Risks Rising: 5 Reports You May Have Missed

By Dawn McGregor 23 February, 2022

Water & climate risks are rising. CWR's McGregor sums up key findings from 5 reports released in the last four months from the World Economic Forum to the Hong Kong Monetary Authority

Water and climate risks have been shooting up everyone's agendas and with good reason - last year saw unexpected extreme weather that wreacked havoc all over the planet
Climate-related risks dominate WEF's Top 10 Global Risks by Severity; rising prevalence of extreme weather calls for increasing understanding of companies’ physical climate risk
Net-zero targets of 25 global co's (~5% GHGs) aim to reduce aggregate emissions by only 40%; in HK, typhoons & floods will cause billions lost in property devaluation

Water and climate risks have been shooting up corporate, finance, insurers, governments, media, pretty much everyone’s agendas and with good reason – last year we saw recording breaking hot temperatures, tornadoes, massive floods, bomb cyclones, it snowed in the Middle East and the list keeps going. And in just the last four months there have been some notable reports that show just how much these risks are rising and the massive fallout if we don’t act, adapt and do it now. In case you missed them, we have rounded up five of these reports (see below) and summarised key findings for you to get up to date. So get reading!

  1. World Economic Forum: The Global Risks Report 2022
  2. Moody’s ESG Solutions: Critical industries have substantial exposure to physical climate risks
  3. New Climate: Corporate Climate Responsibility Monitor 2022
  4. Hong Kong Monetary Authority: Pilot Banking Sector Climate Risk Stress Test
  5. World Bank: Indonesia Vision 2045: Toward Water Security

  

1. World Economic Forum: The Global Risks Report 2022 (Jan 2022)

The Global Risks Report series tracks global risks perceptions among risk experts and world leaders in business, government, and civil society. The 2022 report is the 17th edition.

  • COVID-19 hindsight: societal and environmental risks have worsened the most since the start of the pandemic.
  • Climate-related risks top short-, medium- and long-term risks and dominate risks by severity (over the next 10 years) with Top 3 risks and five out of the 10 risks – see graphic below.
  • A disorderly climate transition characterized by divergent trajectories worldwide and across sectors will further drive apart countries and bifurcate societies, creating barriers to cooperation.
  • Outlook & sentiment: only 11% of respondents think the world will be accelerating towards recovery by 2024. Pervasive pessimism could create a cycle of disillusionment that makes galvanizing action even more challenging.
  • Year two of the pandemic yields insights on resilience. Two interlinked factors were critical for effective management: first, the readiness of governments to adjust and modify response strategies according to changing circumstances; and second, their ability to maintain societal trust through principled decisions and effective communication.

Climate-related risks dominate Top 10 Global Risks by Severity

…Top 3 risks and in total 5/10

2. Moody’s ESG Solutions: Critical industries have substantial exposure to physical climate risks (Nov 2021)

The report shares findings from an assessment of the exposure of companies’ operations to climate hazards for over 5,000 large public companies and more than 2 million underlying corporate facilities globally.

  • Rising prevalence of extreme weather calls for increasing understanding of companies’ physical climate risk.
  • Analysis of over 5,000 publicly-listed companies and their roughly 2 million underlying facilities found heat stress & water stress threaten the largest proportion of assets across sectors.
  • The manufacturing industry has the largest proportion of assets exposed to climate hazards.
  • The most exposed segments include electronic and electrical product manufacturing (mostly semiconductor manufacturing companies) as well as the manufacturing of petroleum and coal, nonmetallic mineral products, food and chemicals.
  • Manufacturing of computer and electronics products faces significant exposure to floods with 17-22% asset exposure, with heightened exposure for facilities based in Asia.

   

3. New Climate: Corporate Climate Responsibility Monitor 2022 (Feb 2022)

The 25 companies assessed in this report are major multinational companies with total self-reported GHG emission footprint of ~ 2.7 GtCO2e (2019), which is equivalent to ~5% of global GHG emissions.

  • Net-zero targets aim to reduce the analysed companies’ aggregate emissions by only 40% at most, not 100% as suggested by the term “net-zero”.
  • Just 3 of the 25 companies – Maersk, Vodafone and Deutsche Telekom – clearly commit to deep decarbonisation of over 90% of their full value chain emissions by their respective net-zero and zero emission target years.
  • Targets for 2030 fall well short of the ambition required to align with the internationally agreed goals of the Paris Agreement and avoid the most damaging effects of climate change.
  • Companies’ uptake of readily available emission reduction measures shows little sense of urgency.
  • Companies’ plans to offset or “neutralise” their emissions are especially contentious. 19 of the 25 companies assessed already know that they will rely on offsetting for their future pledges, and only one company plans explicitly without offsets.

Net-zero targets of 25 co’s aim to reduce the analysed companies’ aggregate emissions by only 40% at most, not 100% as suggested by the term “net-zero

  

4. Hong Kong Monetary Authority: Pilot Banking Sector Climate Risk Stress Test (Dec 2021)

The first-ever sector-wide pilot exercise included 27 bank (20 major retail banks and 7 branches of international banking groups) that together accounted for 80% of the sector’s total lending.

  • Physical risks will be manifested in Hong Kong through two major types of climate hazards, namely typhoons and floods, causing devaluation of properties and business disruptions.
  • The 1-year expected credit losses of the banks’ Hong Kong residential mortgages are projected to surge 25 times to HK$17.3 billion, a substantial increase in risk.
  • Potential transition impact on their exposures to the property development sector and 6 high-emitting industries, aggregate to HK$3.2 trillion or 31% of the banks’ total lending.
  • Most of the participating banks consider it very challenging in performing the physical risk assessment because of insufficient data and the unclear linkage between climate change and economic performance.
  • The current intention is to undertake another Climate Risk Stress Test in two years’ time.

1-year expected credit losses of the banks’ HK residential mortgages are projected to surge 25x to HK$17.3 billion

      

5. World Bank: Indonesia Vision 2045: Toward Water Security (Dec 2021)

This report aims to significantly transform Indonesia with the target of becoming one of the world’s top five economies by the time it reaches its centenary in 2045. But is this achievable without considering Indonesia’s Water Security? This study reflects on this question in detail.

  • To achieve Vision 2045 an average annual GDP growth rate of 5.7 percent is required – yet if water related threats remain unaddressed, GDP is likely to be 7.3 percent lower by 2045 putting the GOI’s targets into jeopardy.
  • The largest negative effects would be from shocks to water availability (a 2.5 percent reduction in GDP by 2045) as well as from coastal flooding and due to SLR and land subsidence (a 2.4 percent reduction).
  • Indonesia’s island groups face different water challenges. The majority of national rice production comes from the two island groups, Java and Sumatra. Java is also the most water stressed island group.
  • The majority of challenges are a result of development outcomes—rather than nature based shocks—and thus can be transformed.
  • Windows of opportunities for sector reform are underpinned by the ongoing revisions of the legal and regulatory framework following the promulgation of the 2019 Water Law and 2020 Omnibus Law.


Further Reading

  • 8 Risks You Missed During COVID-19 – Been focused on COVID-19? You are not alone but we can’t get distracted from the climate crisis. Catch-up with CWR’s Chien Tat Low who runs through 8 latest climate & water risks
  • Net Zero & Water Security: 3 Bottlenecks In Future Tech – The momentum of global net zero is building yet CWR’s Debra Tan & Ronald Leung see 3 key bottlenecks that could prevent us from achieving both net zero & water security
  • Wipeout – 8 Reasons Why Stress Testing For Chronic Risks Will Strand Assets – Systemic shocks from water risks are inevitable unless action is taken to reduce emissions. CWR’s Dharisha Mirando & Debra Tan share 8 things you need to know about stress testing your portfolio
  • Why Isn’t Water Top Of The Climate Agenda? – If water risks were properly valued, they would be much greater than the energy transition risks so, why isn’t water at the top of the agenda asks Eco-Business’ Sonia Sambhi who caught CWR’s Debra Tan & other water experts at SIWW 2021
  • Are We More Or Less Water Secure Post COP26? – Find out what COP26 means for water security with CWR’s Debra Tan as she reflects on frank conversations had by ministers & water leaders at a high-level water security forum on the eve of COP26 in Glasgow.

More on Latest

Dawn McGregor
Author: Dawn McGregor
Dawn leads CWR’s work to help corporates navigate increasingly disruptive & material risks from water & climate threats, as well as transitional risks in the supply chain arising from new regulations in China. Here, Dawn engages extensively with the global fashion industry delivering on-ground workshops in China to keynotes and strategic input at European HQs. She has written at length on the end of dirty and thirsty fast fashion and her report to overcome gaps between brands and manufacturers for a clean and circular future inspired the industry to create a new wastewater tool. Dawn also works closely with the property and tourism sectors where she not only conducts strategic assessments of their exposure but builds collective action toward resilience via closed door working groups and invite-only events. Having helped build CWR, Dawn is a frequent keynote, panellist & moderator at events, including being twice selected as the lead-rapporteur at World Water Week. Her articles are cited in various industry publications including the UN’s ‘World Without Water’. Dawn previously worked in a global investment bank assessing geo-political risk, crisis management and business resiliency. She was born and bred in Hong Kong and has lived in France, England, Singapore and Beijing.
Read more from Dawn McGregor →