Climate heightens political risk threat

A leading broker has said the threat from changes to the world’s climate have become such that politicians are now keen to make unpopular decisions rather than look to secure any future election success.

Stuart Ashworth, managing director and head of political risk for corporates at WTW, was speaking after the broker issued its Political Risk Index, which found that commitment on climate policy in the emerging world is strongest in countries most vulnerable to the impacts of global warming and in those with effective governments, but weakest in those reliant on fossil-fuel income.

The index, compiled in conjunction with Oxford Analytica, found that governments in Africa and Asia lead the emerging world on climate commitment.

Many Asian countries have a comparative strength in government effectiveness.

On a regional average basis, Asian countries tend to have strong policymaking practices and effective bureaucracies capable of carrying out political goals. Exemplars are Malaysia and China, which rated highly on the strength of their well-developed climate transformation plans.

Asked whether the the results of the analysis give him optimism or concern about the ability of the world to meet the agreed climate targets, Ashworth told Emerging Risks: “There has been a sea change in how climate targets are being viewed. In years gone by, the view in certain circles was that whilst climate change is probable, elections are certain, and it would be a brave politician who would take the unpopular actions needed to address the issues. ”

“However it is now widely recognised that climate change is not only certain but that we are at a critical tipping point.”

“The fact that an increasing number of governments around the world are committed to addressing climate change gives me reason for hope, but for oil dependent economies the transitional path is long and difficult and the international community need to provide ongoing assistance to ensure we can achieve the targets across all fronts.”

He added the industry had opportunities to play a full part in the world’s climate efforts.

“Insurance can and should be an enabler of transition if structured correctly,” Ashworth added. “At WTW we work closely with our banking clients to support both green and climate transition projects through the use of credit Insurance; and our Climate and Resilience Hub work with governments and private clients to model and measure their physical and transitional risks, which helps improve governance, as well as managing and transferring climate related risk.”

The index found there is a reluctance to drive change in nations which have fossil fuels as a major part of their GDP.

“Today’s global economy is the product of the energy revolution which went in lock step with the 19th Century industrial revolution,” said Ashworth.  “For over 200 years fossil fuels have driven economic growth, this makes the transition away from fossil fuels very difficult.  If a nation’s wealth and future prospects are deeply intertwined with fossil fuels it requires significant incentives and alternative sources of revenue to make a change.

“The challenge is not to be underestimated and everyone needs to play their part to tackle climate change.  The international community need to continue to work together to help fossil fuel dependent nations along this pathway to solve and address these issues.”

He concluded: “Climate has always been a driver of political risk, and in extreme cases food and water are being weaponised for political reasons. Understanding a country’s vulnerability to climate shocks will be increasingly important for investors.

“In Mali, Niger, and Burkina Faso, for instance, erratic weather patterns and rising global food prices are contributing to food insecurity in regions already prone to violence.”

The index, compiled in conjunction with Oxford Analytica, found, governments in Africa and Asia lead the emerging world on climate commitment. Many Asian countries have a comparative strength in government effectiveness.