Developing countries to lose out again

The impact of climate change will be felt across various sectors and societies. Sectors where the more obvious immediate impact will be felt include energy, water, agriculture and insurance. Vulnerability to climate change will vary between regions, but it is predicted to be highest in developing countries. Developing and third world nations are more exposed by virtue of tending to be at lower latitudes, where impacts such as increased disease and extreme heat and drought will be more pronounced.

Developing countries also derive a larger proportion of their economic output from climate-sensitive sectors such as agriculture, fishing and tourism. In addition, developing countries generally have lower per capita incomes, weaker institutions, and less access to technology, credit and international markets, hence lower adaptive capacity. The general consensus has been that richer countries will generally “do better” economically out of climate change.

Some, particularly those in Northern Europe, will actually benefit in some economic sectors from marginal warming.

An example of this is the recent emergence of cropping in Greenland owing to more suitable climates. In Australia, the IPCC reports that as a result of reduced precipitation and increased evaporation, water security problems are projected to intensify by 2030 in southern and eastern Australia. Production from agriculture and forestry by 2030 is projected to decline over much of southern and eastern Australia due to increased drought and fire. The IPCC also stated that Australia has substantial adaptive capacity due to well-developed economies and scientific and technical capabilities but there are considerable constraints to implementation and major threats from extreme events.

Investors to feel the heat

The impacts for investors from this change will be large. It is worth firstly assessing the consequences on economic growth – the backdrop for all investments. While the economic impacts from client change are difficult to quantify, most estimates suggest they will be large. Interestingly, the majority of reports appear to indicate that early action in addressing climate change will reduce the overall cost to the domestic and global economies.

The Stern Report proposed that by the middle of this century, climate change will account for a loss of at least 5 per cent in global growth each year. If climate change’s impact on environment and health and knock-on effects is accounted for, it could be as much as 20 per cent of annual global GDP. In contrast, the review argues that the cost of taking action would be as little as 1 per cent of global GDP growth per annum.