The business of climate change

Take 2023, for instance. It is going to be the hottest year on record. At the same time devastating floods have hit Libya, India, Greece and China. Brazil, meanwhile, is seeing one of the worst droughts. And Canada and Hawaii saw raging wildfires. All these have left governments, insurers and companies struggling to find a response that catches up with the speed of calamities and facing a monster that doesn’t adhere to historical patterns and predictions.

The climate crisis is no longer a problem “out there”. In fact, India Inc. now calls it the “single biggest business risk” according to a recent report. It impacts our rainfall, agriculture, food security and economic productivity. And don’t think just about cities. Related to this is the substantial impact on rural incomes and fluctuating rural demand for FMCG companies. Then there is heat stress and its impact on outdoor labour productivity, especially for a fast-growing economy like India where the construction and infrastructure industry is a big source of employment.

The impact on hard infrastructure is worse with billions of dollars at stake that might not be insured against non-linear climate risks. Just in the first half of 2023, natural catastrophes caused losses of $120 billion, of which only $50 billion was insured. This manifests as a “protection gap” or the share of infrastructure that is not insured against climate risks. The implication is that for economic managers, climate impacts become a drain on limited fiscal resources when disaster relief diverts money from productive investments.