COVID-19 highlights the need to strengthen environmental risk management across Asia
by Aziz Durrani and Ulrich Volz, ADB Institute
Like the rest of the world, Asia has been hit hard by the COVID-19 crisis. While some countries have been able to contain the spread of the virus relatively well, the disruption of supply chains, sharp decline in global demand, and the large-scale withdrawal of capital have led to severe economic contractions across the region.
The COVID-19 crisis has illustrated in dramatic ways the vulnerability of our societies and economies. It has also laid barehe failure of individual countries and the international community at large to adequately prepare for pandemic risks, despite previous outbreaks, such as the Severe Acute Respiratory Syndrome (SARS) pandemic in 2002–2003 and the H1N1 influenza pandemic in 2009, and repeated warnings by virologists about the risks of even worse outbreaks.
When building back our economies after the crisis, we need to make them more resilient—not only to better withstand future pandemics but also to increase resilience against the other great threat scientists have been warning us about for long—climate change. We need to strengthen resilience and mitigate disaster risk by systematically developing and implementing policies, strategies, and practices to minimize vulnerabilities throughout society.
The financial sector will have to play a central role in this. Managing risk is one of the key functions of finance. Financial institutions need to develop their ability to better assess climate-related financial risks, including physical risks and transition risks. The frequency and intensity of climate-related disasters have grown markedly over the last decades, and parts of Asia are among the most affected regions. As shown in Figure 1, climate-related disasters in Asia have led to significant losses. Financial institutions across Asia will need to grow their capacity to analyze the effects of acute physical risks. These include risks that are event-driven, including extreme weather events, such as typhoons, floods, or heatwaves, and chronic physical risks, such as rising sea levels and temperature increases that are due to longer-term shifts in climate patterns. Moreover, financial institutions will have to account for transition risks related to a move to a lower-carbon economy, including changes in policy, technology, and consumer preferences.
Figure 1: Overall and Insured Losses for Relevant Weather-Related Loss Events in Asia, 1980–2018
The current crisis presents us with a unique opportunity to rethink our economic and financial models and priorities. While supporting economic recoveries, Asian monetary and financial authorities need to continue to scale-up their efforts to align the financial system with sustainability.
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