week.³ Polar ice is melting more quickly than anticipated,⁴ with drastic implications for sea levels and coastal populations.⁵ Severe weather is worsening: the last year witnessed unprecedented wildfires and devasting storms across the globe,⁶ sea ice loss in the Arctic and record-breaking heatwaves in Europe.

Global temperatures today are slightly over 1°C above pre-industrial levels. On the current trajectory set out in countries’ nationally determined contributions (NDCs), which remain largely unchanged in the wake of the most recent UNFCCC Conference of Parties in Madrid in December (COP 25), that figure will rise to at least 3°C by the end of the century.⁷ Because each additional degree of warming will be proportionally more destructive, the damage will accelerate and be exponential. To avoid the most severe economic, social and environmental consequences, climate experts warn that the temperature rise must be limited to 1.5°C⁸. This equates to a remaining carbon budget of less than 10 more years of emissions at their current level.⁹

Climate realities

The near-term consequences of climate change add up to a “planetary emergency”.¹⁰ Implications are catastrophic, wide-ranging and intersecting. Worse still, the complexity of the climate system means that some impacts are still unknown. Established risks include:

Loss of life 

More and more species are becoming extinct (see Chapter 4, Save the Axolotl). Humans, too, will experience loss of life—but potentially unequally. Women and children are 14 times more likely than men to die during natural disasters, which are likely to intensify or become more frequent because of climate change.¹¹ The elderly and infirm are also at higher risk.¹² Climate change will also lead to increased health spillovers, burdening already stretched health systems, particularly for the poorest and most vulnerable, including in many low- and middle-income countries,¹³ as explored in Chapter 6, False Positive.

Stress on ecosystems

Oceans are getting warmer, stormier and more acidic, impacting the health of sensitive marine ecosystems such as coral reefs. As glaciers and ice sheets melt, low-lying geographies will flood;¹⁴ indeed, by 2050, three times more people will be impacted than previously thought.¹⁵ This risk was explored in detail in the 2019 Global Risks Report chapter Fight or Flight, which examined the intersection of rapid urbanization and rising sea levels. Additionally, a scenario in which ice-cap melt creates disruption to the Gulf Stream could cause further ecosystem disorder, as well as major change in the pattern of severe weather perils. Another significant unknown risk relates to the potential thawing of permafrost—frozen soil around the poles that stores nearly twice as much carbon as the atmosphere currently holds.¹⁶ If the soil thaws, this carbon could be released with unprecedented consequences.

Food and water crises

Crop yields will likely drop in many regions, undermining the ability to double food production by 2050 to meet rising demand. Because agriculture, livestock and deforestation produce nearly a quarter of global emissions, more efficient use of land is critical; it’s also one of the best potential carbon sequestration options.¹⁷ Water scarcity will increase as well—it already affects a quarter of the world’s population.¹⁸

Increased migration

From 2008 to 2016, over 20 million people a year have been forced from their homes by extreme weather such as floods, storms, wildfires and hotter temperatures.¹⁹ Tropical Cyclone Idai, for example, displaced nearly 150,000 people in March 2019.²⁰ Rising sea levels will increasingly create refugees as people flee low-lying areas. Indeed, defence and intelligence agencies are now regularly warning that climate change could trigger conflicts severe enough to uproot entire populations.

Exacerbation of geopolitical tensions

Countries will face more potential points of contention as climate change reshapes the security of and access to historic common property resources, such as fishing waters.²¹ Melting sea ice could enable new shipping routes through the Arctic, as well as opportunities for natural resource extraction,²² all of which could cause tension between countries already at odds over unresolved maritime and land boundaries (see Chapter 1, Global Risks 2020).²³ According to the UN, water was a major factor in conflict in 45 countries in 2017; disputes between upstream and downstream areas will likely intensify.²⁴ And as transition to a more decentralized, renewable energy economy changes geopolitical equations and creates new vulnerabilities for certain states and regions, states’ relative position in the international system will shift as well.²⁵

Economic impacts

Worldwide economic stress and damage from natural disasters in 2018 totalled US$165 billion, and 50% of that total was uninsured.²⁶ A report by federal agencies suggests that, in the United States alone, climate-related economic damage could reach 10% of gross domestic product (GDP) by the end of the century.²⁷ Over 200 of the world’s largest firms estimated that climate change would cost them a combined total of nearly US$1 trillion in the case of non-action. At the same time, there is broad recognition among these same firms that there are significant economic opportunities, provided the right strategies are put in place.²⁸ Countries will also experience losses unequally, with the highest economic costs being felt by large economies, while risk of exposure, death and non-economic costs is higher in smaller, poorer economies.²⁹

Capital market risks

Central banks increasingly see climate change as a systemic risk to the global capital market and recognize that non-action is not an option.³⁰ More common extreme weather events could make insurance unaffordable or simply unavailable for individuals and businesses:³¹ globally, the “catastrophe protection gap”—what should be insured but is not—reached US$280 billion in 2018.³² The transition to a low-carbon economy also creates potential challenges that will need to be managed. For example, action to reduce emissions could turn approximately 30% of current oil reserves, 50% of gas reserves and 80% of coal reserves into stranded assets for extractive companies and their investors (see Box 3.1).³³ Pension funds may face catastrophic shortfalls as industries consolidate and transition.³⁴ Climate risk may also cause disruption to the mortgage market, particularly in vulnerable regions such as Florida where 30-year mortgages could default en masse if homes become uninsurable over time.³⁵

Trade, labour and supply chain disruption

Climate change will affect trade by distorting prices and disrupting supply chains.³⁶ For example, with the Artic sea ice melting at a record pace, a northern route through once-impassable waters has “emerged as a potential global shipping artery.”³⁷ Shifts in seasonable temperature and rainfall will place particular stress on economies reliant on agricultural output,³⁸ creating new winners and losers in the trade sphere.³⁹ The labour force will experience impacts as well, and not only in the structural transition to a low-carbon economy: for example, heat stress resulting from global warming is projected to cause productivity losses equal to 80 million full-time jobs in 2030.⁴⁰

At a crossroads

For the future of climate change mitigation, 2020 is a critical year: it presents the first opportunity for nations to revise their national plans to tackle climate change as set out under the 2015 Paris Climate Agreement, and to close the gap between what they have pledged and what is needed. An increasing number of governments are announcing long-term net-zero emissions goals and showing more interest in tackling outstanding challenges in developing potential low-carbon solutions. These include creating a low-carbon hydrogen supply chain at scale; reducing emissions through carbon capture, use and storage; managing the intermittency of renewables with grid-scale storage solutions; electrifying domestic and commercial heating; better recycling of electric car batteries; and mapping out the future availability of the raw materials needed to support the transition.

Nonetheless, achieving significant change in the near term will depend on greater commitment from major emitters. Failure to seize 2020’s opportunity to mitigate climate change will have three main consequences. 

First, transition risks will increase (Box 3.1). Further delay in reducing emissions will make it harder to achieve carbon budget goals: companies and markets will ultimately be forced to adjust more rapidly, which could lead to higher costs, greater economic disruptions, or draconian interventions from panicked policy-makers that imperil macroeconomic and financial instability. Communities will also suffer if jobs are lost without well-thought-through and equitable transition plans in place.

Over 40 central banks and supervisors are already examining how climate risks can be integrated into their economic and financial activities.⁴¹ The Bank of England has warned that corporations in incumbent “dirty” industries can expect to go bankrupt if they fail to understand the risk of their business models becoming obsolete as investment flees to net-zero-emission alternatives.⁴² The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures announced recommendations in 2017 that have driven boardroom discussions regarding financial exposures and transition strategies.⁴³ Now supported by almost 900 companies, assessing financial risk of climate change is becoming more mainstreamed.⁴⁴ Governments are also moving towards mandatory disclosure of climate risks by listed companies.⁴⁵ The investor community is also responding to climate risk, with a recent notable development being the launch of the UN-convened Net Zero Asset Owners Alliance at the 2019 United Nations Climate Action Summit.⁴⁶

Second, the risk of unilateral geoengineering gambles will become more likely. Failure to implement effective regional or global climate policies increases the risk that countries may decide unilaterally to implement geoengineering projects such as ocean fertilization or stratospheric aerosol injection. This would risk further disruption to ecosystems: one recent study, for example, found that stratospheric sulphate aerosols could harm agricultural production, cancelling out benefits from the reduction in warming.⁴⁷

And lastly, and perhaps most vital, is the risk that the specific multilateral process mandated to address climate change loses momentum and action on climate stalls. For example, the recent failure at COP25 to develop a rule book for a new global carbon market means there is not yet a credible system that would allow countries to pay each other for projects that reduce emissions. The risk here is not simply that we lose an unaffordable five years, but that the perception of failure drains more political support from the multilateral process and undermines the prospects for future progress. However, encouraging steps are already being taken by various new geometries of governments, companies, investors, sub-national entities and civil society working together on key areas of climate action, such as the energy and industry transition, the mobilization of finance and agriculture, and nature-based solutions. These multistakeholder efforts to advance climate action, as highlighted at the 2019 UN Climate Action Summit, are becoming an increasingly important component of the international response. They are also helpful mechanisms to bolster political confidence that climate change can be successfully tackled. 

Can societies deliver?

Climate and corresponding economic risks threaten a 2008-style systemic collapse,⁴⁸ unless net human-caused carbon dioxide (CO₂) emissions fall by 50% by 2030 relative to 2010, and to net zero by 2050. Reaching these targets will require serious, interconnected economic and societal transitions at macro and micro levels that depend on technological innovation and commitment from governments and businesses. So far, however, commitments are inadequate given the urgency of the challenge and current trends are not encouraging.

Most critically, demand for energy is continuing to increase and much of this demand is still being met by fossil fuels. Global energy demand rose by 2.3% in 2018, the fastest pace in a decade.⁴⁹ China, the United States and India account for nearly 70% of the rise. Energy demand is expected to grow even further—by over 25% by 2040—driven by population growth, increasing incomes and urbanization: in developing economies, 1.7 billion people are expected to move to urban areas in the next two decades.⁵⁰

There is a clear tension between calls to green society and the drive, particularly in emerging markets, to boost economic growth through investment in carbon-heavy projects such as roads, dams, energy resources, mines and ports. For example, coal power plants built in Asia in the last decade accounted for nearly one-third of the total increase in CO₂ emissions in 2018.⁵¹ Global annual subsidies for fossil fuels are approximately double those for renewable power.⁵²

Beyond power generation, shifts in patterns of land use and how we manage our global food systems are also needed to reduce carbon emissions: agriculture, deforestation and wetlands development contribute 23% of all human-caused greenhouse gases.⁵³ Many current food and land use investment portfolios are often not consistent with delivering even a warming scenario.⁵⁴ Transitioning our carbon-based global agriculture system to practices such as regenerative farming would require radical shifts in subsidies and investment. Similarly, about 10% of global emissions comes from the very high heat levels required to produce commodities—such as cement, steel and petrochemicals—and, although low-carbon alternatives do exist, they are currently costly.⁵⁵ New public-private initiatives such as the Mission Possible Platform, launched at the UN Climate Action Summit in September 2019, are designed to help heavy industry sectors achieve net-zero emissions by mid-century through collaboration with governments, international organizations and investors.

Although there are financing roadmaps for green energy, there are serious financing gaps for overall plans to mitigate and adapt to climate change. The UN estimates that, to meet 2030 goals for adaptation, developing countries will need US$140 to US$300 billion annually—much higher than currently available adaptation financing.⁵⁶ Moreover, investments in climate-related activities largely stay within wealthy nations’ borders.⁵⁷ Only 49 developing countries have quantifiable climate-financing targets, and few of them look further than 2020, rendering them largely irrelevant to climate risks beyond this horizon.⁵⁸

Aside from a number of vanguard first-mover champions, most companies, too, appear ill-equipped to address climate risk. Many do not yet quantify physical climate risks in their direct operations and supply chains, and those that do are likely to be underestimating them significantly.⁵⁹ In the World Economic Forum’s survey of business leaders, none of the top 10 risks globally are environmental, suggesting a critical blind spot.⁶⁰ On the other hand, those business leaders who are more exposed to climate change discussions among their peers become more aware of climate risks and thus become more likely to act. For example, industry partners of the World Economic Forum ranked environmental risks higher than business leaders surveyed more broadly.⁶¹ This awareness and concern for environmental risks is also likely influenced by other business organizations that focus on helping their members tackle climate and other related issues, demonstrating the importance of these networks and organizations.⁶² Overall, lack of consistent awareness-raising among business leaders may create first-mover advantages for some, but it also potentially demonstrates the much more concerning overarching risk: that many businesses may not be planning for the physical and financial risks that climate change may have on their activities and across their value chains.

Consequently, businesses may also struggle to anticipate future shifts in government policy and customer preferences in time to align their strategy—for example, the rapid rise in consumer demand for non-plastic packaging took companies by surprise. Increasing pressure to respond is generating transition risk at the individual company level as each company needs to reassess assets, reconcile trade-offs and develop new capabilities to move towards a more sustainable model. At the same time, there is growing acknowledgement among some critical financial-sector players that environmental risks could threaten the broader economic outlook, which could be a sign of more positive shifts moving forward.⁶³

A green social contract

Concern about climate change is increasing,⁶⁴ particularly among young people, and this could alter the paths societies take in confronting the challenge. Political winds are shifting: in 2019 climate change underpinned the Greens’ surge in the European Parliament elections;⁶⁵ it also emerged as a key policy issue in the US Democratic presidential primaries and in elections in Australia, Canada and Switzerland.⁶⁶Most recently, the European Commission, led by President Ursula von der Leyen, announced a broad set of plans—the “European Green Deal”—that is intended to re-evaluate the European economy in light of environmental risks.⁶⁷Climate activism also increased in 2019. The non-violent civil disobedience movement Extinction Rebellion became more mainstream, with groups forming in 72 countries.⁶⁸ More remarkably, millions of schoolchildren participated in organized “climate strikes”.⁶⁹

In the long term, the mobilization of youth could lead to a new green social contract reordering political and business life, as today’s striking children gradually become tomorrow’s voters, workers, investors and consumers. Politicians will seek to attract them through policies such as the Green New Deal legislation that has been proposed in the United States. As today’s youth demand jobs that are compatible with their concern about climate change, workforce climate activism may become more common,⁷⁰ and companies without strong environmental credentials could struggle for talent.⁷¹ Lastly, as consumers, the new generation of climate crusaders will make more sustainable lifestyle choices, such as eating plant-based diets or flying less, and demand more low-carbon goods.⁷²

In the short term, however, many current voters may be unwilling to support transition policies: in an age of economic anxiety and uncertainty, there is also concern about the implications for cost of living, jobs and the competitiveness of high-carbon sectors. This concern may pitch voters against climate action or make their support for climate policies ambiguous. For example, polling before Canada’s election found that many voters who identified climate change as a key concern were nevertheless reluctant to bear any cost to tackle it.⁷³ And Australia’s “climate change election”—which took place before the recent wildfires—resulted in an unexpected victory for a coalition opposed to aggressive action.⁷⁴

New political and social dynamics (or events such as dramatic natural disasters that can be climate-related) may be making available the policy space to embark on the radical trajectory needed to mitigate drastic warming. But building broad-based support for climate policies that can meet the Paris Agreement’s goals will require convincing voters that a just transition is possible. Policies that provide for social protection programmes and job training could help to limit disruption and exacerbation of socio-economic inequalities in the transition to a low-carbon economy.

The resilience decade

The next 10 years will shape the outlook for climate risk for the rest of the century. To avoid the worst consequences, global emissions need to peak almost immediately and decline precipitously—by 7.6% each year between 2020 and 2030.⁷⁵ This implies an additional US$460 billion a year of clean energy investment over the next decade.⁷⁶ Far-reaching policies will be needed to transform industrial processes, transport, agriculture and land-use, alongside changes in consumer behaviours to scale the necessary critical solutions.⁷⁷

As policies shift and societies transition, options must be assessed holistically because disorderly transition could potentially exacerbate impacts with short-sighted responses. For example, materials needed for low-carbon technologies such as nickel, copper, cobalt and manganese could be mined from the seabed—but the impacts of deep-sea mining on ecosystems and ocean health could offset its benefits.⁷⁸ Likewise, the deployment of bioenergy with carbon capture and storage could require up to 700 mega hectares (an area twice the size of India) for bioenergy crops by the end of the century⁷⁹—and at a time when the global population may have reached nearly 11 billion people. Converting such large swaths of land to monocultures has clear consequences for food production and nature. Geopolitical relationships will shift as trade in fossil fuels becomes less economically important.

Alongside the risks, the next decade brings tremendous opportunity; technological breakthroughs are happening all the time. For example, most recently, a start-up announced it had developed a way to harness artificial intelligence and mirrors reflecting the sun to create the extreme heat required for industrial processes—a potential game-changer for the source of around 10% of global emissions each year.⁸⁰Clean energy is increasing (see Figure 3.1) while also getting cheaper and creating jobs. The cost per unit of electricity from onshore wind and photovoltaic solar power plants has dropped by about 70% and 90% respectively over the last decade.⁸¹ In most countries, it is now cheaper to install new wind or solar power stations than new coal power plants.⁸² The International Renewable Energy Agency estimates that shifting to renewables could grow the world economy by 1% a year until 2050, a cumulative gain of over US$52 trillion (see Figure 3.1).⁸³ Other industries, such as agriculture through regenerative growing practices, and food production through meat alternatives, carry still-untapped potential.

New political and social dynamics may now also be creating the policy space available to embark on the radical trajectory needed to mitigate drastic warming. At the same time, adaptation needs to be given urgent priority, not only to prepare for the possibility of very dangerous levels of climate change in the future, but also to eliminate the resilience deficit we face today. A series of important initiatives—such as the report from the Global Commission for Adaptation, the Coalition for Climate Resilient Investment, and the Just Rural Transition—were launched in 2019 at the UN Climate Action Summit as a package of measures on resilience.⁸⁴ These initiatives aim to ensure infrastructure investment, spark innovation on adaptation and set out a principles for a just transition, among other goals.

The 2020s—the decade of delivery for the Sustainable Development Goals—needs to also be the resilience decade for climate. Concerted action is required not only to reduce emissions, but also to develop credible adaptation strategies, including climate-proofing infrastructure, closing the insurance protection gap and scaling up public and private adaptation finance. This will require governments and businesses to identify and prioritize risks and develop metrics and strategies to manage them.⁸⁵