Short term view may come back to bite risk managers

Risk managers from the UK and across the world were in the Scottish Capital of Edinburgh for the annual Airmic Conference this week and it is clear that it is short term immediate risks which are occupying their minds.

Geopolitical risks and the threats of artificial intelligence coupled by the need for greater digitalisation of the risk management and insurance placement processes were the dominant themes.

The glaring omission in the discussions was the looming threat of climate change and its impact on weather conditions.

If risk managers have their eyes elsewhere that is not the case for scientists and the United Nations.

New research by more than 50 leading international scientists has warned global warming caused by humans is advancing at 0.26°C per decade – the highest rate since records began.

The second annual Indicators of Global Climate Change report, which is led by the University of Leeds, reveals that human-induced warming has risen to 1.19°C over the past decade (2014-2023) – an increase from the 1.14°C seen in 2013-2022 (set out in last year’s report).

The team said looking at 2023 in isolation, warming caused by human activity reached 1.3°C. This is lower than the total amount of warming we experienced in 2023 (1.43°C), indicating that natural climate variability, in particular El Niño, also played a role in 2023’s record temperatures.

The analysis also shows that the remaining carbon budget – how much carbon dioxide can be emitted before committing us to 1.5°C of global warming – is only around 200 gigatonnes (billion tonnes), around five years’ worth of current emissions.

In 2020, the Intergovernmental Panel on Climate Change (IPCC) calculated the remaining carbon budget for 1.5°C was in the 300 to 900 gigatonnes of carbon dioxide range, with a central estimate of 500. Since then, CO2 emissions and global warming have continued. At the start of 2024, the remaining carbon budget for 1.5°C stood at 100 to 450 gigatonnes, with a central estimate of 200.

The Indicators of Global Climate Change Project is being coordinated by Professor Piers Forster, director of the Priestley Centre for Climate Futures at the University of Leeds. He said: “Our analysis shows that the level of global warming caused by human action has continued to increase over the past year, even though climate action has slowed the rise in greenhouse gas emissions. Global temperatures are still heading in the wrong direction and faster than ever before.

“Our analysis is designed to track the long-term trends caused by human activities. Observed temperatures are a product of this long-term trend modulated by shorter-term natural variations. Last year, when observed temperature records were broken, these natural factors were temporarily adding around 10% to the long-term warming.”

The warning comes as climate experts meet in Bonn to prepare the ground for the COP29 climate conference which takes place in November in Baku, Azerbaijan.

Although this was offset last year by the aerosol emissions from the Canadian wildfires, the report says the longer-term trend nonetheless indicates that the amount of cooling we can expect from aerosol emissions is continuing to decline.

The report warned the high rate of warming is caused by a combination of greenhouse gas emissions being consistently high, equivalent to 53 billion tonnes of CO2 per year, as well as ongoing improvements in air quality, which are reducing the strength of human-caused cooling from particles in the atmosphere.

High GHG emission levels are also affecting the Earth’s energy balance: ocean buoys and satellites are tracking unprecedented flows of heat into the Earth’s oceans, ice caps, soils and atmosphere. This flow of heat is 50% higher than its long-term average.

Forster added: “Fossil fuel emissions are around 70% of all GHG emissions and clearly the main driver of climate change, but other sources of pollution from cement production, farming and deforestation and cuts to the level of sulphur emissions are also contributing to warming.

“Rapidly reducing emissions of greenhouse gases towards net zero will limit the level of global warming we ultimately experience. At the same time, we need to build more resilient societies. The devastation wrought by wildfires, drought, flooding and heat waves the world saw in 2023 must not become the new normal.”

Whie risk managers may be looking elsewhere the report is another headache for insurers and reinsurers who will be looking at how they can create solutions for climate risks which are already reaching a near tipping point.

Jon Guy,

Editor, Emerging Risks