Global climate change is a growing concern and has serious implications on both the global economy and individual’s financial positions. All relevant entities should be prepared to face these financial effects, whether it’s governments, businesses or individual people. There will be severe consequences around the world as the changing climate increasingly leads to financial issues.
💡 Fun Facts…
| 1) Summer 2023 is documented as the hottest ever |
| 2) The US Government spent $45 Billion this past year to combat climate change |
An increase in natural disasters is having some of the biggest financial impacts on individuals and other entities. The world has seen more frequent and severe earthquakes, wildfires, floods, hurricanes, tornadoes, droughts and tsunamis. Such disasters cause direct costs to those that are affected by them. Damages to homes, businesses, infrastructure, buildings and lands can cost billions of dollars to repair. Hurricane Harvey is estimated to be the most expensive hurricane in U.S. history. With $125 billion in damages, the 2017 disaster was devastating when it hit Houston, Texas. Recent wildfires in California are estimated to have resulted in $24 billion in losses.
There are also indirect costs associated with these losses. Following large scale payouts by the insurance companies, there is often an increase in insurance premiums that companies charge to try to recoup their large losses. Additionally, there’s an indirect cost of increased taxes that may be needed to repair infrastructure such as roads, bridges, tunnels, parks and buildings.
As people and governments aim to lower the carbon impact by switching to more renewable energy sources and sustainable practices, there are a host of costs and financial implications. There are many expenses involved in switching to low-carbon energy sources, such as solar, wind and hydro power and moving away from traditional fuels such as oil, gas and coal. There are also costs associated with implementing new policies and creating new technologies. All entities must consider these costs as an investment in the long-term that provides the benefits of reducing greenhouse emissions which will ultimately lead to a decrease in the financial effects of climate change. The Global Commission on the Economy and Climate estimated that these efforts could result in economic benefits of $26 trillion by 2030. There are also costs with NOT implementing low-carbon initiatives. Investors and lenders could start pulling money away from companies and industries that fail to address global climate challenges. FInancial institutions and individuals may avoid investing in entities that are not addressing environmental concerns.
There are opportunities to benefit directly from addressing climate change issues. Most renewable sources of energy are more cost-effective than traditional fossil fuels, resulting in direct reduction in expenses for both individuals and businesses. In some cases, profit can be made through these fuel sources when excess energy is sold back to the grid. Businesses can reduce their operating expenses, which results in increased profits, and indirectly may improve their reputation with customers which can result in increased sales and revenue.
There are steps that can be taken to address the financial effects of climate change:
1. Determine the risks for financial loss and opportunities for financial gain. This can include identifying investment opportunities and opportunities to save costs and increase profits.
2. Develop a strategy and plan based on the things outlined in Step 1. This might include having disaster preparedness measures in place, investing in sustainable practices and technologies, and converting to renewable energy sources. Buildings and infrastructure can be environmentally friendly through energy-efficiency and sustainable private and public transportation.
3. Collaboration between all stakeholders is a valuable method to make more effective solutions by sharing expertise, knowledge, resources and experiences. Individuals, businesses, governments and communities can work together to address climate change in new and novel ways.
4. Governments should put in place policies and legislation that encourage the move to a low-carbon economy. Individuals and businesses should support these efforts by pushing for elected officials that are pro-environment.
5. Through increased transparency and disclosure, governments and businesses can build trust among the general population and also provide a clearer picture of what the financial implications are.
OPINION
Climate change is not just about the environment. It can have serious implications on our investments and financial planning. As a smart investor, you can actually take advantage of this world issue, by investing in companies that are focused on addressing climate change and sustainable energy sources. Be prepared, as climate change is an every growing challenge and it can directly affect our finance strategies.
