The article was originally published as part of the Milken Institute Power of Ideas article series.
The recent bouts of severe heatwaves and wildfires across the US and Europe were a stark reminder of the very tangible impact of rising temperatures on our living environment. But the reality is that extreme weather events are not new phenomena.
Data from the World Meteorological Organization showed that the period between 2015 and 2021 saw the seven hottest years in history. The threat of such events extends beyond simple inconveniences. Over 2,000 deaths were recorded during the recent heatwaves in Europe, while wildfires devastated local communities.
A study by insurance firm Munich RE found that 2021 recorded one of the highest levels of financial losses associated with natural disasters. Last year’s summer flash floods in Europe were the continent’s costliest natural disasters to date.
As the climate crisis takes an increasing toll on the world, there is a growing need to address physical risks. Investors will need to analyse and account for them as they assess the impact of climate change on their portfolio.