According to an estimate by Moody's the global economic impact of physical risk from Nat CATs and climate change could reach $41.4tn by 2050.
The research conducted by the ratings agency found that around two-thirds of the loss is likely to be attributed to chronic factors such as sea level rise and productivity loss, with the remaining one third attributable to more frequent and severe natural disasters.
The agency estimated that the $41.4tn global loss would translate into $6tn of economic losses in the US, or 9.5% of GDP by 2025. The average annual damage costs from US natural disasters are set to be 26% higher by 2050 than at the start of this decade according to the research. All this would mean an average two percentage-point reduction in US corporate operating margins, or $1.5tn in total damages.
The estimates include the impact of both acute physical risk – such as flooding, heat waves, tropical cyclones and wildfires – and chronic physical risk, including productivity loss, heat stress, sea level rise and agricultural disruption.
There are no transition policies included in the scenario studied by Moody’s, so the cost is purely the result of acute and chronic physical risk.
Moody’s said, “We integrate this insight to shape an outlook for 2050, which can facilitate important discussions on adaptation and resilience planning by offering a common language of risk.”
“Hurricanes in Florida or wildfires in California can be viewed as indicators, while institutions shape their financial health and uncover opportunities for innovation.”