5 Trends for 2023: The Year Of The Rabbit – Mad Hares or Happy Bunnies?
By Debra Tan, Dawn McGregor, Dharisha Mirando, Sophie Lam 20 February, 2023
Can the calm Rabbit counter the brash Tiger? Don’t stay in Wonderland; see how deep rabbit hole goes with our 5 trends
Many of us are breathing a sigh of relief now that the temperamental and volatile Tiger year is behind us. But can the calm Rabbit’s skillful diplomacy smooth multiple feathers ruffled by the Tiger? Hopefully, a calmer year ahead is in store …
We can all work together to pull a much needed rabbit out of the hat & avoid climate breakdown
Surely, with global harmony restored and happy bunnies abound, we can all work together to pull a much needed rabbit out of the hat and avoid climate breakdown … or will madness continue as the energy of the mad hare pervades sending us all spiraling down dark rabbit holes?
Before we dive into what’s ahead in the Year of the Rabbit and dollop out advice on how to hop around a “water warren” of obstacles, let’s see how we fared with our predictions for the Tiger year…
What we said for the Year of the Tiger …
We said that “the Tiger’s brash style could stoke new and existing conflicts which could hamper expansion” and while we can ride the “Water Tiger luck” to expand out of COVID”, we warned that water will also “amplify the temperamental and volatile nature of the Tiger”. We foretold that all these “signal that “big changes” are coming – some will lose their house; others will gain power.”
COVID & war over Ukraine disrupted Europe’s momentum in driving climate action & leading the carbon transition
We did not know how right we would be; but being right on all these fronts brings us no satisfaction. We barely caught a breather with COVID before we were plunged into war over Ukraine which not only brought misery to millions but also disrupted Europe’s momentum in driving climate action and leading the carbon transition.
Besides in Ukraine, many others lost their homes to multiple conflicts around the world (Myanmar, Palestine, Syria, Yemen to name a few), but climate events also wreaked havoc displacing millions more. Indeed, Trend #1 of last year’s forecast was “Water tiger is difficult to tame; once unleashed expect havoc” and as predicted freak/extreme weather did become the norm in the Tiger year.
The sheer number of people who had a bad time in the Tiger Year is staggering…
Here’s a whirlwind tour …
- Storms & typhoons – the Tiger year blew in with Tropical Cyclone Batsirai which damaged/ destroyed homes of ~124,000 residents of Madagascar compounding earlier devastation from Ana which affected ~132,000. There was no let up with more storms/cyclones Dumako and Emnati before the end of Feb; and then there was Eunice which blazed across Europe just before the outbreak of the Ukraine war causing deaths, road/rail damage and power cuts to millions of homes and business. Over in the Americas, out of 8 hurricanes that occurred last year, Ian and Fiona alone caused ~US$66bn in damage. In Asia, we were battered by Typhoon Hinnamnor which caused a nationwide power outage in ~90,000 homes in South Korea and Noru which damaged ~57,000 homes and ~US$50mn worth of agriculture in the Philippines.
- Heavy rains & floods – while floods in Iran affecting 80,000 kicked off the year, Pakistan was the worst hit with a shocking 33 million displaced as a third of the nation was submerged – farmlands, roads and bridges were destroyed/ damaged with total economic losses amounting to US$30-35bn; a sizeable 10% of Pakistan’s GDP. Even developed nations were not spared – at the start of the Tiger year, floods took out the sole rail link supply food to West Australia and continued flooding across the country led to a US$8.1bn hit in damages in 2022. Meanwhile, the tail end saw similar misery in California where “atmospheric rivers” dumped an intense amount of rain causing deadly floods, mud/landslides and knocking out power for more than 130,000 homes and businesses; preliminary estimates on the total damage and economic losses are US$31-34bn.
- Too much snow – When rare snowfall and hailstorms blanketed six cities in Saudi Arabia you know it portends more extreme weather ahead. Snow also covered swathes of Russia, Greece and Istanbul at the start of the Tiger year which ended with more snow – yet another “once-in-a-generation” deadly bomb cyclone in the US. Although New York was the worst hit, an estimated quarter of a million homes and businesses experienced blackouts over Christmas weekend.
- Fast melting glaciers – Glaciers usually move at a glacial pace, but in the Tiger year, they picked up speed due to abnormally prolonged hot weather. Switzerland lost a shocking 6% of its glacier melt over the summer – if this rate persists, the Swiss Alps will lose half of its glacier mass in a decade. Over in Asia, the Himalayas are also melting fast – vanished since the Little Ice Age and the remaining glacial area is melting 10x faster than the Little Ice Age. This is worrying as they could cause Glacial lake outburst floods (GLOFs) which could affect 15mn people globally; over half of these are in India, Pakistan, Peru and China. Also, glacier melt is an important component of river flow for many major rivers around the world… which brings us to the next point … rivers running dry.
- Droughts & rivers running dry today, not tomorrow – Rhine, Rhone, Yangtze, Po, Colorado all suffered droughts, running dry in sections. The Yangtze River faced the lowest summer rainfall in six decades and the drought brought cuts to hydropower bringing global supply chain to its knees. Over in the US, the federal government declared a water shortage in the basin of the Colorado River for the first time ever. Persistent high temperatures and a decrease in source region snowpack could see Colorado’s flow drop by 20% in the next 30 years. Over in Europe, the Rhine River hit record low water levels, disrupting river transport & EU trade, whilst the Po River saw its worst drought in 70 years causing Italy’s food production to plummet. It’s not a pretty picture as the Tiger tore through our waterways; we must pay attention as this has wider and deeper implications for countries that have built their entire economies along the river … get an idea of these here.
All this suffering is a mere taste of what’s to come on our road to “climate hell”…
…yet global leaders & media pay little attention to this fundamental shift
Sadly, all this suffering is a mere taste of what’s to come on our road to “climate hell”, yet global leaders and the media pay less attention to this fundamental shift and our climate breakdown than the Ukraine war.
To survive this “eye of the tiger” we said “bold & aggressive actions” were needed – this was our Trend #2. It turned out that we were not the only ones saying this – the IPCC doubled down on this in its second report released just after Chinese New Year in February 2022 titled “Climate Change 2022: Impacts, Adaptation and Vulnerability” (AR6 WG2).
Conversations with CWR have always been sobering – we are well-known for our depressing stats but the AR6 WG2 was even more depressing. The AR6 WG2 Summary for Policymakers was literally page after page of “adapt or die”; the UN Secretary General aptly describes the report as “an atlas of human suffering.”
The report clearly warns: “If we don’t rein in carbon emission, 3bn and 4bn people could face chronic water scarcity at 2°C and 4°C of warming”. Water risks were everywhere – all deep-dive 7 impact chapters in the AR6 WG2 are water-related. If you have not been following, check out our key “dire impacts” summary and study summary on how to “adapt or die”.
Water risks are everywhere – all deep-dive 7 impact chapters in the AR6 WG2 are water-related
On a more positive note, we were very pleased to see our report “No Water no Growth – Does Asia have enough water to develop?” cited in the chapter on Asia! Also, we were honored to be invited to be a contributing author to the Water Chapter!
We also had the good fortune to have had lengthy discussions with the report’s co-author Dr Debra Roberts – she warned in a in an event we organized in Singapore: “we live in an extremely dangerous world, right here, right now”.
While some leaders did channel the tiger & roared ahead with “bold and visionary plans for future resilience”…
…others’ plans were more like lame cats
When danger lurks, we should “expect the unknown and prepare for the worst” – while some leaders did channel the tiger and roared ahead with “bold and visionary plans for future resilience”; others’ plans were more like lame cats. China drew up its first-ever 14FYP for Water Security; Singapore reached out to us to evolve finance to catalyse transformative adaptation; while the HKSAR government’s adaptation plan published last year revealed that HK is way behind in SLR adaptation when compared with other island-finance hubs of Singapore and New York.
Banks & regulators were the “Crouching Tiger, Hidden Dragon” moving quietly behind the scenes finalizing/ merging taxonomies & standards, driving stress tests, etc
We predicted that escalating risks will deliver two-pronged action – one from banks and regulators (Trend #3) and another from corporates (Trend #4). Indeed, banks & regulators were the “Crouching Tiger, Hidden Dragon” moving quietly behind the scenes finalizing/merging taxonomies & standards, driving stress tests and so on – more on this in later in Trend #3.
CWR also poked this crouching tiger with a new report “Futureproofing APAC Banks & Savings – stress test right today to avoid hard landing from rising seas” which aims to guide central banks, banks and financial regulators toward financial resilience in the wake of accelerating sea level rise (SLR) risk.
The report revealed that 17 APAC banks from Australia, Hong Kong, Japan, Singapore, and South Korea could face a “triple whammy” hit as over US$5trn of their US$7.9trn loan books are clustered in domestic locations that are vulnerable to rising seas.
Access report here; press release here)
Over 200mn Asians will lose their homes at 1m of SLR…
A quick refresher in case you have not been following … globally, APAC is the region most vulnerable to sea level rise (SLR) – over 200mn Asians will lose their homes to 1m of SLR, which will be a lot higher if the latest IPCC of 2-5m of by 2100 and 2150 happen.
Multi-metre SLR will redraw Asia’s coastlines, destroy its economy and bring misery to millions more and sink banks. As seas will continue to rise even if we’re magically net zero today, we need to deal with this mega chronic risk with significant tail risk implications.
So did banks and regulators pay attention?
…the conversation on futureproofing APAC banks against SLR risks is out of the gate & here to stay
Of course they did. Because no one likes a wet cat, S&P Global covered the report on the day of release; on the same day, various banks also reached out. From feedback so far, it’s safe to say that the conversation on futureproofing APAC banks against SLR risks is out of the gate and here to stay so watch this space in 2023! More on how this will shape up in 2023 in Trend #3 below.
Link REIT did a “tiger leaping gorge” & leapt to the forefront to catalyse transformative resilience with “low-regret” stress tests
Evidently, owners of sea front properties are worried, especially when the adaptation gap is more like a gorge. Here, in order to prep for the true worst-case multi-metre SLR as warned by the IPCC, one company in Hong Kong, Link REIT did a “tiger leaping gorge” and leapt to the forefront to catalyse transformative resilience with “low-regret” stress tests.
CWR worked with Link REIT to assess its exposure to these “cannot be ruled out” SLR risks by stress testing its assets to the new levels of plausible multi-metre SLR as per the IPCC.
That the Board did this was prudent; that they included the results in its annual report was brave and forward thinking; that they included it as a case study for the rest of APAC to follow in APREA’s ESG Guidebook for Real Assets in Asia Pacific showed industry leadership. Hear from Link REIT directly as its Director of Sustainability & Risk Governance shares the company’s “low regret” journey to resilience.
Some other regional and global corporates also rolled up their sleeves and got stuck in and kick started their journey toward water neutrality in the Tiger year; we know this because we are helping them get there.
But then there were also massive distractions …
With water risks now greater than ever and still growing, governments should have stepped up their game on both adaptation and decarbonisation … but did they?
Well, sadly as we predicted “cat fights between global leaders” distracted from the climate action.
Nearly 200 countries promised to updated their NDCs at COP26, but only 24 countries actually did by COP27
Nearly 200 countries promised to updated their NDCs at COP26, but only 24 countries actually did by COP27. It’s so bad that the UN finally admitted that there’s no credible pathway to 1.5°C in place today.
On the upside, Trend #5 “Asian Tigers will leap from behind in the Race to Resilience” somewhat manifested in the agreement to set up a loss and damage fund for poorer and developing nations at COP27. Hailed as an important step towards climate justice, like Sherry Rehman, Pakistan’s minister for climate change said, it offered “hope to vulnerable communities all over the world who are fighting for their survival from climate stress.”
The Loss and Damage Fund is still far from operational…
…moreover, previous climate finance commitments of $100bn/year never ever materialised
However, the fund agreement albeit having roared to life is still far from operational and a ‘transitional committee’ has been set up to thrash this out ahead of COP28 this year for discussion. So basically, it will be 2024 before this gets out of the gate properly. Naturally, concerns around financing of the fund pervades as previous climate finance commitments of $100 billion per year never ever materialised.
According to UNEP’s 2022 Adaptation Gap Report, international adaptation finance flows to developing countries are 5-10x below estimated needs. And the gap is widening … estimated annual adaptation needs are USD 160-340 billion by 2030 and USD 315-565 billion by 2050. Basically, the report title says it all: “Too Little, Too Slow – Climate adaptation failure puts world at risk”.
When it comes down to building things, Asia is the “leading Tigers” & “Infrastructure R Us”
But some are not waiting: closer to home “leading Tigers” are shoring up critical infrastructure – like we said when it comes down to building things in Asia, it’s “Infrastructure R Us”. For example, the Shenshan Special Cooperation Zone, (a new district of Shenzhen) has worked on a futureproof masterplan with MLA+ that includes a 12km coastal barrier that considers both climate adaption and ecological regeneration; while the Airport Council International’s APAC Young Executive Award is focused on innovations in airport adaptation.
Enter the rabbit …
The Year of the Rabbit may sound like we are in for a fluffily bland year following the volatile Tiger but remember, the two years that follow the Ox year are “expansion years”. So the Rabbit year expands on the events in the Tiger year – so yes, the wild ride of extreme events will continue.
The Rabbit year expands on the events in the Tiger year – the “Water” element will continue to amplify…
The “Water” element which also presides over this year will continue to amply fluidity and slipperiness especially relating to water. So watch out … wrong moves could send you sliding down rabbit holes or drowning in flooded burrows!
Because the Rabbit and Tiger years are somewhat tied, in the Year of the Rabbit, it is time to complete what the Tiger has started. The good news is that the Rabbit’s gentle and sensitive nature should help us tame the ever-growing pantheon of water risks and ever-rockier geopolitical landscape. And this should broadly put us back on course to save the planet.
But because the Rabbit is not the brash Tiger, it favours caution and nimbleness. The Rabbit’s “trickster” / “elegantly cunning” nature (think Bugs Bunny) can also be harnessed to advance climate causes. But beware, calculated sprints may get you somewhat to the finish line but we all know the Rabbit doesn’t win the race; so don’t try.
The Rabbit doesn’t win the race; so don’t try! This year is not about winning but building a warren of strong foundations…
The Rabbit year is not about winning but building a warren that provides a strong foundation in times of trouble. The bigger the warren, the more escape routes, the higher the chance of survival. Besides, not every race is about winning. If we focus too much on it, we will not only lose sight of what’s important, but we will also miss opportunities and worse still, cause other problems.
,,,Rabbits are not loners… so this year, band together (the more the merrier) & aim for harmonious win-win outcomes
Let’s face it, it’s lonely being the sole winner. Unlike the lone Tiger prowling on the mountain top, Rabbits are not loners, they live in underground colonies, packed tightly. Rabbits must get on with everyone to survive … so this year, it’s time to band together (the more the merrier) to aim for win-win outcomes – let’s all hop forth with our guide to build a more harmonious 2023!
Here are our 5 trends for the Year of the Rabbit:
1. We’re late! White Rabbits everywhere all at once as climate events outpace adaptation
The White Rabbit from Alice in Wonderland is infamously known for being late despite owning an obnoxiously large pocket watch. Similarly, as we hop into the Rabbit year, expect a fluffle of White Rabbits saying “I’m late, I’m late! For a very important date!”
Our 2100 climate future is right here, right now yet we are 75+ years late in adaptation
The date here is not a romantic date/tea party but the last-stop date for 1.5ºC of warming of 2100. Sadly, at 1.2ºC of warming today we’re already 80% of the way to this target. With a 50% chance of reaching 1.5ºC by 2026, and no credible pathway to 1.5ºC in place today, it is safe to say that our 2100 climate future is right here, right now – we are all White Rabbits as we’re some 75+ years late in futureproofing our cities, homes and lives.
We only have to look at the spate of events last year (see above) to know that climate events have outpaced adaptation. Water impacts are everywhere all at once; we are simply not ready. As more White Rabbits wake up to the fact that we are seriously late to adaptation action, the more panic there will be and some might race to resilience without proper planning.
As the IPCC painstakingly highlights in its 2nd report, adaptation in place today is largely piecemeal and incremental, designed to respond to current impacts or near-term risks. So most adaptation measures in place today will not be able to withstand escalating risks. The IPCC blames this on “short-term thinking or vested interests, funding limitations, and inadequate financial policies and insurance.”
Don’t fall down the rabbit hole of maladaptation…channel the contemplative & prudent Rabbit to effect “transformative adaptation” for “low-regret” scenarios + don’t let limited finance stop you!
So don’t fall down the rabbit hole of maladaptation where you would have wasted money on things that won’t work. Instead, channel the contemplative and prudent side of the Rabbit to effect “transformative adaptation” for “low-regret” scenarios over longer time frames (like Link REIT did). The IPCC said that this will provide flexibility to deal with escalating & compounding risks as adaptation actions can be slowed down or dialed up depending on how slow/fast climate risks are evolving.
A key obstacle in the way of delivering transformative adaptation is the lack of adaptation finance. While this will continue to disadvantage poorer countries, richer countries have no excuse – it’s much harder to forgive those that could afford to adapt but still ended up with maladaptation. There’s clearly money: a 1.5% wealth tax of the rich is more than enough to close the adaptation finance gap.
Here, it’s important to wake up to some ugly truths…
A common misconception is that maladaptation or White Rabbits manifest in poorer and not rich countries. You only have to look at the floods in Australia and New Zealand at the start of the Rabbit year to know that this is wrong – only US$4.7bn out of US$8.1bn of Australia’s flood losses are insured; while New Zealand’s recent floods/cyclone showed us the highly vulnerable nature of unprotected critical infrastructure – Auckland airport was flooded, freight trains derailed, rail networks were damaged plus there were severe power disruptions. These beg the question who will pay for our most vulnerable properties?
Water risks are not just everywhere, but hitting EVERYTHING all at once – from power, food, logistics. offices to homes
It is clear from these events that water risks are not just everywhere, but hitting EVERYTHING all at once. Adapting to these risks is not as simple as just building more flood gates/walls or better drainage – EVERTYHING from the power grid, food supply chain, logistics networks, homes, offices will need to be considered – no wonder the IPCC said that adaptation will have to be transformative!
Expect conversations on transformative adaptation (or rather the lack of) for critical infrastructure to heat up this year…
…so use the nimbly cautious but multiplying nature of the Rabbit to futureproof against water risks
As climate events continue to outpace climate action, almost everyone is late to adapting … but better later than never. Expect conversations on transformative adaptation (or rather the lack of) to heat up this year – especially around critical infrastructure like ports and airports in APAC as growth is oriented around trade.
If you are a White Rabbit who’s just woken up to this, we recommend you get on top of the risks laid out in the IPCC’s 1st report (or read our summary here) and then pore over the IPCC’s 2nd report which provides on roadmap on how its transformative and not incremental adaptation that may save us (or read our summary here). Do pay attention – they could well save your life!
We will have to protect everyone, everywhere, everything, all at once!
Then channel the nimbly cautious but multiplying nature of the Rabbit to futureproof against water risks, we will have to protect everyone, everywhere, everything, all at once. If you are thinking Michelle Yeoh … you are on the right track. We may not be able to save everyone but we can definitely concentrate on those near and dear to you.
So wake up! The impacts are simply too dire to ignore – for those of you in Hong Kong, see our “8-Factsheet Survival Guide”! With over 80% of the SAR’s government revenues, its an existential risk – we have to transform – it’s time to heed President Xi’s “4 Hopes” for HK and futureproof the city.
2. Mad hares in a multipolar world can lead to wars; for happy bunnies aim for peace & harmony
The Year of the Rabbit embodies yin, the passive principle of the universe as opposed to the Tiger’s yang. Theoretically we should be heading for a calmer year but as we said before, the Water element of the Rabbit adds “slipperiness” to global geopolitics.
Over the last year, the Tiger amplified social/climate injustices and stoked wars around the world, making it increasingly divided and cementing multipolarity. Top Tiger US was particularly sensitive to this momentum as the unipolar world it led is changing.
As the Rabbit doesn’t win the race + favours the collective, clinging on to the old world order will get you nowhere…so embrace the multipolar world
But because the Rabbit doesn’t win the race plus favours the collective, everyone (including the US) should end power plays for a “lone win” and opt for collective “win-win” outcomes instead. Basically, going against the energy of the Rabbit by clinging on to the old world order, will get you nowhere … it’s best to embrace the multipolar world that has emerged.
The Rabbit year also favours the meek, so expect to see countries which have not been ‘leading the world’ so far havivg a stronger voice. We saw this trend starting late last year with loss and damages finally tabled at COP27. Vulnerable 20 (V20) such as Bangladesh, Philippines and Pakistan which have been lobbying for years also saw some temporary relief for climate disasters with US$213mn from the ‘Global Shield Package’ from the G7 countries.
The G7/NATO may find less followers as they double down on lip service to 1.5°C and reaching net zero, whilst doing the opposite
As the Global South and organsations like BRICS grow, the G7/NATO may find themselves becoming less influential as the rest of the world may no longer blindly follow their agenda. The pedestal that the rest of the world has put them on is especially wobbly on the climate front as the G7/NATO were paying lip service to 1.5°C and reaching net zero, whilst doing the opposite last year; this year, they are still doubling down on such duplicities.
While slating China and India for not ending coal, the UK granted 100+ new oil & gas licences; Germany re-opened its coal plants; Norway apparently drilled up to 40 more exploration wells; while the US’s 2H22 oil production neared the 2019 record high levels under Trump. Even Saudi Arabia looked pro-climate as it refused President Biden’s request to pump more oil!
We can blame this oil bonanza on the Ukraine war but given that there’s no end in sight, with not even a whiff of peace talks in the air, oil will likely continue to boom. Indeed, the US is on track to set new record levels in oil production for 2023.
Making a mockery of IPCC AR6 WG3!
US$1trn invested in fossil fuels incl. new carbon bomb projects…
… + 5 G7/NATO oil majors raked in combined profits of US$200bn in 2022
As it is, the 5 G7/NATO oil majors – Exxon, Chevron, Shell, BP and TotalEnergies – raked in combined profits of US$200bn in 2022; who knows how much Norway made. According to The Guardian over US$1trn was invested in fossil fuels infra & extraction last year – this included numerous new “carbon bomb” projects.
These make a mockery out of the IPCC AR6 WG3 which urgently calls for rapid deep cuts from the oil & gas industry! (Read the AR6 WG3 Summary for Policymakers or our summary here)
Pundits will argue that the Ukraine war would put Europe on an eventual greener path. True, but less emissions in the future vs. more emissions today mean we have even less time to rein in emissions.
Remember deep cuts are not enough – they also need to be RAPID as the window to rein in emissions is closing – see how many more years here.
To save the planet, we need deep & RAPID emission cuts + less war rhetoric…
If we are going to save the planet, we must divert the ‘qi energy’ away from winning/starting wars into climate action. Rhetoric from the US branding Russia and China as the enemy may resonate with the 12% of the world population (G7/NATO), but it does not benefit everyone else who lives on this planet.
…we cannot resolve climate change without China, the largest emitter OR without Russia, the country with the largest swathe of permafrost
The plain truth is that we simply cannot resolve climate change without China, the largest emitter or without Russia, the country with the largest swathe of Arctic permafrost which if thawed could derail all our emissions efforts.
If you haven’t factored in permafrost, you’re in for a shock … it’s BAD!!
Scientists say today’s warming already locks-in additional annual emissions from permafrost thaw on par with Japan’s GHG emissions. Worse still, these permafrost emissions are not included in our carbon budget as we didn’t think they’d be released so soon.
So the time window to cut emissions is even tighter. How tight? Check out 3 must-knows about permafrost – warning, they are mesmerizingly depressing as they are scary.
Basically, we in a large climate bubble as some governments remain irrationally exuberant over our ability to tackle climate change.
At this juncture, we face a choice like Neo in The Matrix – we can either take the blue pill and stay in Wonderland OR break out of the climate bubble/ Matrix by taking the red pill to see how deep the rabbit hole of climate impacts goes.
We are standing at a precipice: hare-raisingly close to the end of the world not just from nuclear war but also from climate breakdown. While the Water Rabbit will amplify conversations around global food, energy and water security, its gentle and sensitive nature will help us nagivate the ever rockier and more treacherous geopolitical landscape.
We have to stop warring…aim for peace, harmony & happy bunnies
We have to stop warring to deliver immediate emission cuts. To do this, we have to set aside differences and let go of “winning at all costs”. If we can do this and aim for peace and harmony, then the Rabbit year will be smooth and filled with happy bunnies.
As the saying goes – most people fight for the sake of pride but the wise can let it go – so let it go. It’s down to us … we can continue to argue over who caused the war or who ate up the carbon budget, but as Frozen’s Elsa says “the past is the past”. We cannot change that; but what we can do is decide our shared future.
It’s the year of the Rabbit for goodness sake – make love not war! Remember, it’s not divide and conquer but united we may have a chance – we are one big rabbit colony.
3. Rabbit holes worry financial regulators; disclosure & stress tests galore to deliver “Watership Down”
As you can see from Trends #1 & #2, the world is a dangerous place right now, filled with rising risks – both physical and political. Wrong moves on either front could send us spiraling down dark rabbit holes, so financial regulators have no choice but to act and stabilize the ship.
The world is a dangerous place right now, filled with rising risks – both physical and political…
…wrong moves on either front = spiraling down dark rabbit holes
There’s no doubt we’re in for choppy waters ahead and the risk of falling down rabbit hole is high. And these rabbit holes are DEEP!
Let’s just look at the risks associated with rising seas. UN Chief Guterres just warned this month that significant SLR is already inevitable at current levels of warming and that the consequences of failing to tackle this are “unthinkable”. Guterres said this means that “Low-lying communities and entire countries could disappear for ever. We would witness a mass exodus of entire populations on a biblical scale.”
If you think this just applies to small island nations like Maldives and Fiji, you are wrong. Key economic hubs – Hong Kong, Singapore, Bangkok, Jakarta, Shanghai (to name a few) – are also low lying. And new research showed that 2x more land in developing nations will be swamped by rising seas than previously projected. BTW, the “inevitable” and “significant SLR” that Guterres is referring to, which we have locked-in, is 6-9m!!
Banks must pay attention…
…”SLR is a pervasive high-impact risk as its sector-agnostic and geo-locational nature can over-ride traditional risk spread methods”
These have deep implications for banks. Like we said before … “SLR is a pervasive high-impact risk as its sector-agnostic and geo-locational nature can over-ride traditional risk spread methods”.
Banks must pay attention as the “domestic skew of loan/mortgage books amplifies risk clustering as does the concentration in multiple vulnerable sectors. Also, the coastal nature of APAC means that regional diversification offers little SLR protection.”
Indeed our latest report revealed, 17 APAC banks from Australia, Hong Kong, Japan, Singapore, and South Korea could face a “triple whammy” hit from rising seas – see how many trillions of dollars of loan books are at risk across which sectors here.
Distracted warring states = less focus on transformative adaptation = higher chance of financial system collapse
So not having adequate adaptation in place could literally sink APAC banks and all our savings and given the magnitude of the risk, trigger systemic shocks across the global financial system. Impacts to the financial system could happen before the physical risks because with escalating risks insurance might no longer be an option.
This will leave banks exposed as their trillion dollar mortgage books will not be backed by sound collateral. This might seem unlikely – but a study a few years ago that said certain cities in New Zealand would start to see insurance retreat from as early as 2030 no longer seems crazy given the recent floods and storms that New Zealand has been facing. Read the science – you’ve been warned!
Given the current state of world affairs, the “current burrow” we’re in could go up in flames. Financial systems collapse is therefore more likely than not as governments are focused on easing geopolitical tensions than driving transformative adaptation or rapid decarbonisation.
A wily hare has 3 burrows so we expect regulators to set up a 3 pronged defense for a safe landing to “Watership Down”
Can financial regulators help governments refocus their attention on futureproofing cities? Why not channel the Rabbit theme and set up a “Watership Down” this year? After all, 狡兔三窟 – a wily hare always has three burrows … so this year, we expect regulators to be like wily hares and set up a three pronged defense (“three burrows”) to ensure the maximum chance of survival…
Burrow #1 is to standardise stress testing. Right now the financial sector may be flying blind on physical risks as banks have been largely stress testing against transition risks (carbon) and acute climate risks rather than chronic climate risks such as rising seas and rising water scarcity. So better stress tests that include chronic climate risks are as essential first step in navigating away from financial systems collapse.
But chronic risks are not the simplest to stress test against – each scenario has multiple projections, which complicates matters; plus they amplify acute risks which will also have to be reassessed. So to ensure everyone is on the same page we expect regulators to start providing more precise guidance on the projections that financial institutions (FIs) use in their stress tests – in particular stress testing against “cannot be ruled out” SLR.
Don’t stay Wonderland; take the red pill & stress test right today to see impacts of the “real” worst case
There may also be push back from banks as the impacts may be shocking, resulting in regulatory moves to up capital adequacy ratios but these are stress tests after all, so the “real” worst case projections should be used. Again, we are faced with a choice – take the blue pill and stay in Wonderland, or pick the red pill.
We say blue because seeing reality will get us one step closer to transformative adaptation, which will help futureproof banks, but we are far from this. Indeed all paths to staying afloat starts with stress testing right – see this flow chart.
Don’t know how to stress test right? Don’t worry we have you covered with our “CWR 3-Step Guide to Stress Test Right for SLR Risks”.
Burrow #2 is to standardise & drive disclosure. To make sure they have sight of the real risks, risks must also be comparable. This will make it much easier for regulators to assess the risks across the board as everyone will be assessing the same thing.
The upcoming ISSB standards will be a game changer
A game changer on this front will be the highly anticipated release of the new ISSB standards. Slated for release mid-2023, the new standards aim to deliver a comprehensive global baseline for sustainability-related disclosure.
The Chair of the International Organization of Securities Commissions (IOSCO) has already confirmed that it will “move promptly to decide on endorsement”.
Therefore, most regulators will start to standardise disclosure and make this mandatory. And this isn’t going to be Europe centric – ISSB is opening offices in China and Japan so Asia will be hopping into this as well – check out what the IFRS Chair said on Asia’s rule setting.
Mandatory disclosure makes sense given that escalating risks are outpacing adaptation – it should be part of an FI’s as well as other corporates’ fiduciary duty to disclose how rising climate risks are being monitored and planned for. As climate risks are complex and interlinked, unpacking them may prove confusing and open you up to climate litigation … so contact us if you need help!
Burrow #3 is to help governments set up “Watership Down”. At the end of the day, regulators and FIs can stress test and disclose all they want but they have to deliver transformative adaptation to ensure they are resilient in the long term. And transformative adaptation cannot happen without governments.
There’s no choice – regulators must dialogue & collaborate with governments…
…they must all run towards embracing & mitigating the risks!
So regulators will need to start a dialogue and collaborate with local, regional and national governments to persuade them that they need to “run rabbit, run” towards embracing the risks because only then will governments have transformative adaptation plans in place in case the projections that “cannot be ruled out” do happen.
None of this is easy but Burrows #1 and #2 will show that there is no choice – the risks are escalating, and governments must start to build a safe “Watership Down” in case the current burrow goes up in flames.
Given Guterres’s recent words about our future, “we would see ever fiercer competition for fresh water, land and other resources”, going up in flames could happen sooner than many realise. So Hop to it!
4. Pulling rabbits out of a hat! Global South, corporates & banks ramp up action
Evidently, risks are abundant this year; while some White Rabbits are only just waking up to these, others which have seen the light will drive the move to “Watership Down”.
Expect Global South (where impacts will be felt more) to hop to adapt…
Expect to see leading global cities especially in the Global South, where climate impacts will be felt more, hop to adapt as their survival depends on it. From carrot supplies to warrens being submerged from rising seas – critical infrastructure will need to be shored up.
Places like Singapore, which is making business unusual the norm will be looked for examples of innovative water management and adaptation against rising seas. China will build its digital watershed and up national flood resilience and India will move to tackle sea level rise … watch this space!
Decarbonisation momentum is also up. An additional 2.4TW of renewables is forecasted by the IEA to come online over 2022-2027. This is tremendous growth – according to the IEA it was “an 85% acceleration from the previous five years, and almost 30% higher than what was forecast in last year’s report, making it our largest ever upward revision”.
You don’t need a war to drive up climate ambitions – China’s new ambitions outpace the EU’s + India ups by 2x for the next 5 years
While this momentum (almost 30% higher than last year’s forecast) is often attributed to Europe’s new expansion (up 35%) due to the Ukraine war, China upped its expansion by even more since last year. According to the IEA: “Overall, China on its own is forecast to install almost half of new global renewable power capacity over 2022-2027”.
China is now expected to reach its 2030 target of 1.2TW of total wind and solar PV capacity five years earlier; India’s renewables expansion is also expected to double like China’s – growing to 500GW by 2030. Clearly, this goes to show that you don’t need a war to drive decarbonisation.
Oil bonanza + BP scaling back ambition = more heavy lifting by Global South
Sadly, China, India and the rest of the Global South will have to do more heavy lifting as their decarbonisation will be offset by the current oil bonanza as well as oil majors like BP scaling back its climate ambitions.
In places where the government is not taking action or not doing enough/ the right type/ quickly enough, companies and banks will take the lead. These may be the unlikely saviours but they will have to pull a rabbit out of the hat because they cannot afford the significant tail risks currently locked-in.
Co’s & banks will be reluctant saviours as they cannot afford the locked-in significant tail risks
The other good news is they have started – we were recently invited by HSBC’s HK CEO to present to HK business leaders in real estate, insurance and utilities sectors on rising risks from sea level rise – the discussion was very telling. While we cannot go into the details, suffice to say that a collective response is needed … which makes the Rabbit Year the perfect time to illicit such.
The journey has just begun – so watch this space!
Every year we do not adapt increases costs dramatically. It’s urgent … insured losses in 2022 hit USD120 billion; before 2005, industry losses never topped $50 billion a year. To rein in losses, we have to be as quick as a bunny on adaptation action.
While leading companies will continue to hop on, finessing their survive & thrive plans, this year should see more widespread action from White Rabbits who haven’t started. Hop to it ASAP – no lucky rabbit foot will save you – this means holistic water-climate risk assessments, stress-testing to the right levels (like Link REIT), integrated water and climate strategies and more; if you’re now feeling like you are a rabbit caught in headlights … breathe, we can help you … contact us!
White Rabbits hop to it! Follow leaders like Link REIT to waterproof your portfolios…
Understanding the urgency and risks will push whole sectors and different sectors in the same location to work together to protect the area and their assets. Vulnerable sectors like property and banks should clearly get together but it’s also not just property and finance, other sectors are also at risk from chronic risks.
For example, we wrote about TSMC a few years ago and how it could be affected by droughts in Taiwan; now they’re building a fab in very arid Arizona! Water is an essential ingredient and given the water woes ahead, let’s hope they know what they’re doing … our future hi-tech world relies on semiconductor manufacturers getting our climate future right!
Again, we have to ask ourselves…if everyone is distracted by war rhetoric, will governments have the time to focus on managing water risks?
Time to put “multiple paws” on the brakes; we must slow down our fast ride to climate hell
If the Rabbit energy is not enough to corral us all together, there will be even more impetus from imminent disclosure regulations per Trend #3. So White Rabbits, look for leaders in the space to follow; but beware they are likely not the ones shouting about the fact that they are green; Rabbit leaders lead with quiet confidence.
The road ahead is tough; we must take our foot off the accelerator and put “multiple paws” on the brakes so that we can slow down our rollercoaster ride to climate hell. So good luck! Governments, corporates and banks should all channel the speediness and luck of the Rabbit to fast-track business unusual as well as protect your various warrens from rising water risks.
5. Breed innovations like Rabbits! Scheme for good, don’t get caught in a lie
There aren’t going to be any happy bunnies if we don’t breed climate innovations like rabbits so this year everyone should get down to it. Here channel the smooth trickster, playful and good luck charm elements of the Rabbit; plus don’t forget their versatility … think Bugs Bunny, Jessica Rabbit, Peter Rabbit, Hazel and of course, the Playboy Bunny.
No happy bunnies if we don’t breed climate innovations like rabbits…
But and this is a big BUT, the innovations need to be real solutions. There is no time for greenwashing and actually those that have been doing it are getting called out.
In 2022, 18 big names (HSBC, Unilever, Lazada, Australia and more), have been called out for greenwashing. HSBC had its adverts in the UK banned by the UK advertising watchdog who said they were misleading and stated that any future campaigns must disclose the bank’s contribution to the climate crisis. Fashion brands have also been hit hard. H&M has been sued multiple times for their “green” claims from Norway’s consumer watchdog to more recently by a marketing student in New York.
Also, there are less places to hide; conversely the fallout from greenwashing – reputational damage and financial costs – are getting bigger. According to The Guardian, since 2016 more than 700 lawsuits have been filed in the US.
Law suits are becoming more innovative – oil and gas companies are sued over for their role in the climate crisis and going a step further, just after the Rabbit year started, Shell directors were personally sued over ‘flawed’ climate strategy. Maybe ClientEarth should add BP to the list, now that they have scaled back their climate action plans.
But it’s not just big brands/oil that need to beware of the risks of greenwashing – 90% of rainforest carbon offset by big certifiers were revealed to be worthless. Also selling a property and not disclosing the water and climate risks could be dangerous. Such litigation claims may also rise as physical risk disclosure tightens.
…innovations should straddle professional & sector silos + influence habit changes
So innovations don’t need to be technical, we will need all sorts – from legal to operational as well as government policies are long due for rehauls to fit the times ahead. Our climate fundamentals have shifted but policies, frameworks, lifestyles have yet to adjust.
Innovations should straddle professional as well as sector silos as well as influence habit changes because how our economies operate and how we live will not keep us below 1.5°C or 2ºC.
However, innovation doesn’t necessarily mean all-out change (though we do need a lot of that), it can also mean doing things smarter and better – such as efficiency gains; these may be smaller wins but at this stage as long as it has win-win outcomes, it’s welcomed.
A holistic approach is key – when inventing for the future, we must know future risks…
…knowledge is key for hare-brained ideas to succeed!
Aiming for win-win outcomes is key – watch out for pushing driving tech that favours carbon at the expense of water or vice versa. Have a holistic approach is paramount.
Hare-brained ideas may well get us to net zero or protect us from the onslaught of climate impacts but inventing for the future/ futureproofing our world against climate impacts means we have to know WHAT these impacts are.
Here, we find that huge knowledge gaps still exist. Entrepreneurs and inventors may be great at what they do but they may not understand what we are up against. This needs to be nurtured this year; but this will required us to first take the red pill to see the full extent of the doom and gloom ahead of us!
Perhaps here, crosscutting and crossovers between sectors and communities are key. Last year, to emote climate change we partnered with the Hong Kong Ballet to curate Beyond Carbon, a series of dances on climate change, they were danced at the newly opened Herzog & de Meuron designed M+ Museum – who would have thought? It gave us a chance to step out of just talking to bankers – watch behind the scenes!
Innovations should also not shirk away from the worst-case scenarios – embrace these opens up the opportunity for more bold measures and.
But the sad reality of irreversible SLR and our current emissions have left some island nations like Tuvalu to rebuild their nation in the metaverse.
Be brave, dream BIG as Rabbit in the moon favours the moonshoot
So everyone, get innovating like rabbits! Across multiple cultures the Rabbit is either in the moon or associated with the moon – so why not be brave with your innovations, dream BIG, the Rabbit favours the moonshoot.
Rabbit, rabbit, be nimble, be quick, be social and be brave in transforming our lives and lifestyles … Go multiply like rabbits and before you know it, these green shoots would have populated every continent on our planet.
Water Rabbit heralds collective action & peace … so make love not war
Waking up and seeing how deep the rabbit hole goes can be disorientating. Once awake, we have tough decisions to make. Take heed of an old saying “if you run after two rabbits, you will not catch either one” – we cannot have a protracted Ukraine war AND put the brakes on emissions to stop more permafrost from thawing.
Don’t fight the cycle… ditch the mantra of the top lone tiger/ mad hare & embrace the colony of happy bunnies
As the yin Rabbit favours diplomacy, peace, harmony and collective action, this year will be a good year to stop hating and start loving, make friends out of enemies and start multiplying ideas. Don’t fight the cycle; ditch the mantra of the top lone tiger/ mad hare and embrace the colony of happy bunnies.
And because we are so late to adaptation, there’s no time to waste!
In addition to already grim news of permafrost emissions & ice tipping points, there is even more bad news coming out from the cryosphere this February (here & here). These warnings mean that we are still hurtling towards climate hell. So we need to think 守株待兔 – you can’t wait for the rabbit to come to you – you must go to the rabbit. It will be an atlas of human misery on biblical scales if we don’t come together.
Making peace and setting aside differences may be improbable and impossible but try we must.
“I daresay you haven’t had much practice” the White Queen chided to Alice after she said “There’s no use trying … One can’t believe impossible things”. Maybe, we are all just out of practice and should heed the Queen’s advice: “When I was your age, I always did it for half-an-hour a day. Why sometimes I’ve believed as many as six impossible things before breakfast”
So hop to it and imagine away a collective future in a changed climate. Who knows, maybe we may get somewhere in the Year of the Rabbit. Make love not war.
More on Latest
- CWR talks to Link REIT on Building Low-Regret Resilience – Link REIT had CWR stress test its GBA portfolio against IPCC “low-regret” scenarios. We chat with Dr. Kwan, Head of Sustainability & Risk Governance, on being early movers and discuss key findings & benefits
- We Have to Talk About Permafrost – 3 Must Knows – Permafrost thawing could derail global decarbonization efforts and we aren’t even accounting for it. CWR’s Tan & Low lays everything out, as well as what we need to do
- Asia Needs to be On Board for Global ESG Rule-Setting: IFRS Chair Erkki Liikanen – Being present in all jurisdictions is essential for ISSB as it sets global sustainability disclosure baselines. How well are Asian co’s disclosing GHG emissions? Eco-Business’ Ng expands
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