2021 in Numbers
The world, as we know it, is inevitably changing. The failure to curb emissions and achieve the set targets has made the effects of climate change more apparent than ever!
2021 has been a testament to this change. The devastating impacts of climate change were witnessed in the form of various climate-induced disasters. The year saw extreme heat events becoming more common and intense throughout the planet.
Uncharted Waters
The above snapshot of the past year paints a jarring image and invariably propels us to imagine a future marred by uncertainty. Fuelled not only by the intensity of these disasters but also their increased occurrence globally and their massive economic implications. This uncertainty is threatening both, businesses and individuals.
“The total damage and cumulative economic loss for the 2021 wildfire season is expected to be between $70 billion and $90 billion in the U.S. with $45 billion to $55 billion of those damages to California alone,” Dr. Joel N. Myers, Founder and CEO, AccuWeather
With their far-reaching economic impacts, heat-induced disasters and fires pose a unique challenge for businesses as climate risk starts making its way into corporate dictionaries. These events affect different industries in different ways and hence, quantifying this risk has become a necessity.
Below are some of the key sectors facing this uncertainty:
Insurance
In 2021, the Californian Forest Fires damaged 40 times more homes than in the last 10 years combined making home owners more risk averse. There is an impeding question about how does one factor in the risk associated with losses due to forest fires.
Moreover, there is a similar uncertainty on the business end as well. Insurance companies work with the idea of pre-empting eventualities and distributing risk so that the burden of loss does not fall on any individual. However, the occurrence of major disasters may lead to entire towns being wiped out, resulting in huge payouts and economic difficulties for insurers as well as reinsurers.
It is, therefore, crucial for insurance providers to be able to account for these devastating events to undercut losses.
"The juxtaposition of observed record heat and cold around the globe highlighted the humanitarian and structural stresses from temperature extremes. It becomes more imperative to explore ways to better manage the physical and non-physical risks that are more urgently requiring actionable solutions" said Steve Bowen, managing director and head of catastrophe insight on the Impact Forecasting team at Aon.
Banking
The uncertainty for banks is essentially derived from three primary risks - credit, market and operational.
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Credit risk is the risk from climate catastrophes to a bank’s mortgage portfolio.
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Market risk is the risk that severe weather events may result in re-pricing of sovereign debts/securities / derivatives
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Operational risk implies the threat to business continuity owing to climate catastrophes
In order to accommodate for these risks in their planning process, it is crucial for banks to be able to anticipate and quantify the potential disasters.
Additionally buying houses may be even more expensive as banks increase mortgage rates to mitigate their risk leading to a detrimental impact on the consumer end.
Infrastructure
The uncertainty is driving caution among capital intensive sectors like infrastructure, energy and utilities as well.
These sectors involve significant investments in assets that are designed and expected to function over a long period of time. Until now, these investments were made and designs of the structures were planned not anticipating any changes in climate.
However, there is now a need to rethink this model. Businesses are now looking for ways to better understand these risks and account for them accordingly.
The question now remains, "How do we measure this risk and mitigate the uncertainty?"
Tall order, but we can help!
Mitigating damage from unprecedented wildfires is a tall order and requires a host of institutional changes and structural iterations. Integrating relevant data into the decision-making process, however, would play a key role in catalysing these changes and better understanding these risks. That is where we come in.
At Blue Sky, we are building a catalogue of Environmental Datasets by leveraging Satellite data, AI and the cloud. With our variety of Climate and Environment Data APIs, you can directly plug data and visuals into your financial models, personal decision making, quarterly reporting, risk assessments, etc.
Now, with forest fires emerging as a major climactic event especially across North America and Europe, we have developed the world's largest forest fires dataset - Zuri. Zuri comprises of parameters on GHG emissions, risks, size, impact, and more for both historical and real-time fires to give you an in-depth understanding of the situation and deep insights, so you make an informed decision. So come talk to us! We can help you account for risk from fires in your decisions and ease some of that burgeoning uncertainty.
Reach out to Jeet at jeet@blueskyhq.in
