Climate change represents one of the most significant threats to the global economy. It is already having profound effects on the world, such as extreme weather events, ecosystem degradation, and the depletion of natural resources. However, climate change can also be an opportunity to transform the global economy toward a more sustainable approach. Here are some perspectives from experts in the climate and finance fields.
One of the primary effects of climate change is global warming, leading to an increase in the planet’s average temperature. According to data provided by Copernicus, the European Union’s Climate Change Service, the recently concluded summer was the hottest ever recorded. However, the effects of these climate changes are much more diverse than just temperature rise.
Climate change represents a set of long-term changes in weather conditions that occur over an extended period. Earth has witnessed many such changes over billions of years, but in the last 150 years, humans have been responsible for most of the climate changes through their activities.
We know it’s human-caused because, first and foremost, these climate changes are happening very rapidly. Climate began to warm in the last century, coinciding with the onset of the Industrial Revolution. In comparison, natural changes occur over much longer time periods.
From a short-term economic perspective, the Industrial Revolution marked significant progress for human well-being. Firstly, it shifted the most laborious tasks to machines. Secondly, automation led to the emergence of a consumer society, making products more affordable and accessible to a larger number of people.
However, this progress had a secondary effect, namely greenhouse gas emissions from fossil fuels such as coal, oil, and natural gas. The burning of these fuels produces greenhouse gases, which remain in the atmosphere and accumulate over time.
For example, the level of carbon dioxide has increased significantly in the last century due to the burning of fossil fuels. Geologists studying past carbon dioxide levels have noted that its current level is the highest in the last 800,000 years. This is the cause of present-day climate changes.
The effects of climate change are not limited to just temperature. Although a 2-3 degree Celsius temperature increase may seem pleasant, the reality is much more complex. The planet has already warmed by approximately one degree Celsius due to human activity. This phenomenon increases the risk of extreme weather events, from heatwaves to cold spells, as changes in the atmosphere can displace cold air masses from the poles. All of these directly impact the environment and contribute to the collapse of ecosystems and, consequently, the economic pillars upon which we rely.
“I see climate change as one of the transformative events that will lead to a complete reshaping of the global economic landscape. It will bring us closer to understanding that our current society is approaching its growth limits. Extreme events will play an illustrative role in describing how we should measure our impact on nature and how we are already indebted to natural capital,” says Anton Yarotsky, founder of Circl.ag, a pioneering startup at the intersection of agriculture and technology that enables farmers and financial institutions to make sustainable choices. Anton Yarotsky is one of the guest speakers at the second edition of the Climate Change Summit, a comprehensive event dedicated to solutions for current and future climate change challenges, taking place between October 19-20 in Bucharest.
At this point, another issue arises. Climate changes cannot be stopped and reversed abruptly. Even if greenhouse gas emissions were to disappear completely, the planet would still continue to warm due to ongoing processes. The longer people delay the transition to a circular economy based on green resources, the more severe the consequences will be.
“The biggest challenge for companies in the context of climate change is to understand that ignoring the negative impact of their activities on the environment is dangerous. It’s not just a matter of responsibility towards the planet but also a recognition that, ultimately, the costs of these negative effects will be reflected in the prices of their products. This could undermine their competitiveness in the market. On the other hand, it is evident that investments related to environmental, social, and governance aspects will strengthen the position of companies committed to being more environmentally friendly, giving them a competitive advantage,” explains Anton Yarotsky.
Many sectors are vulnerable to climate change, but many are also seeking to adapt. Therefore, climate change presents a variety of challenges for businesses and finance, which will vary depending on the nature of the business and its operating locations. Major challenges for our globalized society include supply chain disruptions, mass migrations of people, deepening economic inequality between countries, and volatility in the prices of commodities such as food and energy.
However, solutions exist for a smoother transition to a sustainable economy, and many businesses are successfully adapting through various methods. “Changes in precipitation patterns, rising temperatures, and the presence of new pests can affect agricultural production. In response, farmers are seeking more sustainable farming methods, resilient crops, and water irrigation optimization,” says David Carlin, Head of Risk at UNEP-FI, with a background in quantitative modeling and decision science, present at the 2023 Climate Change Summit.
“In the real estate sector, increasingly frequent storms can damage properties and lead to increased insurance costs, even if the buildings themselves remain unaffected. To address these challenges, investments are being made in strengthening and rehabilitating buildings and infrastructure,” adds David Carlin.
Tourism, an industry on which many countries around the world rely almost exclusively for their economies, is also heavily affected by climate change. Fires and floods have practically blocked a significant part of the summer season in countries like Greece and Spain. People are much more aware that summers are becoming too hot in the South. Many have traveled north or stayed in their home countries.
The secondary economic consequences of climate change should not be ignored either. The constant rise in temperatures and extreme weather conditions will make outdoor activities increasingly difficult. Furthermore, essential natural resources such as clean water and raw materials will become increasingly limited. “At the same time, the proliferation of fires and floods globally is already affecting companies’ ability to carry out their operations, impacting health, safety, and logistics, in addition to potential direct damage to buildings,” says Georgia Elliott Smith, founder and CEO of the sustainability consultancy Element Four, and a speaker at this year’s Climate Change Summit.
The benefits of transitioning to a low-carbon economy are substantial. The path to a low-carbon economy is simple: humanity must consume fewer carbon-intensive products. The transition to a clean economy offers numerous opportunities for both businesses and individuals. Firstly, sustainable, climate-neutral alternatives, such as solar or wind energy, are cheaper than fossil fuels. Secondly, the need for change stimulates innovation, creates jobs, enhances competitiveness, reduces greenhouse gas emissions, and mitigates climate change.
Economies that fail to adapt their supply chains and technologies may end up producing and consuming less or facing market challenges. For example, in agriculture, a country will not excel in processed food exports if it relies heavily on chemical fertilizers and climate-harming practices. The same logic applies to other industries.
Consumers are increasingly opting for sustainable products and goods, such as electric vehicles, putting pressure on companies to quickly adapt their offerings. Additionally, government programs can offer financial incentives and serve as an additional catalyst for the growth of sustainable businesses.
Climate change also highlights a major issue that the business environment cannot ignore: unpredictability. No economy can thrive in uncertainty without a well-thought-out business plan. Extreme weather events are nonlinear, making current adaptation strategies often inadequate and resulting in production losses.
On the other hand, transitioning to an environmentally friendly economy offers much greater long-term benefits for humanity than the current investment costs. Decarbonization represents a structural change whose impact will be comparable to the social impact of digitization – no sector will remain immune, and all will have to embrace change to remain relevant in the market.
Climate Change Summit, the first and largest event in Central and Eastern Europe dedicated to climate change, takes place in Bucharest on October 19 and 20. Over 50 speakers, innovators, entrepreneurs, researchers, representatives of business and employer associations, civil society, as well as government officials, come together for a common cause: identifying practical solutions to the challenges posed by climate change in various fields.
The event is open to the public, and access is based on pre-selection of applicants after completing a form on the climatechange-summit.org website.
