The climate is changing and with these changes come risks. Risks that factories and homes will be destroyed by flooding, droughts will result in lost crops, sea levels will consume the homes of many humans and species, and many other possible outcomes. Given the potential losses due to climate change and severity of these events, something must be done to prevent further climate change. Risk management is a tool which helps individuals, communities, corporations, and governments to understand the implications that climate change has on the future and how each person will experience the negative consequences of these changes.
One way to asses risk is to analyze the impacts of exposure and probability of an event occurring. In the case of climate change, exposure and vulnerability greatly vary depending on the region and society involved. Measuring exposure involves analyzing how much a community, country, or world has to lose if the climate continues to change. Events such as droughts, rising temperatures, rising sea levels, and other climate-related disasters all impact a communities ability to produce goods and shelter for the people living in the area and those who rely on the resources provided.
After analyzing potential risks, the next step in risk management is examining how to manage these risks. One option would be to avoid the risk altogether; however, humans have already been depleting the earth’s fossil fuels, emitting carbon, and interacting harmfully with the environment for many years. Thus, we cannot avoid climate change because it is already happening. Another option is to transfer or share in this risk; however, the whole world is affected by climate change, and no outside party has the ability to take on the risk of climate change. Thirdly, one could accept the risk, but this option would allow for negative outcomes such as rising sea levels, droughts, and other disasters to continue to become bigger and more frequent due to the negative interactions between humans and the environment. As a result, simply accepting the risk of climate change creates a bigger risk. Through approaching the risk of climate change by working to reduce the probability and impacts of negative climate change, human beings can work to reduce the economic and ecological costs of climate related disasters.
As sea levels rise and ocean waters warm, species who depend on these ecosystems for food and shelter will suffer. Likewise, people who depend on these ecosystems for food or income (such as fishing) will feel the negative impacts of climate change. Additionally, the species and humans who live in coastal areas face the risk of rising sea levels overtaking their homes and habitats. Here, we see the large exposure humans and animals have to the risk of ocean change. Once this impact has been analyzed, we see how climate change affects the world here and now because both depend on the environment to survive. Unless communities and humanity at large work to lessen human interaction (such as living) along delicate areas such as coast lines, then we are only increasing the probability of climate change.
Munich Re, one of the world’s largest reinsurance companies, uses risk management to work to prevent negative climate change, and they encourage others to do the same. With insurance contracts all over the world, Munich Re understands how they are exposed to a large amount of the climate interruptions resulting from climate change. Once Munich Re began to understand the magnitude of their exposure to the negative consequences of climate change, they established a program called RENT (Renewable Energy and New Technology) which works to develop – and insure- new energy technologies which do not rely on fossil fuels. When new technologies or projects are created, those projects need insurance and warranty coverage in order for investors to manage the risk of a potential downfall; however, with limited loss data on these new technologies, insurance companies may hesitate to work with such technologies. Nevertheless, Munich Re has taken an active role in working with energy companies to provide insurance and warranty coverage so that potential investors have a backing on their investments. By providing such warranties and insurance options, Munich Re allows for energy companies -and investors- to create new technologies such as solar and wind energy. In doing so, Munich Re has recognized their exposure to the negative consequences of climate change and has begun to work to lower the probability of a disaster by developing and investing in energy that would reduce carbon emissions and not deplete the earth’s finite source of fossil fuels.