2021•01•25 Bonn, Germany
It is widely established that it makes sense to invest in risk prevention. Loss of life and economic damage can be prevented if disaster situations are avoided, or if their effects are reduced. However, it appears that societies at large are risk-takers, especially when it comes to rare and high-impact events. Risk management and prevention are often not a priority for us, neither at the individual level, nor for households, enterprises and governments. This is a problem especially for disadvantaged groups as
their specific needs tend to be overlooked in disaster situations.
Shifting the paradigm towards managing risks preemptively, instead of post-disaster action, requires a deeper understanding of risks and risk analysis. From a development perspective, there is a need to advocate for risk analysis and analytical capacities at various levels engaged in adaptation planning, specifically in less developed countries. Moreover, risk modelling is a crucial enabling condition for employing risk management activities. Insurance, for example, requires the ability to define different types of risk and calculate how much damage can be expected. Thus, data-deprived parts of the world often lack access to more advanced risk management options. Bringing together public and private partners is therefore essential to address this issue. The Insurance Development Forum (IDF) published a report last autumn that highlights the importance of partnerships for this specific policy challenge.
Climate change creates cascading risks in ecosystems, the economy and societies, with disproportional impacts on vulnerable populations. This means, for example, when a hurricane destroys infrastructure, the impacts ripple beyond the immediate damage, straining employment, tourism and livelihoods of a larger population and not just those living in the hurricane-affected area. Addressing climate risks in a way that is meaningful to decision-makers is a major challenge. Shifting to a proactive approach in managing climate change risks requires an increasing level of objectivity in the analysis of risks for multiple sectors. An evidence base strengthened as such fosters transparency and enables consensus in developing climate adaptation measures. The quantification of climate risk is necessary in defining the balance between risk reduction, risk retention and risk transfer solutions. For instance, it is important to know the likelihood and magnitude with which floods may impact specific locations in the future. It helps to accurately plan adaptation measures and it allows identifying when risk transfer is beneficial.
Yet, such a quantitative approach to risk management depends largely on data availability. Addressing risk for the vulnerable is often challenged by data limitations, both in quality and quantity. To access the best possible data, stakeholder engagement is essential. Governments, communities, academia and the private sector need to be involved at an early stage.
Climate change challenges the very way we understand risk. Nassim Nicholas Taleb, author of the “The Black Swan: The Impact of the Highly Improbable” in 2007 famously coined the concept of Black Swan events: events that have wide-spreading or extreme impacts, and that can only be explained in retrospect. Similar to these, climate change might very likely bring Green Swan events, which are characterized by deep uncertainty, non-linear risk relationships and wide-spread events that are not reflected in historical data. This calls for a dual approach in climate risk analytics:
Firstly, to make a dedicated push in risk analytics to overcome data scarcity (manage the known unknowns of climate change). In doing so, we can reach communities currently deprived of risk information. With this information, it is possible to start fact-based risk management approaches.
Secondly, to better communicate on uncertainties and limitations of risk assessments and to include different scenarios that actively promote resilience capacities. Additional triangulation of quantitative and qualitative risk perspectives will also equip communities to further manage the unknown unknowns of climate change.
Managing Green Swans accentuates the need for deeper transformations as part of a risk management lens. Though the exact shape of Green Swans cannot be fully predicted, it is certain that climate change will bring new risk realities which will affect entire populations and countries at large. A better informed management of risk is paramount to addressing challenges ahead. It can only succeed when all actors, private and public, communities and academia, are invited to participate in climate action.
Today, January 25th, heads of states, leaders from business, international organizations and civil society groups are meeting for the world’s first online Climate Adaptation Summit (CAS). The aim is to establish an action-propelling framework up to the year 2030 – identifying trends, hurdles and opportunities for large scale adaptation action, organizing ministerial-level dialogues as well as catalyzing partnerships. It is instrumental that improving climate risk understanding will be a priority of the summit outcomes, and specific partnerships are formed to advance climate risk analytics.
MCII, as well as its host organization UNU-EHS, are advancing the Economics of Climate Adaptation (ECA) Framework. The ECA framework makes state-of-the art risk models available to decision-makers, jointly identifies risk assumptions, and affirms collective risk management and adaptation choices. Both organizations will continue fostering this innovative framework by showcasing its unique ability to increase risk literacy, risk understanding and risk financing especially in developing countries. To this end we will engage with stakeholders, initiatives and campaigns coming from the Climate Adaptation Summit in the following weeks and months.