Climate disasters are having ‘cascading effect’ on global supply chains: Meteorologist

Aon Head of Catastrophe Insights and Meteorologist Steve Bowen joins Yahoo Finance Live to discuss the impacts from climate change-related weather events, how businesses are adapting, and high insurance penetration.

Video Transcript

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- 2021 marked one of the hottest years on record. And a new report from risk analysis firm Aon finds the total cost of climate-related natural disasters last year exceeded $343 billion. That is the third costliest year on record. Now, all eyes are on what's in store for 2022.

Let's bring in Steve Bowen. He's meteorologist and Aon head of catastrophe insights. You know, Steve, it's scary to think that-- you know, we saw-- everything we saw last year, all sort of predictions here, forecasts seem to suggest that things are only going to get worse. What does what we saw in 2021 point to in terms of this new reality businesses are going to have to deal with?

STEVE BOWEN: Sure. So first of all, thank you for having me today. What we've continued to see over the course of years, decades at this point, is an acceleration of disaster losses from these larger-scale, more impactful events. And what we're really seeing from a business standpoint is that it's not just the physical location as to where events are occurring that's leading to disruption to businesses and their outputs, it's that it's having this sort of domino effect, this cascading effect around the world, where it's affecting supply chain, it's affecting any type of manufacturing deliverables.

And so companies are really having to keep an eye open around the world, in terms of these larger-scale events. And it's not just weather and climate events. It's also earthquakes, tsunamis. All can lead to significant disruption in allowing companies to be able to deliver product to get on the shelves for the end consumer. So having to take a step back and recognizing that it's not just the direct impacts that may be affecting the bottom line, but it's also these secondary and tertiary effects, as well, that lead to some really, really non-negligible dollar losses.

- So how has this shifted the expectation for businesses, number one, on mitigation, but also in setting aside the funds in the expectation of some impact from these disasters?

STEVE BOWEN: Well, there's never been a more important time to really seize upon public/private partnerships, really working with governmental bodies to understand that we really need critical investment of infrastructure to make sure that we're not building to meet the climate of yesterday. We know that climate events are-- or climate change is enhancing the weather events that are occurring today. And that's happening in conjunction with just a lot of development into high-risk areas that we know are likely going to be facing various types of weather-related risk.

So spending money wisely on infrastructure-- it's more of an investment-- is really going to end up saving a lot of money down the line. So what we're doing today is really going to be beneficial to down the line, and hopefully saving a lot of potential dollar losses as these inevitable events occur more frequently with time.

- How will this alter regional economies? If you have businesses that are having to continue to navigate some of these climate and climate-driven disasters, quite frankly, you know, how does that change the makeup of those economies in certain cities, and what does that look like for even the potential for some of those businesses to say, hey, you know what, we're going to try and move somewhere else, at least for the time being?

STEVE BOWEN: It's a huge challenge, and we certainly have seen a lot of shifts. A lot of companies are having to take full stock of where their portfolios are located after a big event. And oftentimes, it's a series of events. We have a lot of areas that are what we call repetitive loss locations. So this is really causing a real reanalysis of the overall level of risk that companies are able to withstand, what they're comfortable, you know, facing.

So, you know, I think we're really having to take a step back and see more working along the lines of working with the governmental bodies to fully understand the risk, making funds available-- there's a lot of countries around the world that don't have, say, you know, high insurance penetration to be making funds available to help companies and help people get back on their feet in the aftermath of some of these larger-scale events. And what we saw, frankly, in Tonga with the recent volcano is a great example of really needing international support to come in and help people get back on their feet after a really significant natural peril event.

- Steve, certainly a lot of businesses bracing for updated regulations on disclosure rules around the climate impact. They've been facing a lot of pressure from investors, as well. How do you think that's going to accelerate the investments that are needed, once again, on mitigation, especially, given that things haven't moved as quickly here in the US when you compare it to a place like Europe?

STEVE BOWEN: It hasn't moved as quickly, but there's definitely momentum. We're starting to see states like New York, California, even Vermont that are starting to require more of these types of climate-related disclosures. We're seeing a lot of rating agencies starting to talk about we're going to start scoring individual companies on how much they're taking climate change into account, more of their ESG, their environmental, social, and governance topics into account on their day-to-day business planning.

So this is something that's not going to go away, as we continue to see more of these regulatory bodies, not just internationally, but here, as well, in the United States, really force companies to put some type of mandate together to highlight what they're doing to diversify their portfolio, to wean off fossil fuels, or more importantly, just take climate change into account and have a plan. I think we're going to see more and more of that in the future. And as you mentioned, investors, we're certainly seeing more of the activist investor come to the table, as well, really starting to promote and push more of these types of fundamental structural changes at the corporate level.

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