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Why Quantifying Climate Risk is the Wrong Question

Climate changes everything, even traditional approaches to risk management.

A typical risk management process includes a risk assessment by probability & timeliness of occurrence and quantification of impact on business operations. Risks are then prioritized based on the magnitude and timeliness of impact. Risk mitigation strategies are developed which provide capital requirements. Finally, a cost-benefit analysis is completed to establish the risk tolerance for the organization.

This process will not work for climate change risk mitigation. Why?

Climate Change is a planetary phenomenon that is producing climate-related impacts which are building exponentially over a multi-decade period. As such, the timeliness of material climate-related impacts is apt to exceed the strategic horizon for most businesses.

Climate Change presents a global challenge with no historical reference points in modern civilization*. In the absence of historical reference points, quantifying future climate-related impacts requires first understanding how global warming changes the Earth’s ecology, then how a changing ecology impacts the economy. One lesson from over 40 years of global climate models is even the scientific community has persistently underestimated climate-related impacts due to the cascading, interconnected characteristics of the global ecology.

Given these challenges, producing actionable data in the near-term on future climate-related impacts is a dubious proposition.

What now? On what basis do we proceed to mitigate climate-related risk?

Qualitative analysis.

The accumulation of greenhouse gas (GHG) emissions in the atmosphere is accelerating planetary warming, which is rapidly altering weather patterns and causing material degradation to crop yields, limiting access to fresh water, collapsing biodiversity and other ecological systems necessary to sustain human life.

Climate change presents an existential challenge that will likely have unimaginable impact on future generations if we do not act immediately.

The best-known method to slow and ultimately stop the global warming is a rapid reduction in global GHG emissions. To this end, the global signatures to the Paris Agreement set a goal to limit global warming to well below 2 degrees Celsius, with an optimal target goal of 1.5 degrees Celsius. This goal can only be achieved with the active participation and cooperation of the global community.

No country or multi-national organization can meet the challenges presented by climate change alone.

The developed nations cannot meet the challenges presented by climate change without the developing nations.

The timely transition to a net-zero carbon economy will require the cooperation of fossil fuel interests who would need to choose to keep a third of all known oil reserves, 50% of all natural gas reserves, and 80% of all coal reserves untapped if we are to keep global warming well below 2 degrees Celsius.

Can we do it?

Yes.

Once we realize our progeny may face extinction level events if we fail to meet this challenge.

*For 10,000 years, the global average surface temperature has remained stable within a standard deviation of 1 degree Celsius. Since approximately 1850, the accumulation of greenhouse gas (GHG) emissions has increased the average global surface temperature 1.2 degrees Celsius. Accordingly, the global average surface temperature is trending warmer than at any other point in modern history.