Climate risk refers to risk assessments based on formal analysis of the consequences, likelihoods and responses to the impacts of climate change and how societal constraints shape adaptation options. Common approaches to risk assessment and risk management strategies based on natural hazards have been applied to climate change impacts although there are distinct differences. Based on a climate system that is no longer staying within a stationary range of extremes, climate change impacts are anticipated to increase for the coming decades despite mitigation efforts. Ongoing changes in the climate system complicates assessing risks. Applying current knowledge to understand climate risk is further complicated due to substantial differences in regional climate projections, expanding numbers of climate model results, and the need to select a useful set of future climate scenarios in their assessments.
One of primary roles of the Intergovernmental Panel on Climate Change (IPCC), which was created by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) in 1988, is to evaluate climate risks and explore strategies for their prevention and publish this knowledge each year in a series of comprehensive reports. International and research communities have been working on various approaches to climate risk management including climate risk insurance.
According to the IPCC Fifth Assessment Report: "Impacts from recent climate-related extremes, such as heat waves, droughts, floods, cyclones, and wildfires, reveal significant vulnerability and exposure of some ecosystems and many human systems to current climate variability".
The following future impacts can be expected:
- Temperature increases
- Extreme weather
- Bumper crops and crop failure
- Polar cap melting
- Changes to Earth's eco-systems
- Disruption of the North Atlantic current
While affecting all economic sectors, effects on single continents will vary. Beside these direct physical climate risks there are also indirect risks:
- Physical risks: Direct risks of climate change negatively impact agriculture, fisheries, forestry, health care, real estate and tourism. For example, storms and flooding damages buildings and infrastructure, and droughts lead to crop failure.
- Regulation risks: Governmental endeavors to reduce climate costs have direct effects on the economy. For example, Kyoto-Protocol emissions targets could be realized by implementing emissions trading, requiring the cost of emissions to be quantified monetarily.[needs update] These costs would be used by companies to evaluate investment decisions. Factoring in emissions costs will cause prices to rise therefore impacting consumer demand. The insecurity of legislation leads to indefinite postponement of projects and investments.
- Litigation risks: Similar to the tobacco industry, industries producing excessive greenhouse gases (GHG) are exposed to the risk of an increasing number of lawsuits if damages can be correlated to emissions.
- Competitive risks: If companies do not take measures to reduce climate risks they are competitively disadvantaged.[how?] This might lead to increasing production costs caused by obsolete technologies and therefore to decreasing profits.
- Production risks: Production shortfalls can result from direct or indirect climate risks, i.e., hurricanes damaging oil production facilities can lead to supply disruption and increased prices. Also the price for energy will rise, as heatwaves cause water scarcity, impacting the supply of power plant cooling water.
- Reputational risks: Companies publicly criticized for their environmental policies or high emissions might lose customers because of negative reputation.
- Financial risks
Climate change vulnerability (or climate vulnerability or climate risk vulnerability ) is an assessment of vulnerability to climate change used in discussion of society's response to climate change, for processes like climate change adaptation, evaluations of climate risk or in determining climate justice concerns. Climate vulnerability can include a wide variety of different meanings, situations and contexts in climate change research, but has been a central concept in academic research since 2005. The concept was defined in the third IPCC report as "the degree to which a system is susceptible to, and unable to cope with, adverse effects of climate change, including climate variability and extremes".:89Vulnerability can mainly be broken down into two major categories, economic vulnerability, based on socioeconomic factors, and geographic vulnerability. Neither are mutually exclusive. In line with system-level approach to vulnerability in the International Panel on Climate Change (IPCC), most scholarship uses climate vulnerability to describe communities, economic systems or geographies. However, the widespread impacts of climate change have led to the use of "climate vulnerability" to describe less systemic concerns, such as individual health vulnerability, vulnerable situations or other applications beyond impacted systems, such as describing the vulnerability of individual animal species. There are several organizations and tools used by the international community and scientists to assess climate vulnerability.
Climate risk insurance
Climate risk insurance is a type of insurance designed to mitigate the financial and other risk associated with climate change, especially phenomena like extreme weather. The insurance is often treated as a type of insurance needed for improving the climate resilience of poor and developing communities. Critics of the insurance, say that such insurance places the bulk of the economic burden on communities responsible for the least amount of carbon emissions.
Moreover, its theorized that high-premiums in high risk areas experiencing increased climate threats, would discourage settlement in those areas.The international community invested in developing further support for this kind of insurance through the InsuResilience Global Partnership launched at COP23. That group, supports regional programs such as Climate Risk Adaptation and Insurance in the Caribbean (CRAIC) and international organizations like the Munich Climate Insurance Initiative. The ACT Alliance published a guidebook for equitable and climate justice oriented model for climate risk insurance in 2020.
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