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Men in Suits

The Economics of Climate change

Updated: Dec 21, 2022

They say the worst effects of climate change are yet to come. What we experience now is just the beginning of a catastrophe. Climate change is a global threat that requires the unification of the whole world to act as one. Now the important question is- Is climate change only a threat to the planet and people? The answer is no as it poses a threat to the global economy too. The time to act is NOW or NEVER.

The famous American Economist and Nobel Prize winner William D. Nordhaus correctly said that affixing a higher cost to the usage of fossil fuels is the most effective solution to climate change because people will start looking for green alternatives only when they spend more on fossil fuels.

The Micro and macroeconomic effects of climate change

Climate change is a slap on the face of economic growth. The economic impacts & risks of global warming can only be estimated or projected if one had to put in figures. But the real devastation can be imagined as being a lot more which will be nothing less than a civilizational collapse. If we talk about estimation, research by World Economic Forum predicts that the global economy could lose 10% of its total economic value by 2050 due to climate change. A warning issued by Swiss Re states that the World Economy shall be hit by $23 Trillion in 2050 because of climate change. McKinsey report 2020 also confirmed that the global economy could lose trillions of dollars if the targets of the Paris Agreement are not met.

The climatic disruptions can be felt even now in the form of floods, droughts, heat waves, rainfalls against the season, melting glaciers, sea level rise, cyclones, waste in landfills, pollution, etc. The basic needs of life are seen to be impacted as the world warms such as food production, access to electricity, human health, water, and many more. With the proliferation of urbanization and irresponsible lifestyle, all the warming consequences are bound to multiply in the coming future leaving us all with a scary scenario to survive in.

With the increasing developments, human needs and desires will also see their peak furthering the devastating effects of climate change. The world population is expected to reach a whopping 10 billion by 2050 according to the United Nations Organisation. It is estimated that Asia’s energy demand will rise to double by 2030 and the GHG emissions associated with such energy use are expected to increase by 100%. The purchase of private vehicles will also see a remarkable rise by 2030 thus remarkably increasing the CO2 emissions in the atmosphere. A rise in demand commands a rise in supply which will not be the case owing to rising temperatures.

Human productivity and capacity will reduce drastically because of ill health caused by frequent heat waves which will directly slow down work creation and revenue generation. The coastal regions are already bearing the brunt of climate change more than the non-coastal regions. Due to a rise in water levels and the constant threat of floods, the coastal residents are compelled to migrate and this will not only kill coastal tourism but also insert pressures on infrastructure and jobs in cities. According to ADB’s ‘Building climate resilience in the Agricultural sector’ projection, by the year 2050, rice yields from irrigated agriculture will decline by 14-20%, wheat by 32-44%, maize by 2-5%, and soybean by 9-18%. According to a study conducted by Water Resources Group under its project ‘Charting our Water Future’, water shortages can aggregate 40% by 2030 directly impacting agriculture, industry, and energy sectors. The fishing industry will also be severely impacted by 2050 due to coral bleaching as stated by International Centre for Water Hazard and Risk Management.

The dramatic consequences of climate change can render a lot of people jobless and homeless increasing the poverty and inequality ratio all over the globe. This subject is so global that the consequences faced are not limited to one’s individual actions. For instance, if a developed country like the USA is emitting GHG into the atmosphere, its effects shall not be faced by the USA alone but in fact, shall affect developing countries like India even more badly than the USA itself. Because third world countries are already struggling more to combat climate change, owing to a lack of technological advancement and resources. This directly precipitates inequality. And one sadly cannot expect a healthy economy to breed amongst poverty and inequality. The result would be the poor countries will become poorer. The World Bank has warned that climate change can push an additional 100 million people into poverty by 2030.

How ESG Framework can play a role in combating this?

According to a statement by Stern Review in 2008, the cost of fighting global warming would be 2% of global GDP, on the other hand, non-action could lead to damages equivalent in the long term to a 20% reduction in global per capita consumption. Climate change has alarmed governments, corporations and individuals all across the globe. Adoption of an ESG framework can help to control the concentration of GHGs in the atmosphere which is the underlying solution to fight climate change. It is a must to give effect to the Paris Agreement. ESG frameworks will guide and encourage shifting to clean-energy alternatives, sustainable land use, efficient water management, circular economy and sustainable infrastructural development. A number of government policies, initiatives and regulations have in fact mandated large corporations that account for a large chunk of emissions to adopt an ESG framework and are made accountable through ESG reporting.

Actions in the direction of lowering the temperatures of the planet can definitely boost the economy. In 2018, the World Commission on the Economy and Climate explained that adopting ambitious climate measures may generate profits of USD $26 billion by 2030, creating 65 million new jobs with low carbon emissions.

Devising a proper strategy and in-depth knowledge on this subject is quintessential to laying out a suitable ESG framework. And thus there is a demand for ESG experts all across the globe. Both governments and companies are in dire need of ESG experts to aid them in the inculcation of ESG within their systems.

You can now enroll yourself in our highly acclaimed Directors’ Institutes’ CPD Accredited ESG Expert Certification and kickstart your bright journey as a global ESG expert.

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