Connection between climate change problems and geopolitical risks | Insurance business America
“Impact will continue to evolve”
Risk management news
By Kenneth Araullo
The connection between climate change and political violence is complex, as climate change exacerbates the vulnerability of weak states and thereby increases political instability.
According to Alison Anglin (pictured above), Deputy Director of Terrorism and Political Violence, Crisis Management at WTW, the intersection of these factors requires a comprehensive understanding of the risks involved.
A 2020 report by the International Committee of the Red Cross highlighted that armed conflict has occurred in more than half of the 20 countries most affected by climate change, a trend that continues today.
“Climate change is exacerbating political unrest by upending internal and cross-border migration patterns,” Anglin said. “Central America, which has been decimated by multiple severe weather events in recent years, provides many examples.”
Severe weather events such as Hurricanes Eta and Iota have triggered abrupt waves of migration, while slow-onset crises such as deforestation, sea level rise and desertification are gradually undermining livelihoods and leading to food insecurity.
Anglin also noted that the Council on Foreign Relations has found a connection between reduced rainfall in Honduras and increased apprehensions at the U.S. border. In addition, there was a significant increase in deportations from the regions of Guatemala most affected by the 2020 hurricanes.
“As environmental degradation continues, populations will also migrate to urban areas in search of economic alternatives, particularly if those populations are poorer. This accelerates uncontrolled urbanization, which can lead to more violence, organized crime and social unrest,” she said.
By 2050, Central America’s urban population is expected to double, with many internal migrants living in urban slums.
Climate crisis strengthens violent actors
Climate-induced migration and state incompetence create opportunities for violent non-state actors (VNSAs), Anglin explained. Food, water and energy crises undermine the legitimacy of the state and enable VNSAs to fill power vacuums.
“Recent history provides several examples of how a state’s failure to provide essential services creates opportunities for VNSAs,” Anglin said. “In Syria, drought led to food insecurity in the late 2000s, paving the way for the protests that sparked the Syrian Civil War, says a 2022 Carnegie Endowment Report for Peace.”
VNSAs also often establish alternative governance systems and position themselves as protectors of local communities.
“These dire circumstances are hurting communities’ economic prospects and leaving them vulnerable to recruitment by violent extremist groups like Boko Haram, according to a report from the Carnegie Endowment.” These dynamics reflect a broader UN recognition that economic opportunities and not “Religious ideology is now the main reason people join extremist groups across Africa,” she said.
Problems with the energy transition
The shift to green energy poses new political risks, particularly for oil-rich countries that are struggling to diversify their economies. Anglin notes that authoritarian states that rely on oil revenues face challenges to their political legitimacy if they cannot maintain their living standards through economic diversification.
“This was the case in Algeria, where street demonstrations forced the resignation of the country’s leader, Abdelaziz Bouteflika, in 2019. In this case, protesters’ grievances were partly related to oil, which funded welfare benefits that boosted youth employment until prices plummeted, Atlantic Council research found,” she said.
A report from Verisk Maplecroft also noted that between the 2014 oil price collapse and the COVID-19 pandemic, most oil-producing countries failed to diversify significantly, and few reduced oil dependence by more than 5%. As demand shifts from oil to critical minerals essential to green energy, countries that have these resources face both opportunities and risks.
“While geopolitical risk is driven by overlapping factors, climate change is clearly a significant element whose impacts will continue to evolve. Not only climate change, but also the energy transition itself presents organizations with new, sometimes unexpected problems of political violence. “Organizations would be wise to understand how climate change could impact them – not just from a physical and operational perspective, but also through less obvious knock-on effects,” Anglin said.
Risk management for the PV industry
Given the systemic nature of climate-related risks, the insurance market has developed solutions to transfer these risks. Anglin said global political violence programs provide comprehensive insurance coverage and address potential gaps in local insurance policies.
“As the energy transition continues to bring new geopolitical risks, a comprehensive political violence program would cover organizations in regions with unforeseen, growing threats,” she said.
Organizations should also consider their exposure to civil unrest. Strikes, riots and civil unrest (SRCC) cover can help, as property insurance policies increasingly scrutinize their exposure to civil unrest.
“As resource nationalism increases and the transition to green energy reorients the distribution of resource-rich nations, companies with globally integrated supply chains will face new challenges,” Anglin said. “A relevant risk transfer solution is trade disruption insurance, which can compensate organizations for supply chain delays caused by several named political risks, including license revocation, expropriation and political violence.”
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2024-06-10 19:43:08
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