In a stark warning that has sent shockwaves through the financial world, a consortium of the globe’s most influential central banks has revealed that the catastrophic physical impacts of climate breakdown are poised to obliterate over a third of the world’s economic output. The Network for Greening the Financial System (NGFS), a powerhouse of monetary policymakers, unveiled in a bombshell report this week that new climate modelling paints a far more harrowing picture than previously anticipated, with the projected hit to global GDP from extreme weather calamities like floods, droughts, and scorching heat waves skyrocketing to an astonishing 33%.
The staggering reassessment, which marks a more than five-fold surge from prior estimates of around 6%, stems from the incorporation of cutting-edge datasets that provide an unprecedentedly granular and robust view of the escalating climate threat. As the report gravely notes, “With the consequences of climate change gradually becoming more apparent, adding the most recent data makes our estimates much more robust.”
A Titanic Underestimation?
Yet despite the monumental scale of the projected economic fallout, some experts caution that even this bleak assessment may be woefully understating the ultimate price tag of the climate crisis. Sustainability and climate risk specialist Sandy Trust likened the NGFS analysis to “a model of the Titanic where you can see the iceberg, but the modelling fails to recognize that there are not enough lifeboats on board, or that the cold water is a threat to human life.”
Among the glaring omissions, Trust pointed out, are the potentially cataclysmic effects of climate tipping points like the disintegration of the Greenland ice sheet or the transformation of the Amazon rainforest into savanna. Also absent from the calculus are the devastating impacts on human health, mass migration, geopolitical conflict, biodiversity loss, and rising ocean temperatures.
This is a massive one-third hit from physical damage on GDP. It has increased more than five times, from about 6% to 33%. But while this is a much more severe damage risk, it is by no means comprehensive.
Sandy Trust, Sustainability and Climate Risk Specialist
Unfathomable Costs on the Horizon
To put the magnitude of the threat in perspective, the catastrophic floods that recently submerged swathes of the Spanish region of Valencia, claiming over 200 lives, are estimated to have inflicted well in excess of €10 billion in business losses alone. And this is but a mere preview of the unfathomable costs looming on the horizon as the planet continues to heat up.
Under the NGFS projections, which assume a nightmarish 3°C rise in global average temperatures by century’s end, the consequences for the world economy are nothing short of apocalyptic. Yet the true toll could be orders of magnitude higher once the myriad overlooked factors are taken into account.
It cannot be excluded that the economic effects of climate change might turn out to be even more severe than visualized under the NGFS scenarios, for instance, if certain tipping points are reached. Thus, users should also take into account the tail risks of climate change, along with other risks such as nature-related ones, which are not necessarily captured by these scenarios.
NGFS Report Excerpt
“Extremely Dangerous” to Downplay the Danger
In a report co-authored with the University of Exeter last year, Trust sounded the alarm that the widely circulated climate scenarios are systematically downplaying the existential risks posed by global heating, warning that this gross underestimation is “extremely dangerous.”
As the devastating consequences of the climate emergency hammer economies worldwide with escalating ferocity and frequency, the message from the world’s financial stewards could not be starker: Humanity is hurtling headlong into an abyss of untold economic ruination, and even our most dire projections may be a mere shadow of the cataclysm that awaits.
The choice before us has never been more urgent or consequential. Either we undertake a radical, wholesale transformation of the global economy to rapidly wean ourselves off the fossil fuels driving this calamity, or we face a future of unfathomable loss and suffering that will make even the grimmest of our current forecasts seem like a quaint fairy tale in hindsight. The time for incrementalism and half-measures has long passed – only a full-scale mobilization on a par with the Allied effort in World War II can avert the looming catastrophe. The fate of human civilization hangs in the balance.
