Non-economic losses brought on by the effects of climate change must become a more central part of global plans to tackle the problem, a panel of experts said.
The economic losses from extreme climate events are a mounting burden for governments worldwide, however they are generally only limited to quantifiable damage, such as to property, infrastructure, tourism and agricultural production.
Greater emphasis should be placed on the intangible and non-tradable losses to people and society, as well as the environment, a panel of specialists in the field said at an event hosted by London Climate Week on Thursday.
Sandeep Chamling Rai, a senior advisor on climate adaptation at WWF International, told the conference that it was time to shift the spotlight when discussing environmental policies.
“We’re talking about loss of life, health, human mobility, the loss of cultural heritage and of course the damage to biodiversity and ecosystem services”, he said.
“They’re not easy to quantify but they’re very important and should be factored into any solutions".
The UN estimates that climate change could drive an additional 100 million people into poverty by 2030. Extreme weather events, including drought, desertification and rising sea-level already cause more than 20 million people to leave their homes each year.
While it is hard to quantify the non-economic losses I can assure you that they are just as important as the economic ones
Afsari Begum,
Practical Action Bangladesh
In March this year the United Nations established its first expert group on non-economic losses in a bid to raise awareness and collect available data on the issue. The environmental arm of the UN also warned that developing countries were facing adaptation costs of of up to $500 billion annually by 2050.
Adaptation is the reduction of communities' vulnerability to climate change through the increase in their ability to absorb the impacts.
Nature-based solutions - the use of the natural world to mitigate effects of climate change – have become increasingly popular and will be at the forefront of the Cop26 climate summit in Glasgow in November.
The term also encompasses broad land use policies. In the UK, these are mainly concentrated on reforestation, new woodland planting and sustainable agriculture.
However, the panellists warned there is a risk that vulnerable and important segments of society may miss out on the benefits of any climate reversal plans if non-economic losses aren’t adequately factored in. These include the loss of cultural heritage sites as well as important knowledge and understanding of local ecosystems.
In Bangladesh, a country highly vulnerable to the effects of climate change, locals who only a few years ago were cultivating and living off their own fruit and vegetables have now been forced off their land, drastically changing their way of living, said Afsari Begum of Practical Action Bangladesh.
“While it is hard to quantify the non-economic losses I can assure you that they are just as important as the economic losses,” said Ms Begum, who works with coastal communities in Bangladesh. “We need to pay the people who are already paying a high price.”
The issue of non-economic losses (NEL) is also relevant in the context of claiming damages and insurance.
“We need to look at NEL from a responsibility point of view and not just a liability and insurance point of view because it isn’t enough to just look at it that way,” said Mr Rai.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
If you go…
Emirates launched a new daily service to Mexico City this week, flying via Barcelona from Dh3,995.
Emirati citizens are among 67 nationalities who do not require a visa to Mexico. Entry is granted on arrival for stays of up to 180 days.
