Confronting climate risk

After more than 10,000 years of relative stability—the full span of human civilization—the Earth’s climate is changing. Since the 1880s, the average global temperature has risen by about 1.1 degrees Celsius, driving substantial physical impact in regions around the world. As average temperatures rise, acute hazards such as heat waves and floods grow in frequency and severity, and chronic hazards such as drought and rising sea levels intensify. These physical risks from climate change will translate into increased socioeconomic risk, presenting policy makers and business leaders with a range of questions that may challenge existing assumptions about supply-chain resilience, risk models, and more.

To help inform decision makers around the world so that they can better assess, adapt to, and mitigate the physical risks of climate change, the McKinsey Global Institute (MGI) recently released a report, Climate risk and response: Physical hazards and socioeconomic impact. (For more on the methodology behind the report, see sidebar “About the research.”) Its focus is on understanding the nature and extent of physical risk from a changing climate over the next three decades, absent possible adaptation measures.

This article provides an overview of the report. We explain why a certain level of global warming is locked in and illustrate the kinds of physical changes that we can expect as a result. We examine closely four of the report’s nine case studies, showing how physical change might create significant socioeconomic risk at a local level. Finally, we look at some of the choices most business leaders will have to confront sooner than later.

Our hope is that this work helps leaders assess the risk and manage it appropriately for their company. The socioeconomic effects of a changing climate will be large and often unpredictable. Governments, businesses, and other organizations will have to address the crisis in different and often collaborative ways. This shared crisis demands a shared response. Leaders and their organizations will have to try to mitigate the effects of climate change even as they adapt to the new reality it imposes on our physical world. To do so, leaders must understand the new climate reality and its potential impact on their organizations in different locales around the world.

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Πηγή: mckinsey