The Strategist

Europe's final wake-up call?

Europe is not adequately prepared for a worsening global warming. This is the conclusion of the European Environment Agency (EEA) in its first climate risk report. Europe has already experienced a significant increase in climate extremes, with more severe heatwaves, droughts and floods in recent years. This is likely to continue in the coming years as global warming increases. Southern Europe in particular will initially be much more affected than other regions. 

Cedric Baur, Equity Analyst, LGT Private Banking
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The Strategist Europe's wake up call
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The report identifies a total of 36 key climate risks in the areas of ecosystems, food, health, infrastructure and economy/finance. According to the report, 16 risks require additional efforts and eight require immediate and urgent action. These include risks to coastal and marine ecosystems, biodiversity, seed production, heat stress, wildfires, floods and financial solidarity mechanisms. 

Although there is a basic political understanding of global warming and preparation for potential risks, the measures taken are far from adequate, as sufficient adaptation measures have not yet been implemented.

Europe is warming more than the global average

2023 was the warmest year on record, at +1.48 °C above pre-industrial levels (1850-1900) and was already very close to the +1.5 °C target set by the global community in the 2015 Paris Agreement. Significantly warmer ocean temperatures in particular have contributed to the unusually warm air temperatures. Winter 23/24 was once again exceptionally warm. In general, different regions of the world are warming up at different rates. However, Europe is further ahead in this respect. If greenhouse gas emissions remain at high levels, the European continent could experience a warming of +3 °C by 2050, while the Earth as a whole is likely to warm by +1.5 °C by then. By the end of the century, Europe could even see +7 °C, if greenhouse gas emissions are not significantly reduced. 

More intense heat waves, droughts and floods will increase the risks to food security and drinking water supplies. Energy infrastructure is also likely to be adversely affected as blackouts become more likely. There are also risks to human health - for example, premature deaths from extreme heat in the record-breaking summer of 2022 have been estimated at around 60,000-70,000. Tropical diseases are also likely to become more prevalent as temperatures rise in European latitudes. There will also be a loss of biodiversity in fragile marine and terrestrial ecosystems. In general, climate change can trigger cascading processes, multiplying potential risks.

Economic development will not remain unaffected, as the above-mentioned risks are likely to be accompanied by rising damage costs and additional expenses in the future. On the one hand, this will be due to direct disaster relief and reconstruction measures, and on the other hand, more spending will be necessary to cushion the impact on socially disadvantaged population groups. The increase in extreme weather events is also likely to have a negative impact on companies' sales and productivity overall. In addition, and depending on the region, the capital stock may also suffer significant damage, which could have a lasting impact on economic growth. Moreover, companies may not even be directly affected, as risks can also materialise indirectly, for example through suppliers. 

More climate action and adaptation measures are crucially important

Europe must therefore continue to work on reducing its own emissions, but it must also address risk management for longer-term adaptation and resilience to global warming in a timely and much more comprehensive way than before. Strong coordination between Member States, including smart financing schemes, is essential. At the same time, it is important not to lose sight of social acceptability and to avoid social inequalities in response measures. It is also important to lobby internationally for comprehensive emission reductions, as global decarbonisation targets can only be achieved together with major emitters such as China, the US and India. The annual climate conferences provide an opportunity to do so.

A significant and accelerated expansion of renewable energy, for example, would be a lever for reducing Europe’s own emissions and ensuring future energy security. Similarly, the energy grid needs to be expanded and made more resilient in the face of increasing climate risks. Energy storage solutions will also be important to absorb overcapacity and smooth out the intermittency of renewable energy sources in the grid. Companies whose products and services enable climate action and are central to the transformation are likely to benefit in the long term. 

All in all, it is crucial that we take the necessary steps today and ask ourselves where we want to go in the future, otherwise we risk missing science's final wake-up call.

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