World leaders finally accept the economic risk of climate change, but business chiefs are a holdout

January 17, 2020, 10:57 AM UTC

Ask a broad swathe of leaders in the public, private, and academic sectors what the most likely risks to the global economy are, and the top five will be variations on environmental destruction.

But ask a group only comprised of global business leaders the same question—and those same concerns won’t even crack the top 10.

That apparent gap is a major takeaway from the World Economic Forum’s Global Risk Report, released on Wednesday, which offers a yearly round-up of “what to worry about now”. Despite notable pro-sustainability rhetoric from business leaders like BlackRock CEO Larry Fink, the risks associated with climate change seem to have not yet filtered down to the average corner office.

Disaster menu

With disasters running the gamut from terrorist attacks to water shortages and political polarization, reading the WEF report, which is compiled using input from a broad group of experts across the public and private sectors, is akin to paging through a menu of the world’s worst anxieties—laid out in colorful infographics.

But this year, those disparate worst-case-scenarios appeared to coalesce into one, overarching message of urgency: the most likely risk by every estimate is the one posed by failing to address climate change before it takes out the global economy—and us.

Though environmental risks have repeatedly made appearances in past years, 2020 marks “the first time in the survey’s history that one category has occupied all five of the top spots,” noted Børge Brende, president of the WEF.

In terms of the risk most likely to cause the greatest impact, respondents chose “climate change failure” for the No. 1 spot—”weapons of mass destruction” was No. 2—followed by a list of further environmental meltdowns.

When it comes to climate change, “I think the world is waking up to the fact that the status quo as we know it will not remain,” said Peter Giger, the group chief risk officer at Zurich Insurance, which produced the report alongside consultancy Marsh & McLennan. “And we [are starting] to bear real costs of inactivity.”

Business leaders

That message of urgency was in marked contrast to the WEF’s report on Regional Risks to Doing Business Report, released in October 2019, where the fact that business leaders didn’t flag environmental dangers among the top risks suggested a “critical blind spot,” Wednesday’s report said.

In the business leaders survey, the global risks were dominated instead by concerns of a “fiscal crisis” or an “energy price shock”—worries that didn’t even crack the top 10 in the broader survey. (When the responses were broken down by region, however, environmental concerns appeared in the top 5 for leaders in East Asia and the Pacific, for example.)

Nonetheless, the WEF noted that those business leaders that are “exposed” to climate change discussions with their peers “become more aware of climate risks and thus more likely to act”—suggesting that part of the mismatch is due to a lack of business leaders willing to speak out about how climate change will affect their companies.

The deep divide is particularly notable because of the momentum that appears to be building behind businesses changing policies because of climate change—most notably, BlackRock CEO Larry Fink’s announcement earlier this week that the company would reshape its strategy, in part by dropping investments that have high sustainability-related risks.

“Climate change has become a defining factor in companies’ long-term prospects,” he wrote in a letter to executives. “Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.”

The announcement didn’t come out of nowhere—Fink has been steadily advising CEOs that the impact of climate change on global finance will be immense—and it may not be quite as dramatic as it appears, given BlackRock’s reliance on index funds which themselves may not exclude companies that aren’t dubbed sustainable.

But it’s still a declaration that “business as normal” is no longer working, and investors can no longer afford to ignore, or minimize, the risks.

Giger, who declined to comment on BlackRock’s specific plan, nonetheless made the case that the link between environmental risks and business dangers are pressing.

“If the global economy collapses based on climate change, it is bad for our business,” he said. “I mean, there is no other way to put it.”

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