Connecting climate change issues to geopolitical risks

Connecting climate change issues to geopolitical risks | Insurance Business America

“Impacts will continue to evolve”

Connecting climate change issues to geopolitical risks

Risk Management News

Kenneth Araullo

The relationship between climate change and political violence is complex, with climate change exacerbating vulnerabilities in weak states, thereby increasing political instability.

According to Alison Anglin (pictured above), associate director – terrorism and political violence, crisis management at WTW, the intersection of these factors demands a comprehensive understanding of the associated risks.

A 2020 report by the International Committee of the Red Cross highlighted that over half of the 20 countries most vulnerable to climate change had experienced armed conflicts, a trend that persists today.

“Climate change aggravates political tumult by upending internal and cross-border migration patterns,” Anglin said. “Central America, which in recent years has been decimated by several severe weather events, provides many examples.”

Severe weather events, such as Hurricanes Eta and Iota, have triggered abrupt migration waves, while slow-onset crises like deforestation, sea-level rise, and desertification gradually undermine livelihoods and lead to food insecurity.

Anglin also noted that the Council on Foreign Relations found a link between reduced rainfall in Honduras and increased apprehensions at the US border. Additionally, there was a notable rise in deportations from Guatemala’s regions hardest hit by the 2020 hurricanes.

“As environmental degradation continues, populations will also migrate internally to urban areas in search of economic alternatives, particularly when those populations are poorer. This accelerates uncontrolled urbanization, which can lead to increased violence, organized crime and social unrest,” she said.

By 2050, the urban population in Central America is expected to double, with many internal migrants living in urban slums.

Climate crisis empowering violent actors

Climate-induced migration and state incapacity create opportunities for violent non-state actors (VNSAs), Anglin explained. Food, water, and energy crises undermine state legitimacy, allowing VNSAs to fill power vacuums.

“Recent history provides several examples of how a state’s failure to deliver basic services creates opportunity for VNSAs,” Anglin said. “In Syria in the late 2000s, drought led to food insecurity, which paved the way for the protests that triggered the Syrian civil war, according to a 2022 report by Carnegie Endowment report for Peace.”

VNSAs also often establish alternative governance systems, positioning themselves as protectors of local communities.

“These dire circumstances hinder communities’ economic prospects, making them vulnerable to recruitment by violent extremist groups such as Boko Haram, as shown by a Carnegie Endowment report. This dynamic reflects a broader UN finding that economic opportunity, not religious ideology, is now the primary reason people join extremist groups across Africa,” she said.

Troubles with the energy transition

The shift to green energy introduces new political risks, particularly for oil-rich nations that struggle to diversify their economies. Anglin notes that authoritarian states reliant on oil revenues face challenges to political legitimacy if they cannot maintain living standards through economic diversification.

“Such was the case in Algeria, where 2019 street demonstrations forced the resignation of the country’s leader, Abdelaziz Bouteflika. In this case, protesters’ grievances were partially related to oil, which funded social benefits that buoyed youth employment until prices crashed, as indicated by Atlantic Council research,” she said.

A Verisk Maplecroft report also noted that most oil-producing countries failed to diversify significantly between the 2014 oil price crash and the COVID-19 pandemic, with few reducing oil dependence by more than 5%. As demand shifts from oil to critical minerals essential for green energy, countries rich in these resources face both opportunities and risks.

“While geopolitical risk is determined by intersecting factors, climate change is clearly a significant element, with impacts that will continue to evolve. Not only climate change, but also the energy transition itself, pose new, sometimes unanticipated, political violence concerns to organizations. Organizations would be well-advised to understand how climate change could impact them – not just from a physical and operational perspective, but also via less obvious knock-on effects,” Anglin said.

Risk management for the PV sector

Given the systemic nature of climate-related risks, the insurance market has developed solutions to transfer these risks. Anglin said that global political violence programs offer comprehensive coverage, addressing potential gaps in local insurance policies.

“Furthermore, as the energy transition continues to spur new geopolitical risks, a comprehensive political violence program would cover organizations for regions with unforeseen, burgeoning hazards,” she said.

Organizations should also consider their exposure to civil unrest risk. Strikes Riots and Civil Commotion (SRCC) coverage can address this, with property insurance policies increasingly scrutinizing their civil unrest exposure.

“As resource nationalism proliferates, and as the green energy transition recalibrates the distribution of resource-rich nations, companies with globally integrated supply chains will face new challenges,” Anglin said. “One relevant risk transfer solution is trade disruption insurance, which can indemnify organizations for supply chain delays caused by several named political risk perils, including license cancelation, expropriation and political violence.”

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