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Natural Catastrophes 2012

Financial Decision Makers Need Climate Information to Manage Risks

Natural Catastrophes 2012Maximizing returns on financial investments depends on understanding and accounting for weather and climate risks, according to a study by the American Meteorological Society (AMS) Policy Program.

The study also found that weather events create and exacerbate risks to financial investments by causing:

  • direct physical impacts on the investments themselves,
  • degradation of critical supporting infrastructure,
  • changes in the availability of key resources,
  • changes to workforce availability or capacity,
  • changes in the customer base,
  • supply chain disruptions,
  • legal liability,
  • shifts in the regulatory environment,
  • reductions in credit ratings, and
  • additional impacts that alter competitiveness (e.g., shifts in consumer preferences).

To overcome communication barriers that stem from technical terms often used in scientific assessments, the AMS report proposes three pre-defined levels of certainty for communicating with user communities about future climate impacts: possible, probable and effectively certain.

For example, the study reports that it is effectively certain that a change in climate will alter weather patterns. It is probable that climate warming will cause increases in the intensity of some extreme events. It is possible that climate change will cause major and widespread disruptions to key planetary life-support services.

The report concludes that financial investments face a range of risks due to existing weather patterns, climate variability and climate change. Even small changes in weather can impact operations in critical economic sectors. At the same time, climate variability and change can either exacerbate existing risks or cause new sources of risk to emerge.

Economic losses from extreme weather events have risen from an annual global average of about $50 billion in the 1980s to close to $200 billion over the last decade, according to the report released last week by the World Bank.

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